BEFORE THE

DEPARTMENT OF TRANSPORTATION WASHINGTON, D.C.

________________________________________________ ) Application of ) )

VIRGIN AMERICA INC. ) ) Docket No. OST

- 2010

-

_____ for an exemption under 49 U.S.C. § 40109 to provide )

forei gn scheduled air transportation of persons, property )

and mail between the United States and Mexico ) ( San Francisco

– Cancun, Mexico)

. ) )

APPLICATION OF VIRGIN AMERICA INC.

FOR AN EXEMPTION AND DES IGNATION

TO PROVIDE FOREIGN SCHEDULED AIR TRANSPORTATION

Communications with respect to this document should be sent to:

Barbara Russell

Associate General Counsel Virgin America Inc. 555 Airport Blvd., Second Floor Burlingame, CA 94010 (650) 762

- 7 39 4 (phone) (650) 762

- 7004 (fax) barbara.russell@virginamerica.com

June 29 , 2010

Notice : Any person who wishes to support or oppose this Application may do so by: (1) filing

an answer by July 14 , 2010 ; and (2) serving that answer on the person(s) listed above and all persons served with a copy of this Applicat ion.1 BEFORE THE

DEPARTMENT OF TRANSPORTATION WASHINGTON, D.C.

________________________________________________ ) Application of ) )

VIRGIN AMERICA INC. ) ) Docket No. OST

- 2010

-

_____ for an exemption under 49 U.S.C. § 40109 to provide ) foreign scheduled air transportation of persons, property )

and mail between the United States and Mexico ) (San Francisco

– Cancun, Mexico). ) )

APPLICATION OF VIRGIN AMERICA INC.

FOR AN EXEMPTION AND DESIGNATION

TO PROVIDE FOREIGN SCHEDULED AIR TRANSPORTATION

Virgin America Inc. (“Virgin America”), pursuant to 49 U.S.C. § 40109 and Subpart C of

the Department’s Rules of Practice (14 C.F.R. Part 302), hereby applies for an exemption from

49 U.S.C. § 41101 and designation under the U.S.

– Mexico Transport Agreement 1

In support of this application, Virgin America states as follows: authorizing it

to provide scheduled combination service in foreign air transportati on of persons, property and

mail between San Francisco , California, on the one hand, and Cancun, Mexico (“ SFO

– C U N”),

on the other hand, as more fully described below

. Virgin America respectfully requests this

authority be effective immediately and is re ady, willing and able to commence service

.

1. Virgin America is a Delaware corporation in good standing with its principal

place of business at 555 Airport Boul evard, Burlingame, California.

1 Air Transport Services Agreement, with schedule, between the United States and Mexico (Aug. 15, 1960), as

amended and extended.2 2. Vi rgin America is a citizen of the United States as defined in 49 U.S.C. §

40 102(a)(15) and has been found fi t to provide scheduled interstate air transportation of persons,

property and mail. See Order s 2007

- 5

- 11 and 2007

- 8

- 17 ; and L etter from Susan L. Kur land,

DOT Assistant Secretary for Aviation and International Affairs, to Virgin America Inc. in

Docket OST

- 2005

- 23307 (determining that Virgin America remains a citizen of the United

States) (Jan. 8, 2010)

. Virgin America is also authorized to provide sch edule d foreign air

transportation between the U.S. and Canada. See

3. Virgin America currently provides daily scheduled interstate air transportation

between: (i) San Francisco and the f ollowing cities: Boston, New York, Washington, D.C.

(Dulles), Ft. Lauderdale, Seattle, Los Angeles, San Diego and Las Vegas; and (ii) Los Angeles

and the following cities: Boston, New York, Washington, D.C. (Dulles), Ft. Lauderdale

, and

Seattle. Virgin America also currently provides schedules foreign air transportation between San

Francisco and Los Angeles, on the one hand, and Toronto, Canada, on the other hand. Notice of Action Taken (“NOAT”) in Docket

OST

- 2010

- 0068 (Apr. 2, 2010).

