BEFORE THE
U.S. DEPARTMENT OF TRANSPORTATION WASHINGTON, D.C.

________________________________________________ ) Application of ) )
VIRGIN AMERICA INC. ) Docket No. OST

- 2010

-

____ )
f

or an exem ption under 49 U.S.C. §4010 9 to pro vide ) foreign scheduled air transportation of persons , property )
and mail between the United States and Mexico ) (San Francisco

– San Jose del Cabo )

. )

________________________________________________ )

APPLICATION OF VIRGIN AMERICA INC.
FO R AN EXEMPTION AND DESIGNATION
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, C A 94010 (650) 762

- 7394 (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) fi ling 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 Application.1 BEFORE THE
U.S. 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 Sta tes and Mexico ) (San Francisco

– San Jose del Cabo). ) ________________________________________________)

APPLICATION OF VIRGIN AMERICA INC.
FOR AN EXEMPTION AND DESIGNATION
TO PROVIDE FOREIGN SCHEDULED AIR TRANSPORTATION

Pursuant to 49 U.S.C. § 401 09 and Subpart C of the Department's Rules of Practice, 1

Virgin America Inc. (“Virgin America”) hereby applies for an exemption from 49 U.S.C. §

41101 and designation under the U.S.

- Mexico Transport Agreement

, 2

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

America to operate schedul ed combination service in foreign air transportation of persons,

property, and mail between San Francisco, California and San Jose del Cabo (“SFO

- SJD” )

, as

more fully described below . Virgin America respectfully requests this authority be effective

immedia tely and is ready, willing, and able to commence service

.

1. Virgin America is a Delaware corporation with its principal place of business at

555 Airport Blvd., Burlingame, CA 94010.

1 14 C.F.R. Part 302.

2 A IR T RANSPORT S ERVICES A GREEMENT

, W ITH S CHEDULE

, B ETWEEN THE U NITED S TATES AND M EXICO (Aug. 15, 1960), as amended and extended.2 2. Virgin Ame rica is a citizen of the United States , as defined in 49 U.S.C. §

40102 (a)(15) and has been found fit to provide scheduled interstate air transportation of persons,

property and mail. See Order s 2007

- 5

- 11 and 2007

- 8

- 17; and Letter from Susan L. Kurland,

D OT 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 scheduled foreign air

transportation between the United States and Canada. See

3. Virgin America currently provides daily scheduled interstate air transportation

between: (i) San Francisco and the following 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 a lso currently provides scheduled 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

— SJD route with five (5)

roundtrip flights per week, utilizing mo dern, fuel effici ent Airbus A320 aircraft with 11 9 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 granting Virgin America authority to serve the 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 mail. 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 provide t he proposed air transportation for the period covered by the exemption.3 NOAT in Docket OST

- 2005

- 23307, supra

.

6. T wo U.S. air carriers, Alaska Airlines and United Air Lines, are designated to

provide, and do operate, direct

- carrier (own aircraft) s cheduled combination service on the SFO

SJD route. U p to three U.S. air carriers may be designated to provide direct

- carrier (own

aircraft) service on the SFO

- SJD route under the 2005 U.S.

- Mexico Agreemen t. Virgin America

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

service on the SFO

- SJD route

.

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. A dditionally, 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 Agreement of fostering new

- entrant

competition. As the Department stated in 2006 when it awarded Frontier Airlines LAX

- SJD

exemption authority, over the objections of Delta Air Lines:

Fron tier’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 markets, and bring new competition not only to the U.S. carriers currently serving the subject markets (incl uding 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 poi nts, 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 shipping public.”

Order 2006

- 9

- 8 at 17

- 18

.4 Moreover, as the Department also stated when selecting JetBlue o ver Delta for an award

of New York

– Cancun service in 2006:

[T]he Department has consistently found that new entry is a significant carrier 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 selection 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]election 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 available under United’s proposal.

Order 2000

- 11

- 23 at 6.

8. Virgin America’s proposed service will also offer increased benefi ts 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.

9. Virgin America’s proposed SFO

– SJD service will add 61,880 annual seats to the

market, and is projected to grow demand for travel between San Francisco and San Jose del

Cabo by as much as 12 %, or a n increase of nearly 20,000 local passengers annually (about 27

passengers per day each way).5 10. Virgin America’s entry into new markets has had a demonstrable impact on

average fares. By way of example, Virgin America’s entry in to the following markets resulted in

significant reductio ns in the average fares in those markets: 3

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 percen t 4Q 09 v. 4Q 08
SFO

- BOS

- 23 percent 4Q 09 v. 4Q 08

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 th e exemption sought herein with

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

air transport 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 energy

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

- term increase in fuel consumption of

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

aircraft that are configured to carry 11 9 passengers.

3 U.S. DOT Origin & Destination Survey, via APGDat www.apgda t.com.6 15. The addition of Virgin America’s well

- known and well

- received, high quality

operations to and from Mexico will provide add itional competition, market development and

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

- Mexico market.7 WHEREFORE, for the foregoing reasons, Virgin America Inc. respectfully

requests that the Department grant it an exemption fr om 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 foreign air transportation of persons , property and mail between San

Francisco, California, and San Jose d el Cabo, 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 da y of June , 2010, via email transmission or firs t 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 Un ited Air Lines, Inc. Wilmer Cutler Pickering Hale and Dorr LLP 1875 Pennsylvania Avenue, N.W. Washington, D

. C

. 20006
david.heffernan@wilmerhale.com

Marshall S. Sinick Counsel for Alaska Airlines, Inc. Squire, Sanders & Dempsey, LLP 1201 Pennsylvania Avenu e, 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 Washington, D.C. 20036
carl.nelson@aa.com

Howard Kass Vice President, Legal US Airway s, 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 Square 555 Thirteenth Street, N.W. 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, N.W.
Suite 200 Washington, D.C. 20005
sascha.vanderbellen@delta.com
sametta.c.barnett@delta.com jeff.morgan@delta.com

David L. Vaughan
Counsel for U nited 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.
Gover nment Affairs

— 8 th Floor
1600 Smith Street Dept. HQSGV Houston, TX 77002
hkamen@coair.com2 R. Bruce Keiner, Jr. Counsel for Continental Airlines, Inc. Crowell & Moring LLP 1001 Pennsylvania Ave., N.W. 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.allen @faa.gov

Joanne W. Young Counsel for Spirit Airlines, Inc. Kirstein & Young, PLLC 1750 K Street, N.W.
Suite 2 00 Washington, D.C. 20006 JYoung@yklaw.com

Jonathan B. Hill Counsel for JetBlue Airways Corp.
Dow Lohnes PLLC 1200 New Hampshire Ave., N.W., Suite 800 Washington, D.C. 20036 jhill@dowlohnes.com

Edward P. Faberman Counsel for AirTran Airways, Inc. Wiley R ein, LLP 1776 K Street, N.W. Washington, D.C. 20006 efaberman@wileyrein.com G. Bailey Leopard Legal and Regulatory Affairs Federal Express Corporation
3620 Hacks Cross Road Building B, 3 rd Floor Memphis, TN 38125 gbleopard@fedex.com

John Fredericksen
Vi ce President

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

Airlines 1300 Mendota Heights Road Mendota Heights, MN 55120 john.fredericksen@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 Angeles, 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 knowingly used any documents which contain such

statements in connection with the preparation, filing or prosecution 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