### BEFORE THE U.S. DEPARTMENT OF TRAN S PORTATION OFFICE OF THE SECRETARY WASHINGTON , D

. C

.

____________________________ _ ____ _____ _____ ) Application of ) ) SOUTHWEST AIRLINES CO. ) ) f or an exemption pursuant to 49 U.S.C § 40109 ) Docket No. OST - 2014 - to engage in foreign scheduled air transportation ) of persons, property and mail between Houston ) Hobby International Airport and Cancun, Mexico City , ) Puerto Vallarta, and San Jose del Cabo, Mexico ) ) (HOU

- CUN) ) (HOU

- MEX) ) (HOU

- PVR) ) (HOU

- SJD) )

_____________________________ _ ________ _____ )

APPLICATION OF SOUTHWEST AIR LINES CO

. Communications with respect to this document should be sent to:

Ron Ricks Robert W. Kneisley Executive Vice President

- Associate General Counsel Chief Legal & Regulatory Officer Leslie C. Abbott Mark Shaw Senior Attorney Vice President General Counsel & SOUTHWEST AIRLINES CO. Corporate Secretary 919 18th Street, N.W., Suite 600 SOUTHWEST AIRLINES CO. Washington, D.C. 20006 2702 Love Field Drive bob.kneisley@wnco.com Dallas, TX 75235

- 1611 (202) 263

- 6284

December 11, 2014

### 1 BEFORE THE U.S. DEPARTMENT OF TRAN S PORTATION OFFICE OF THE SECRETARY WASHINGTON , D

. C

.

______________________________ _ __ _____ _____ ) Application of ) ) SOUTHWEST AIRLINES CO. ) ) f or an exemption pursuant to 49 U.S.C § 40109 ) Docket No. OST - 2014 - to engage in foreign scheduled air transportation ) of persons, property and mail between Houston ) Hobby International Airport and Cancun, Mexico City , ) Puerto Vallarta, and San Jose del Cabo, Mexico ) ) (HOU

- CUN) ) (HOU

- MEX) ) (HOU

- PVR) ) ( HOU

- SJD) )

_______________________________ _ ______ _____ )

APPLICATION OF SOUTHWEST AIR LINES CO

. Pursuant to 49 U.S.C. § 40109 and Subpart C of the Department’s Rules of Practice, Southwest Airlines Co. (“Southwest” ) 1 

### hereby applies for an exemption from 49 U.S.C. § 41101 authorizing Southwest to engage in scheduled foreign air transportation of persons, property, and mail between Houston Hobby International Airport (HOU) on the one hand and (i) Cancun (CUN) , (ii) Mexico City (MEX), (i i i) Puerto Vallarta (PVR), and (iv) San Jose del Cabo (SJD) , Mexico on the other hand. Southwest plans to begin selling flights on these four routes in the first quarter of 2015 , and to commence operations with daily service in all four markets with Boeing 737

- 700 aircraft configured for 143

- seat s on or around October 15, 2015

.

1 Common air carrier names are used herein.Application of Southwest Airlines Co. December 11, 2014



### 2 I. Southwest’s Proposed Service Between Houston and Mexico Will Provide New Low - fare Competition and is Clearly in the Public Interest. Southwest’s application represents a rare and valuable opportunity to inject new competition in U.S. Mexico trans

- border air line service

. Under the terms of the current U.S.

- Mexico Air Transport Agreement , three U.S. carriers are authorized to provide service between Houston ( including both Houston Intercontinental Airport (IAH) and Houston Hobby Airport (HOU)) and CUN, PVR, and SJD. Two U.S. carriers are authorized to provide service between Houston and MEX

. Currently one U.S. carrier designation is available on both the Hou ston

– CUN and Houston

– PVR routes

. In the Houston

– MEX 2 

### market, United Airlines (“United”) holds one of the two allo tted U.S. designations and ExpressJet (a United partner) holds the other

- making this route a United monopoly. In the Houston

– SJD 3 

### market , United holds one U.S. carrier designation and SkyWest (a United partner) hold s another

. The third designation in this market is taken by Spirit Airlines

. 4 

### Accordingly, n o U.S. carrier designations are available in either the HOU

– MEX or HOU

- SJD markets

. In these markets , service by Express Jet and SkyWest under the United Express brand mean s that two U.S. carrier designations are being used on behalf of one U.S.
airline

. The United Express service is marketed, distributed , priced and otherwise entirely controlled by United to complement its mainline service in those markets

.