4. Virgin America will initially provide service on the SFO

— CUN route with three

(3) roundtrip flights per week , and will utilize mo dern, fuel efficient Airbus A319 aircraft with

119 seats in a two cabin configuration (8F and 111 Y passengers).

5. Virgin America is fit to conduct this proposed foreign air transportation. As the

Department found

, in gr anting Virgin America authority to serve th e airline’s first foreign

market, Toronto, Canada :

By Orders 2007

- 5

- 11 and 2007

- 8

- 17, we found Virgin America fit, willing, and able to conduct interstate scheduled air transportation of persons, property, and mai l. The foreign air transportation services authorized here are not markedly different in terms of aircraft size or stage length from the carrier’s current operations under its existing authority. We, therefore, find that Virgin America is qualified to pr ovide the proposed air transportation for the period covered by the exemption.3 NOAT in Docket OST

- 2005

- 23307, supra

.

6. Currently, one U.S. air carrier, United Air Lines, Inc. (United)

, is designated to

operate scheduled combination service in foreign air t ransportation of persons, property, and

mail on the SFO

– C U N route with its own aircraft. 2

7. Grant of Virgin America’s application is consistent with the U.S.

- Mexico

Transport Agreement as well as the Department’s statutory mandate to provide maximum

reliance on competitive market forces, encourage entry into new markets, and promote low fare

options for the traveling and shipping public, under 49 U.S.C. § 40101. Additionally, grant of

the requested authority to Virgin America is consistent with the Department’s stated policy in

previous route proceedings under the U.S.

- Mexico Transport Agreement of fostering new

- entrant

competition. As the Department stated in 2006 when it awarded Frontie r Airlines Los Angeles

San Jose del Cabo exemption authority, over the objections of Delta Air Lines: As a result of the 2005 Amendment to the

U.S.

- Mexico Transport Agreement, up to three U.S. air carriers may be designated to provide

scheduled combination service on the route with their own aircraft. Virgin America therefore

requests that it be designated and awarded exemption authority to provide the requested service.

Frontier’s new

- entrant service in the Los Angeles

- Mexico and the West Coast

- Mexico markets will provide for important new U.S. carrier service in those ma rkets, and bring new competition not only to the U.S. carriers currently serving the subject markets (including Delta, itself), but also to the foreign carriers serving the markets

-- benefits

that would not be available if we were to select Delta in this case.

* * *

Thus, in selecting a U.S. carrier to serve these important limited designation points, we have, as a matter of policy, considered the enhancement of U.S. carrier competition to be a strong carrier selection criterion. . . . We have previously stated that “the addition of a new competitor in a market or geographical area which is subject to substantial concentration of service by a limited number of carriers, can significantly increase the competitive benefits to the traveling and sh ipping public.”

2 United currently provides such service on a seasonal basis.4 Order 2006

- 9

- 8 at 17

- 18.

Moreover, as the Department also stated when selecting JetBlue over Delta for an award

of New York

– Cancun service in 2006:

[T]he Department has consistently found that new entry is a significant c arrier selection factor because it provides consumers with new service options and incumbents with new incentives to provide consumers with service that meets their needs. . . . [W]e look to see which applicant will most likely enhance competition, either in the primary route market or in a broader market. As Delta already serves the U.S.

- Mexico market, and, more specifically, the New York

- Mexico market and the U.S.

- Cancun market, while JetBlue now serves none of these markets, we find on balance that a se lection of JetBlue in this case would better advance competition than would a selection of Delta.

Order 2006

- 9

- 8 at 11

- 12.

Furthermore, as the Department noted when awarding Los Angeles

- San Jose del Cabo

authority to American over United in 2000:

[S]ele ction of American would help ensure that the limited competitive opportunities

under the U.S.

- Mexico aviation agreement are fully used, providing the broadest range of carrier services and choice in the Los Angeles

- San Jose del Cabo market, benefits not

av ailable under United’s proposal.

Order 2000

- 11

- 23 at 6.

