BEFORE THE OFFICE OF THE SECRETARY U.S. DEPARTMENT OF TRAN S PORTATION

WASHINGTON D

. C

.

________________________________ _____ _____ ) Joint Application of ) ) UNITED AIRLINES, INC. and ) Docket DOT
- OST
- 2014
- 0100 SKYWEST AIRLINES, INC. ) and ) Docket DOT
- OST
- 2014
- 0101 f or exemption pursuant to 49 U.S.C § 40109 and ) designations (Houston

- Puerto Vallarta (PVR) and ) Houston

- San Jose del Cabo (SJD), Mexico) )

_____________________________________ _____ )

ANSWER OF SOUTHWEST AIRLINES CO

.
Communications 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

June 24 , 20141 BEFORE THE OFFICE OF THE SECRETARY U.S. DEPARTMENT OF TRAN S PORTATION

WASHINGTON D

. C

.

________________________________ _____ _____ ) Joint Application of ) ) UNITED AIRLINES, INC. and ) Docket DOT
- OST
- 2014
- 0100 SKYWEST AIRLINES, INC. ) and ) Docket DOT
- OST
- 2014
- 0101 f or exemption pursuant to 49 U.S.C § 40109 and ) designations (Houston

- Puerto Vallarta (PVR) and ) Houston

- San Jose del Cabo (SJD), Mexico) )

_____________________________________ _____ )

AN SWER OF SOUTHWEST AIRLINES CO

.

On June 9 , 2014, United Airlines and SkyWest Airlines (d/b/a United Express) (the “Joint Applicants”) filed an application , pursuant to 49 U.S.C. § 40109 and Subpart C of the Department’s Rules of Practice , for an exemption from 49 U.S.C. § 41101 authorizing SkyWest to provide scheduled foreign air transportation on a seasonal basis

between Houston (IAH) , on the one hand, and Puerto Vallarta ( PVD ) and San Jose del Cabo (SJD) , Mexico on the other hand, beginni ng on or about November 1 , 2014. SkyWest proposes to operate the IAH

- PVR/SJD flights under the United Express brand pursuant to a capacity purchase agreement with United.
Under the terms of the U.S.

– Mexico Air Transport Services Agreement (“U.S.

– Mexico Agreement”), as amended, the United States may designate up to three airlines to provide scheduled service on each of th ese routes . United and its partner carrier , Expre ssJet (d/b/a United Express) , currently hold two of the three available U.S. carrier designations on each route

. In its application, United proposes to substitute SkyWest’s2

United Express service for the United branded service that ExpressJet currently provides on these routes. However, judging from the Joint Application, the timing of ExpressJet’s return of the designations is not entirely clear and solely within United’s

discretion. United concedes, in a footnote, th at “ ExpressJet will retain its operating designations until the Department has taken action on the Joint Application, the Joint Applicants have begun providing the service requested herein, and ExpressJet has given notice to the Department that its operati ng designations are no longer required.” 1
Thus, United appears to contemplate that it will hold or control all three designations for an unspecified period of time . And, e ven assuming ExpressJet relinquishes its designations, United will continue to control two designations on both routes. Southwest does not oppose the grant of the Joint Application at this time, as Southwest is not currently seeking authority to serve the Houston

- PVR or Houston

- SJD

markets . However Southwest is likely to do so with in the next year so that it can initiate service once the new international terminal at Houston Hobby Airport is completed

. 2

Therefore , for the reasons detailed below, Southwest urges the Department to put the Joint Applicants on notice that if either of the markets are fully subscribed, one of their

authorit ies and corresponding U.S. carrier designations are subject to being rescinded if Southwest were to actively seek competing authority to serve the Houston

- PVR and /or

Houston

- SJD markets.

1 Joint Application, p. 3, n. 4. 2 Construction of an international terminal at Houston Hobby , which will enable Southwest to offer a broad range of competitive U.S. carrier services from Houston to points in Mexico as well as destinations in the Caribbean and South America , is well underway . The facility is projected to open in the fourth quarter of 2015.3

Southwest believes that the governing principle should be that no single U.S.

carrier is permitted to occupy or control more than one designation in U.S.

- Mexico city

pair markets when doing so would block the entry of another U.S. carrier on that route.