2 United holds certificate authority on the Houston

- MEX route

. See Orders 1992

- 5

- 20 and 2013

- 4

- 11 in Docket DOT

- OST

- 2005

- 22228. ExpressJet provides United Express service on the Houston

- MEX route until January 6, 2015 when the service will be provided by SkyWest. See Notice of Action Taken , iss ued Sept. 3, 2014 , in Dockets DOT

- OST

- 2014

- 0129 and

- 0130 ( hereafter United

- ExpressJet/SkyWest HOUSTON

- MEX NOAT). 3 United and its partner carrier SkyWest hold certificate and exemption authority respectively on the Houston

- SJD route

. See Orders 1992

- 5

- 20 and 2013

- 4

- 11 in Docket DOT

- OST

- 2005

- 22228 and Notice of Action Taken issued July 29 , 2014 in Dockets DOT

- OST

- 2014

- 01 00 and

- 01 01 ( hereafter United

SkyWest HOUSTON

- SJD NOAT)

. 4 See Notice of Action Taken, issued Sept. 18, 2014, in Docket DOT

- OST

- 2014

- 0154.Application of Southwest Airlines Co. December 11, 2014



### 3 United and its partner carriers coordinate, rather than compete , with one another , and together utilize dual designations to provide consumers with a single carrier option. Southwest would be an independent , new ent rant carrier on these routes and would provide year

- round, daily , large

- jet service offering consumers low fares, competition and new travel option s

. Given that Southwest is now prepared to enter and compete in the Houston

– MEX and Houston

– SJD markets, t here is no justification for allowing United and its partner carrier s to continue to hold dual authorities in these markets that would block that competition. Accordingly, we request that the Department: (1) withdraw one of the two authorities currently held by United and its partner carriers in both the Houston

- MEX and Houston

- SJD markets , and (2) grant Southwest exemption authority and corresponding designations to serve these two markets. Southwest also requests exemption authority and designations in the HOU

– CUN and HOU

- PVR markets.
II. Allowing One Carrier to Use Two Designations on a Fully Subscribed Route and Block New Entrant Competition is Contrary to the Public Interest.
The Department’s grant of duplicate authorit ies for both United and its partner
carriers in the Houston

- MEX and Houston

- SJD markets took place when those carriers’ applications were unopposed , and thus Department’s grant of those authorities did not impede any other carriers from entering in those markets

. However, the Department

ma de clear in grant ing those applications that the duplicate authorities would be subject
to reconsideration if another U.S. carrier file d an application to provide competing service with its own aircraft on those routes and no designations were available

. For example, when United and SkyWest filed a joint application on August 14, 2014 toApplication of Southwest Airlines Co. December 11, 2014



### 4 substitute SkyWest for ExpressJet as the United Express carrier in the Houston

– MEX market, the Department granted th at application but stated that: should a competing U.S. carrier present a firm proposal to provide scheduled Houston

- Mexico City service, we would be prepared to reconsider whether, in those circumstances, award of the authority granted here continues to be in the public interest. 5 

### Now that Southwest is filing this application and is prepared to begin service in the se market s , th e continued holding of duplicate authorit ies by United and its partner carriers is clearly no longer in the public interest. Southwest is of course aware that the U.S. and Mexican governments recently initialed a n amended aviation agreement that will include open third and fourth freedom rights for passenger airlines once it becomes effective

. Southwest applauds this historic agreement and appreciates the work of the U.S. G overnment d elegation in achieving this result

. However, the new agreement is subject to ratification within the Mexican government and is not scheduled to enter into force until January 1, 2016 in any event

. Thus the new agreement will not provide access to the four blocked Houston

– Mexico markets named herein in time for Southwes t’s planned sales and service

. III. Southwest’s Houston - Mexico Service Will Provide Enormous Benefits to U.S. Consumers. Southwest ’s proposed service will generate new, low

- cost travel options for a large number of U.S. consumers. A recent analysis by Campbell

- Hill Aviation Group
concludes that Southwest ’s competition will reduce fares in its four proposed Houston