8. Virgin America’s proposed SFO

– C U N service will add 37,000 annual seats to

the market, and is projected to grow demand for travel between San Francisco and Cancun by as

much as 12 %, or a n increase of nearly 11,000 local passengers annually (about 15 passengers per

day each way).

9. Virgin America’s entry into new markets has had a demonstrable impact on

average fares. By way of example, Virgin America’s entry into the following markets result ed in

sig nificant reductions in the average fares in those markets: 3

3 U.S. DOT Origin & Destination Survey, via APGDat www.apgdat.com.5 Market Average Fare Reduction Period

LAX

- JFK

- 31 percent 2Q 09 v. 2007

SFO

- JFK

- 31 percent 2Q 09 v. 2007

LAX

- IAD

- 23 percent 2Q 09 v. 2007

SFO

- IAD

- 32 percent 2Q 09 v. 2007

LAX

- BOS

- 29 percent 4Q 09 v. 4Q 08

SFO

- BOS

- 23 percent 4Q 09 v. 4Q 08

10. Virgin America’s proposed service will also offer increased benefits in the SFO

market, the airline’s home base, in particular, where Virgin America currently offers more than

30 flights each day to nine (9) domestic and international destinations, and where Virgin

America continues to expand with plans to grow its fleet to 44 aircraft by next year.

11. Virgin America hereby incorporates by reference all data previously filed with the

Department to establish Virgin America’s fitness, and respectfully requests the Department take

notice of such data , including particularly data filed in Docket Nos. 2005

- 23307 and 2010

- 0068

,

pursuant to Rule 24 of the Department’s Rules of Practice when evaluating Virgin America’s

fitness to operate the proposed service.

12. Virgin America requests authority to combine the exemption sought herein with

all of Virgin America’s existing economic authority, consistent with all applicable international

air transpo rt agreements.

13. Virgin America accepts and will comply with the Department’s standard terms

and conditions imposed on exemption authority for scheduled foreign air transportation.

14. Virgin America ’s application for an exemption poses no environmental or ener g y

issues . Approval of this application will not result in a near

- term increase in fuel consumption of

10 million gallons or more. Virgin America will operate these routes with Stage 3 compliant

aircraft that are configured to carry 11 9 passengers

.6 15. The ad dition of Virgin America’s well

- known and well

- received, high quality

operations to and from Mexico will provide additional competition, market development and

high quality service to the traveling and shipping public in the U.S.

- Mexico market.7 WHEREFORE, for the for egoing reasons, Virgin America Inc. respectfully requests that

the Department grant it an exemption from 49 U.S.C. § 41101, a designation, and such other

additional relief as may be necessary in order to permit Virgin America Inc. to provide scheduled

fore ign air transportation of persons , property and mail between San Francisco , California, and

Cancun, Mexico

.

Respectfully submitted,

Barbara Russell

Associate General Counsel Virgin America Inc. 555 Airport Blvd., Second Floor Burlingame, CA 94010 (650) 762

- 7394 (phone) (650) 762

- 7004 (fax) barbara.russell@virginamerica.com

June 29 , 2010CERTIFICATE OF SERVICE

I hereby certify that a copy of the foregoing Application of Virgin America Inc. for an exemption was served this 29 th day of June , 2010, via email transmission or first class mail, postage prepaid, on the following persons:

Jeffrey Manley

Senior Advisor

– Regulatory Affairs United Air Lines, Inc. 1025 Connecticut Avenue, N.W.

Suite 1210 Washington, D.C. 20036 jeffrey.manley@united.com

David Heffernan Counsel for United Air Lines, Inc. Wilmer Cutler Pickering Hale and Dorr LLP 1875 Pennsylvania Avenue, NW Washington, D

. C

. 20006

david.heffernan@wilmerhale.com

Marshall S. Sinick

Counsel f or Alaska Airlines, Inc. Squire, Sanders & Dempsey, LLP 1201 Pennsylvania Avenue, N.W.