To a llow one carrier to control two or more designations under those circumstances

would be plainly anti

- competitive, as it would block a new entrant carrier from competing on that route. The Department has many times recognized the public benefit s generated from competition by new entrant carriers on limited

- designation routes , particularly to Mexico. 3
Moreover, to allow a single carrier to control two or more designations in a U

. S

. -
Mexico market would undermine the route rights that the United States fought long and

hard to achieve in negotiations with the Mexican government . Despite the fact that

Mexico is the United States’ third largest trading partner , 4 the current bilateral agreement is highly restrictive and severely limits competition and service from U.S.

carriers

. Southwest is aware that the two governments are currently engaged in talks to
consider, inter alia , a liberalization of the limits on carrier designations for both countries. We hope these talks succeed in eliminating or at least increasing the current
U.S.

- Mexico designation limits, so that Southwest’s concern with the Joint Application will cease to exist. However, at the present time there is no assurance that such a
result will be achieved, at least in the near term , and th us the concern remains.

3 See, e.g. , Order 2005

- 05

- 01 (Los Angeles

- Mexico City Combination Service Proceeding) , May 1, 2005, Docket OST

- 2005

- 20406, where the Department selected Alaska Airlines due, in part, to its new entrant status that produced greater public ben efits than airlines with existing code

- share relationships in the market. Similarly, the Department selected Alaska over Continental and American, in part, due to the greater public benefits that would result from its new entrant status, Los Angeles

- San Jose del Cabo Exemption Proceeding , Docket OST

- 2000

- 8361 (Order 2001

- 1

- 11). 4 U.S. Census Bureau, statistics for 2014 year

- to

- date, available at : http://www.census.gov/foreign

trade/statistics/highlights/top/top1402yr.html

.4

Therefore, we request that the Department make clear in its grant of the Joint Application that the exemption s and designation s requested by United/SkyW est are subject to being rescinded if another U.S. carrier files an applicati on to provide competing servi ce with its own aircraft on those route s and no designations are

available

. Southwest’s request is in fact entirely consistent with the Department’s longstanding policy to promote competition on limited

- entry U.S.

- Mexico rou tes.
Earlier this year, the Department addressed a similar issue when United and SkyWest filed a joint application for the second of two available designations in the IAH

- Leon (BXJ) market. Southwest answered that application in a similar manner as here. DOT granted the j oint a pplication but stated that : should a competing U.S. carrier present a firm proposal to provide scheduled Houston

- Leon/Guanajuato service, we would be prepared to reco nsider whether, in those circumstances, award of the authority granted here continues to be in the public interest. 5
The Department made similar findings in 2005 when United and Frontier raised concerns that Delta’s regional partner ASA was applying for the second (and final) U.S. carrier designation on the Salt Lake City

– San Jose del Cabo, Mexico route 6 and in a

200 4 proceeding where America West and its code

- sh are affiliate Mesa Airlines held the two available exemption authorities to serve the Phoenix

- Puerto Vallarta/San Jose
del Cabo markets. 7 Southwest requests that the Department take a similar pro competitive approach in the Houston

– PVR and SJD market s t hat are at issue in this proceeding , putting the Joint Applicants on notice that the authority granted may no

5 Notice of Action Taken , May 27, 2014 ( Docket s DOT

- OST

- 2014

- 0058 and DOT

- OST

- 2014

- 0059), at 2. 6 Notice of Action Taken , May 11, 2005 (Docket OST

- 2005

- 20927), at 3. 7 Notice of Action Taken , February 13, 2004 (Docket OST

- 2003

- 16444), at 3

- 4

.5

longer “be in the public interest” if another U.S. carrier seeks to provide competing

service in either market with its own aircraft

. Respectfully submitted,

______________________ Robert W. Kneisley

June 24 , 201 46 C ERTIFICATE OF SERVIC E I hereby certify that on June 24 , 201 4 , a copy of the foregoing was served via e

mail on the following persons:
msinick@ssd.com howard.kass@aa.com bob.wirick@aa.com sascha.vanderbellen@delta.com sametta.c.barnett@delta.com chris.walker@delta.com robert.cohn@hoganlovells.com patrick.rizzi@hoganlovells.com jhill@cooley.c om perkmann@cooley.com dkirstein@yklaw.com jyoung@yklaw.com thomas.ting@suncountry.com dan.weiss@united.com gmurphy@crowell.com sseiden@crowell.com temerson@skywest.com pmurphy@lopmurphy.com john.varley@virginamerica.com anita.mosner@hklaw.com jennifer.nowak@hklaw.com dwight.moore@transcom.mil paul.gretch@dot.gov brian.hedberg@dot.gov brett.kruger@dot.gov reese.davidson@dot.gov urskr@state.gov john.s.duncan@faa.gov
info@airlineinfo.com

__________________________ Leslie C. Abbott