–

5 United

- ExpressJet/ SkyWest HOUSTON

- MEX NOAT, p. 2

. See also United

- SkyWest HOUSTON

- SJD NOAT, p. 2, where DOT acknowledged Southwest’s concerns that United and its partner carriers should not be permitted to hold all three designations at any one time. To accomplish this outcome, DOT made SkyWest’s authority effective upon the date of withdrawal of ExpressJet’s authority. However, since that time, Sp irit has been awarded the third designation and thus no more U.S. carrier designations are available.Application of Southwest Airlines Co. December 11, 2014



### 5 Mexico markets by an average of $117 round

- trip , 25% below current fares. (Exhibit 1.) These fare reductions are projected to stimulate an additional 273,000 passengers annually in the four markets. ( Exhibit 2 .) The combination of these reduced fares and resulting passenger stimulation will generate $33 million annually in consumer fare savings

. 6 

### (Exhibit 3

. ) Thes e results demonstrate the enormous impact that Southwest
Airlines can have i n U.S.

– Mexico markets when simply allowed to compete. In addition, Southwest ’s Houston

- Mexico flights will offer new travel options to millions of passengers in U.S. cities beyond Houston. Southwest has an average of
15 1 daily departures at Houston Hobby Airport to 4 3 nonstop domestic destinations. These cities will be given new, low

- fare connecting options to Mexico from the inauguration of Southwest’s Houston

- Mexico fligh ts

. T he Campbell

- Hill analysis concludes that , in total, Southwest’s service in the four planned Houston

– Mexico markets will provide new low

- cost connecting option s to 138 beyond

- Houston markets , 85 of which currently have no nonstop service to the respective Mexican destination s today

. ( Exhibits 4

- 7

. ) The total existing O&D passenger pool in these 138 markets is 5.8 million passengers. ( Exhibits 4

- 7.) Southwest’s ability to link its extensive domestic
service in Houston with new nonstop service to four popular U.S.

- Mexico destinations will create significant benefits for large numbers of consumers.

IV. Additional Information In further support of this A pplication, Southwest states the following:

6 These savings projections are in fact conservative because they apply only to local Houston

– Mexico passengers and do not include fare savings or other benefits for the substantial number of passengers in other cities that will connect to Southwest’s Mexico flights at Houston.Application of Southwest Airlines Co. December 11, 2014



### 6 1. Southwest is a Texas corporation with its principal place of business at 2702 Love Field Drive, Dallas, Texas, 75235

. 2. Southwest is a citizen of the United States as defined by Section 40102(a)(15) of Title 49 of the United States Code and Section 204.2(c) of the Dep artment’s Economic Regulations. Southwest’s president and at least two

- thirds of its board of directors and other managing officers are citizens of the United States. Southwest is under the actual control of citizens of the United States and more than 75 percent of its voting interest is owned or controlled by persons that are citizens of the United States.
3. Southwest is fit, willing and able to conduct the services described in this application. Southwest commenced commercial service in 1971 as an intrastate airline, and has operated as a U.S. certificated air carrier since 1979. Southwest requests that the Department take official notice pursuant to Rule 24 of its Rules of Pr actice ( 14 CFR § 302.24 ) of Southwest's Certificate of Public Convenience and Necessity for Interstate Air Transportation, originally issued by Order 79

- 6

- 187, and subsequently amended by Order 86

- 5

- 60 (May 15, 1986), Order 98

- 7

- 8 (July 8, 1998), and Order 2005

- 12

- 4 (December 9, 2005). Southwest has consistently maintained its Certificate in good standing for the past 35 years.
4. Furthermore, Southwest already holds exemption authority from the Department authorizing service to a number of U.S.

– Mexico markets , such as BWI

- CUN, AUS

CUN, AUS

- SJD, DEN

- CUN, MKE

- CUN, MDW

- CUN, SAT

- MEX, SAT

- CUN, SNA

- MEX, and SNA

- SJD. 7 

### Pursuant to Rule 24 of the Department’s Rules of Practice, Southwest

7 See Notice of Action Taken issued October 23, 2013 in Docket DOT

- OST

- 2013

- 018 0

.Application of Southwest Airlines Co. December 11, 2014



### 7 asks the Department to take official notice of all data on file necessary to establish Southwest’s fitness

. 5. Southwest proposes to publish the flights for sale in the first quarter 2015 and commence service between HOU and CUN, PVR, MEX and SJD on or about October
1 5 , 2015. Southwest will provide daily service in all four markets using Stage III Boeing
737

- 700 aircraft configured for 143 seats

. 6. The requested exemption authority is fully consistent with the terms of the U.S.