Suite 500 Washington, D.C. 20004

msinick@ssd.com

Carl B. Nelson, Jr.

Associate General Counsel American Airlines, Inc. 1101 Seventeenth Street, N.W.

Suite 600 Washingt on, D.C. 20036

carl.nelson@aa.com

Howard Kass Vice President, Legal US Airways, Inc. 1401 H Street, N.W., Suite 1075 Washington, D.C. 20005 howard.kass@usairways.com Robert E. Cohn Counsel for Frontier Airlines, Inc. Hogan Lovells US LLP Columbia Squ are 555 Thirteenth Street, NW Washington, D.C. 20004 robert.cohn@hoganlovells.com

Alexander Van d er Bellen

Sametta C. Barnett Jeff Morgan

Delta Ai r Lines, Inc. 1212 New York Avenue, NW

Suite 200 Washington, D.C. 20005

s ascha.vanderbellen@delta.com

samett a.c.barnett@delta.com jeff.morgan@delta.com

David L. Vaughan

Counsel for United Parcel Service of

America, Inc. Kelley Drye Collier Shannon 3050 K Street, N.W.

Suite 400 Washington, D.C. 20007 dvaughan@kelleydrye.com

Hershel I. Kamen

Staff Vice President

– International and

Regulatory Affairs Continental Airlines, Inc.

Government Affairs

— 8 th Floor

1600 Smith Street Dept. HQSGV Houston, TX 77002

hkamen@coair.com2 R. Bruce Keiner, Jr.

Counsel for Continental A irlines, Inc. Crowell & Moring LLP 1001 Pennsylvania Ave., NW Washington, D.C. 20004

rbkeiner@crowell.com

John M. Allen

Director Flight Standards Service

Federal Aviation Administration 800 Independence Avenue, S.W.

Room 821 Washington, D.C. 20591 john.a llen @faa.gov

Joanne W. Young Counsel for Spirit Airlines, Inc. Kirstein & Young, PLLC 1750 K Street, NW

Suite 200 Washington, D.C. 20006 jy oung@yklaw.com

Jonathan B. Hill Counsel for JetBlue Airways Corp.

Dow Lohnes PLLC 1200 New Hampshire Ave., N.W., S uite 800 Washington, D.C. 20036 jhill@dowlohnes.com

Edward P. Faberman Counsel for AirTran Airways, Inc. Wiley Rein, LLP
1776 K Street, N.W. Washington, D.C. 20006 efaberman@wileyrein.com G. Bailey Leopard Legal and Regulatory Affairs Federal Express Cor poration

3620 Hacks Cross Road Building B, 3 rd Floor Memphis, TN 38125 gbleopard@fedex.com

John Fredericksen

Vice President

– General Counsel MN Airlines, LLC d/b/a Sun Country

Airlines 1300 Mendota Heights Road Mendota Heights, MN 55120 john.frederickse n@suncountry.com

Pierre Murphy Counsel for Brendan Airways, LLC d/b/a

USA 3000 Airlines 1200 New Hampshire Ave., N.W. Washington, D.C. 20036 pmurphy@lopmurphy.com

Gina Marie Lindsey

Chief Executive Officer Los Angeles World Airports One World Way Los Ang eles, CA 90045

John L. Martin Airport Director San Francisco International Airport

PO Box 8097 San Francisco, CA 94128

- 8097

________________________________ Barbara RussellVERIFICATION

Pursuant to Title 18 United States Code Section 1001, I, Barbara Russell , in my

individual capacity and as the authorized representative of the applicant, have not in any manner

knowingly or willfully falsified, concealed or covered up any material fact or made any false,

fictitious or fraudulent statement or kn owingly used any documents which contain such

statements in connection with the preparation, filing or prosecu tion of this exemption

application. I understand that an individual who is found to have violated the provisions of 18

U.S.C. Section 1001 shall be fined not more than $10,000 or imprisoned not more than five

years, or both.

Name: Barbara Russell

Date: June 29 , 2010

Title: Associate General Counsel