- Mexico Air Transport Agreement (Agreement) as amended by the two governments on
Decemb er 12, 2005. The Agreement authorizes carriers designated by the U.S. to operate “[f]rom a point or points in the United States to a point or points in Mexico.” Annex I(A)(1)(a). Pursuant to the Agreement, three U.S. carrier designations are
authorized o n U.S.

– CUN, PVR and SJD routes , Annex I(B)(5) , and two U.S. carrier designations are authorized on U.S.

– MEX routes, Annex I(B)(4)

. As noted above, one U.S. carrier designation is available in both the Houston

– CUN and Houston

– PVR
routes but no U.S. carrier designations are currently available on the Houston

– MEX and Houston

– SJD routes. As explained above, Southwest is seeking the withdrawal of one existing designation in both the Houston

– MEX and Houston

- SJD markets to enable Southwest to enter and compete.
7. The environmental impacts of Southwest ’s proposed services are de minimis , and will therefore not lead to a near

- term annual increase in aircraft fuel consumption of 10 million gallons or more. Accordingly , grant of this application will not constitute a “major regulatory action” within the meaning of the Energy Policy and Conservation Act of 1975 or Part 313 of the Department’s Economic Regulations.Application of Southwest Airlines Co. December 11, 2014



### 8 8. Southwest will accept and comply with the terms and conditions that the Department r outinely imposes on exemption authority for scheduled foreign air transportation.
WHEREFORE, Southwest ’s proposed Houston

- Mexico service will provide independent competition and significant new low

- cost travel options for passengers and shippers in bot h the United States and Mexico. Accordingly, Southwest requests that the Department act expeditiously to: (1) withdraw one of the two authorities held by United and its partner carriers in the Houston

– MEX and Houston

- - SJD market s , and (2) grant the exemption authority and corresponding designations requested by Southwest herein to enable it to serve HOU

- CUN, HOU

- MEX, HOU

- PVR, and HOU

SJD as described above. Respectfully submitted,

______________________ Robert W. Kneisley December 1 1 , 201 4

### C ERTIFICATE OF SERVIC E I hereby certify that on December 11 , 201 4, a copy of the foregoing was served via e

- mail on the following persons: msinick@ssd.com (Alaska Airlines) howard.kass@aa.com (American Airlines) robert.wirick@aa.com (American Airlines) sascha.vanderbellen@delta.com (Delta Air Lines) chris.walker@delta.com (Delta Air Lines) matwood@cozen.com (Frontier Airlines) stephen.lachter@cozen.com (Frontier Airlin es) robert.land@jetblue.com (j etBlue Airways) jhill@cooley.com (j etBlue Airways) perkmann@cooley.com (j etBlue Airways) robert.cohn@hoganlovells.com (Republic Airways) patrick.rizzi@hoganlovells.com (Republic Airways) dkirstein@ yklaw.com (Spirit Airlines) jyoung@yklaw.com (Spirit Airlines) thomas.ting@suncountry.com (Sun Country Airlines) dan.wei ss@united.com (United Air l ines) steve.morrissey@united.com (United Airlines) gmurphy@crowell.com (United Airlines) sseiden@crowell.com (United Airlines) john.varley@virginamerica.com (Virgin America) susan.kurland@dot.gov brian.hedberg@dot.gov brett.kruger@dot.gov reese.davidson@dot.gov todd.homan@dot.gov peter.irvine@dot.gov cristinasa@state.gov info@airlineinfo.com

__________________________ Leslie C. Abbot t

# EXHIBITSNote: Fares Include baggage and rebooking/cancellation fees but exclude taxes.

Source : Appendix 

### Exhibit 1

$459 $534
$481 $477

$378 $335 $351 $346 $360 $538

$0 $50 $100 $150 $200 $250 $300 $350 $400 $450 $500 $550 $600

MEX PVR SJD CUN Average Current Estimated Average After Southwest Houston Average Roundtrip Fares 

# Southwest’s Service Will Reduce Roundtrip Fares By $ 117 or 25 % on Average In the Four Houston - Mexico Markets

- $81 - $203 - $183

- $134

Note: Includes only local passengers. No fare savings or benefits are calculated for new passengers connecting over Houston. - $117 (25%)Source : Appendix. 

### Exhibit 2

38,065 293,891

44,399 86,282 272,844 697,416

423,746

155,069 213,281

17,331 0 50,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000 450,000 500,000 550,000 600,000 650,000 700,000

MEX PVR SJD CUN 4 Market Total Current Estimated After Southwest Houston One - Way Passengers 

# Southwest’s Service Will Increase Passengers By Over 270,000 in the Four Houston - Mexico Markets

+80,610 +273,670 +27,067 +48,217 +117,775 Note: Includes only local passengers. No fare savings or benefits are calculated for new passengers connecting over Houston.

Stimulation with WN Nonstop Service:Note: Fares Include baggage and rebooking/cancellation fees but exclude taxes.

Source: Appendix . 

### Exhibit 3

$10.2

$5.7 $14.4 $33.4

$3.1

$0 $5 $10 $15 $20 $25 $30 $35

MEX PVR SJD CUN 4 Market Total Houston Consumer Fare Savings (Millions) 

# Southwest’s Service Will Produce Over $33 Million in Annual Fare Savings in the Four Houston - Mexico Markets

Note: Includes only local passengers. No fare savings or benefits are calculated for new passengers connecting over Houston.SAN SAN SAN SAN STL STL STL STL MCI MCI MCI MCI

TUL TUL TUL TUL OKC OKC OKC OKC

CRP CRP CRP CRP AUS AUS AUS AUS

SAT SAT SAT SAT MAF MAF MAF MAF ELP ELP ELP ELP ABQ ABQ ABQ ABQ DEN DEN DEN DEN

HRL HRL HRL HRL SNA SNA SNA SNA LAX LAX LAX LAX

TUS TUS TUS TUS PHX PHX PHX PHX OAK OAK OAK OAK PDX PDX PDX PDX

SLC SLC SLC SLC SEA SEA SEA SEA

LAS LAS LAS LAS

DAL DAL DAL DAL



### CUN CUN CUN HOU HOU HOU LIT LIT LIT LIT MDW MDW MDW MDW

IND IND IND IND

MEM MEM MEM MEM BOS BOS BOS BOS

PIT PIT PIT PIT 

# Southwest’s Houston - CUN Service Will Provide Low Fare Access to 30 Potential Markets Beyond HOU, 13 of Which Have No Nonstop Service to CUN Today

No nonstop CUN service Market with nonstop service to CUN 

### 155,069 2,108,361 2,263,430 Existing O&D Passengers
– CY 2013 Houston - CUN Beyond HOU to CUN Total Exhibit 4

Note: Markets limited to contiguous states and 40% circuity . Stimulation is not included in numbers above

. Source: Adjusted MIDT , CY 2013 and Innovata schedules.TPA TPA TPA TPA AUS AUS AUS AUS PNS PNS PNS PNS MAF MAF MAF MAF BHM BHM BHM BHM ABQ ABQ ABQ ABQ OKC OKC OKC OKC GSP GSP GSP GSP SLC SLC SLC SLC DEN DEN DEN DEN STL STL STL STL MCI MCI MCI MCI

TUL TUL TUL TUL CLT CLT CLT CLT EWR EWR EWR

DCA DCA DCA DCA OAK OAK OAK OAK SEA SEA SEA SEA

PDX PDX PDX PDX

SNA SNA SNA SNA LAX LAX LAX LAX



### MEX MEX MEX DAL DAL DAL DAL



### HOU HOU HOU SAT SAT SAT SAT MDW MDW MDW MDW

LIT LIT LIT LIT IND IND IND IND

MEM MEM MEM MEM PIT PIT PIT PIT

BNA BNA BNA BNA BOS BOS BOS BOS

LGA LGA LGA LGA

BWI BWI BWI BWI

RDU RDU RDU RDU

ATL ATL ATL ATL CHS CHS CHS CHS

MSY MSY MSY MSY ECP ECP ECP ECP JAX JAX JAX JAX

MCO MCO MCO MCO LAS LAS LAS LAS

FLL FLL FLL FLL

No MEX nonstop service Market with nonstop service to MEX

Note: Markets limited to contiguous states and 40% circuity . Stimulation is not included in numbers above. Source: Adjusted MIDT , CY 2013 and Innovata schedules. 

### Houston - MEX Beyond HOU to MEX Total 213,281 2,507,128 2,720,409 Existing O&D Passengers
– CY 2013 

# Southwest’s Houston - MEX Service Will Provide Low Fare Access to 43 Potential Markets Beyond HOU, 26 of Which Have No Nonstop Service to MEX Today Exhibit 5MEM MEM MEM MEM BHM BHM BHM BHM STL STL STL STL

GSP GSP GSP GSP MCI MCI MCI MCI

TUL TUL TUL TUL OKC OKC OKC OKC CLT CLT CLT CLT

PNS PNS PNS PNS AUS AUS AUS AUS EWR EWR EWR

DCA DCA DCA DCA MDW MDW MDW MDW

DAL DAL DAL DAL



### HOU HOU HOU

PVR PVR PVR SEA SEA SEA SEA

DEN DEN DEN DEN PDX PDX PDX PDX

BNA BNA BNA BNA BOS BOS BOS BOS

PIT PIT PIT PIT LGA LGA LGA LGA

BWI BWI BWI BWI IND IND IND IND

RDU RDU RDU RDU

ATL ATL ATL ATL LIT LIT LIT LIT

CHS CHS CHS CHS

MSY MSY MSY MSY ECP ECP ECP ECP JAX JAX JAX JAX

MCO MCO MCO MCO TPA TPA TPA TPA

FLL FLL FLL FLL

No PVR nonstop service Market with nonstop service to PVR 

### Houston - PVR Beyond HOU to PVR Total 17,331 383,670 401,001 Existing O&D Passengers
– CY 2013 

# Southwest’s Houston - PVR Service Will Provide Low Fare Access to 34 Potential Markets Beyond HOU, 24 of Which Have No Nonstop Service to PVR Today Exhibit 6

Note: Markets limited to contiguous states and 40% circuity . Stimulation is not included in numbers above

. Source: Adjusted MIDT , CY 2013 and Innovata schedules.GSP GSP GSP GSP
BHM BHM BHM BHM OKC OKC OKC OKC TUL TUL TUL TUL MCI MCI MCI MCI STL STL STL STL

AUS AUS AUS AUS PNS PNS PNS PNS EWR EWR EWR

DCA DCA DCA DCA

DAL DAL DAL DAL MDW MDW MDW MDW



### SJD SJD SJD HOU HOU HOU ATL ATL ATL ATL CLT CLT CLT CLT RDU RDU RDU RDU

CHS CHS CHS CHS BWI BWI BWI BWI

MSY MSY MSY MSY LGA LGA LGA LGA

ECP ECP ECP ECP JAX JAX JAX JAX BOS BOS BOS BOS

BNA BNA BNA BNA PIT PIT PIT PIT

MCO MCO MCO MCO MEM MEM MEM MEM

TPA TPA TPA TPA IND IND IND IND

FLL FLL FLL FLL LIT LIT LIT LIT

No SJD nonstop service Market with nonstop service to SJD 

### 38,065 352,662 390,727 Existing O&D Passengers
– CY 2013 Houston - SJD Beyond HOU to SJD Total 

# Southwest’s Houston - SJD Service Will Provide Low Fare Access to 31 Potential Markets Beyond HOU, 22 of Which Have No Nonstop Service to SJD Today Exhibit 7

Note: Markets limited to contiguous states and 40% circuity

. Stimulation is not included in numbers above

. Source: Adjusted MIDT , CY 2013 and Innovata schedules.

# Appendix: Detail of Consumer Benefits From Southwest Houston - Mexico Service

# Consumer Benefits Methodology - Passengers (Traffic Stimulation and Fare Savings)

• Local O&D passengers were estimated by adjusting MIDT /1 data for direct bookings using Campbell - Hill methods. The data period was CY 2013. Mexico low cost carriers are excluded from the passenger numbers because they reported very limited MIDT data.

• The current average market fares were calculated using adjusted MIDT traffic and include baggage and cancellation/rebooking fees calculated from U.S. DOT Form 41 data. Fares exclude all taxes.

• The estimated fares after low cost service is introduced were estimated using log - log yield curves (fare per mile) based on the U.S. DOT domestic Origin - Destination passenger survey for CY 2013. Each observation in the yield curves was weighted by the number of LCC passengers in the market. Four curves were derived:

– Low Cost Carrier curve for leisure markets served nonstop by low cost carriers

– Low Cost Carrier curve for business markets served nonstop by low cost carriers

– Legacy Carrier curve for leisure markets served nonstop by low cost carriers

– Legacy Carrier curve for business markets served nonstop by low cost carrier $15 was added to each calculated fare to account for higher airport costs in Mexico than the U.S. The fare after Southwest service was calculated as the weighted average fare including Southwest’s market share.

• Passenger stimulation

– Fare: Elasticity calculated for each market using an estimate of business/leisure mix from MIDT data and a business Ep /2 of - 0.79 and a leisure Ep of - 1.59 /3 . Due to the high leisure concentration of the markets, the average Ep is approximately - 1.5.

– Service: QSI - based function using seat capacity to measure service change. The analysis uses an average aircraft size of 143 seats.

• Consumer benefits

– Campbell - Hill utilized an FAA formula for existing and stimulated passengers, and the net change in average market fare (See Consumer Surplus methodology in FAA, Airport Benefit - Cost Analysis Guidance”, Office of Aviation Policy and Planning, Federal Aviation Administration, December 15, 1999 .)

1/ MIDT stands for Market Information Data Tapes. It includes O&D passenger and fare data gathered via travel agencies. Raw MIDT passenger numbers must be adjusted to account for direct bookings. 2/ Ep = demand (traffic) elasticity with respect to price. 3 / FAA, Airport Benefit

- Cost Analysis Guidance”, Office of Aviation Policy and Planning, Federal Aviation Administration, December 15, 1999. 

### Appendix 1 Page 1

# Summary of Consumer Surplus Benefits From Initial Southwest Houston - Mexico Service Appendix 1 Page 2

Consumer Benefits
One

- Way New CY 2013 Predicted Service Fare Before Fare After Fare Fare Total Existing New Total O&D Market Mileage Weekly WN Roundtrips Passengers Stimulation WN Nonstop WN Nonstop Savings Ep Stimulation Stimulation Passengers Passengers Passengers (A) (B) (C) (D) (E) (F) (G) (H) (I) (J) (K) (L) (M) MEX 742 7 213,281 4.4% $229 $189 $40

- 1.43 32% 80,610 $8,595,574 $1,624,353 $10,219,927 PVR 877 7 17,331 21.2% $269 $168 $101

- 1.54 111% 27,067 $1,756,121 $1,371,341 $3,127,462 SJD 1,000 7 38,065 17.1% $267 $176 $92

- 1.54 94% 48,217 $3,485,972 $2,207,869 $5,693,841 CUN 792 7 155,069 6.0% $240 $173 $67

- 1.53 66% 117,775 $10,405,708 $3,951,574 $14,357,283 423,746 $238 $180 $59 273,670 $24,243,375 $9,155,138 $33,398,513(A) Nonstop Miles. (B) Southwest weekly roundtrips to be operated initially. ( C) Adjusted MIDT for CY 2013 /1

. (D) Predicted Service stimulation from Campbell - Hill QSI Model. (E) Average Fare is based on Adjusted MIDT data for CY 2013. Includes average checked baggage and rebooking/cancellation fees per passenger derived by Campbell - Hill using DOT Form - 41 and DOT data. (F) The “After WN Service ” fare is based on a weighted average of the fare predicted by the relevant LCC yield curve (business or leisure) and the relevant legacy carrier yield curve (business or leisure) in markets with LCC competition. (G) Column E
– Column F. (H) See Page 4. Derived for each market based on the weighted average of business and leisure passengers. (I) Calculated using the price elasticity coefficient from Column H. The arc elasticity formula is: Arc Ep = [(Q2 - Q1)/((Q1+Q2)/2)] / [(P2 - P1)/((P1+P2)/2)] , where Q1 = passengers before new LCC service, Q2 = Passengers after new LCC service, P1=Fare Before new LCC service, P2 = Fare After new LCC service. (J) (Column C x (1+ Column D) x (1+ Column I))
– Column C. (K) Column C x Column G. (L) Column G x Column J x 0.5. For Consumer surplus calculation method see: “ FAA Airport Benefit - Cost Analysis Guidance ”, Office of Aviation Policy and Planning, Federal Aviation Administration, December 15, 1999 .” (M) Column K + Column L. 

### Appendix 1 Page 3

1/ MIDT stands for Market Information Data Tapes. It includes O&D passenger and fare data gathered via travel agencies. Raw MIDT must be adjusted to account for direct bookings. 

# Summary of Consumer Surplus Benefits From Initial Southwest Houston - Mexico Service