BEFORE THE 

U.S. DEPARTMENT OF TRANSPORTATION

OFFICE OF THE SECRETARY

WASHINGTON, D.C.

___________________________________________

)

Application of )

)

SOUTHWEST AIRLINES CO. )

) 

for an exemption pursuant to 49 U.S.C § 40109 ) Docket No. OST-2014-0222

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) )

___________________________________________ )

REPLY OF SOUTHWEST AIRLINES 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

January 8, 2015
1

BEFORE THE 

U.S. DEPARTMENT OF TRANSPORTATION

OFFICE OF THE SECRETARY

WASHINGTON, D.C.

___________________________________________

)

Application of )

)

SOUTHWEST AIRLINES CO. )

) 

for an exemption pursuant to 49 U.S.C § 40109 ) Docket No. OST-2014-0222

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) )

___________________________________________ )

REPLY OF SOUTHWEST AIRLINES CO.

Southwest Airlines files this Reply in response to the Answer filed by United1 and 

SkyWest on December 29, 2014 (“United Answer”) in this proceeding. Instead of 

addressing the merits of Southwest’s Application, United’s Answer raises inapplicable 

procedural objections and matters outside the scope of DOT’s decision. The 

Department should reject these transparent attempts to delay Southwest’s competitive 

service and instead act expeditiously to enable Southwest to enter and compete in the 

markets in question. Specifically, we urge the Department to promptly (1) withdraw one 

of the two authorities held by United and its partner carrier in both the Houston – MEX 

and Houston -- SJD markets, and (2) grant the exemption authority and corresponding 

 1 Common air carrier names are used.
Reply of Southwest Airlines

January 8, 2015

2

designations requested by Southwest to enable it to serve HOU-MEX and HOU-SJD, as 

described in Southwest’s Application.2

 

I. A Formal “Carrier Selection Proceeding” is Unnecessary and Unwarranted

for DOT to Grant the Relief Requested by Southwest.

In what appears to be no more than a delaying tactic, United argues that a formal 

“carrier selection proceeding” is required before DOT can withdraw and reallocate one 

of United’s two designations on each of the routes at issue. This argument has no 

merit. It ignores the overriding fact that United controls two route designations in both of 

the markets involved, leaving Southwest, a potential new entrant, with none. 

Importantly, United will retain one of its designations in each market if the other is 

reallocated to Southwest. Thus, unlike a traditional “carrier selection case,” United will 

not be shut out of the market if Southwest is permitted to enter. To the contrary, by 

reallocating one of United’s two designations to Southwest, the Department will enable 

both carriers to compete in these markets. 

The Department has all the information it needs to decide whether to grant the 

relief Southwest seeks. A formal selection proceeding would serve no purpose except 

to prevent a new entrant from serving these markets in a timely manner. Because of 

the long lead time required for launching new international service, Southwest plans to 

open the flights at issue in this proceeding for sale before the end of February. Thus, 

the procedural delay sought by United would be injurious to Southwest and jeopardize 

the timely inauguration of its service. The choice before the Department is clear, and 

 2 Southwest’s Application also requests authority and corresponding designations to serve HOU-Cancun 

(CUN) and HOU-Puerto Vallarta (PVD). No party is contesting the Application with respect to these two 

markets. Southwest requests that the Department expeditiously grant authority in these markets along 

with the HOU-MEX and HOU-SJD authorities. 
Reply of Southwest Airlines

January 8, 2015

3

does not require a formal proceeding beyond the present one: either perpetuate the 

status quo where limited or no U.S. carrier competition exists in these markets, or 

reallocate one of United’s double designations to Southwest to allow it to enter and 

compete with United. 

The case for reallocating United’s duplicate designations is also compelling for 

two additional reasons. First, United is and will continue to be able to provide an 

unlimited number of daily flights, using any gauge of aircraft, with the one designation it 

will retain on each route. Therefore, United’s service in these markets will not be 

interrupted, and its ability to achieve “important network connecting opportunities and 

time-of-day travel choices”3 will be entirely within United’s scheduling discretion. 

Second, Southwest’s low-fare, large-jet, daily service will provide consumer 

benefits far superior to the SkyWest’s regional-jet United Express service that is 

duplicative of the service United already provides. Southwest’s competition will reduce 

fares in the four proposed Houston – Mexico markets by an average of $117 round-trip, 

25% below current fares. These fare reductions are projected to stimulate an additional 

273,000 passengers annually in the four markets. The combination of these reduced 

fares and resulting passenger stimulation will generate $33 million annually in consumer 

fare savings.4 Significantly, United’s Answer does not challenge these projected 

consumer benefits or provide a similar analysis for the existing United Express service. 

Moreover, the 1988 order that United cites in support of a carrier selection 

proceeding is inapposite to this case. In that proceeding, the DOT requested 

 3 United Answer, p. 2. 

4 Southwest’s Application, pp. 4-5 and Exhibits 1-7.
Reply of Southwest Airlines

January 8, 2015

4

applications for new U.S. - Mexico route authority made available by the recently

amended U.S. – Mexico aviation agreement.

5 In that case, each new route authority 

was available to a single carrier, where the winner gained market access while the loser 

was entirely shut out. Here, by contrast, United will not lose market access by the 

reallocation of one of its two existing designations in Houston – MEX and Houston --

SJD. 

In fact, United and SkyWest were specifically put on notice of the possibility that 

one of their dual authorities might be withdrawn and reallocated in the event another 

carrier sought to enter these markets. In granting the United/SkyWest application for 

Houston – MEX, the Department expressly 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.”6

 DOT has ample information based on the 

record in this proceeding to determine whether maintaining United’s double 

designations “continues to be in the public interest.” 

 5 In the Matter of U.S. – Mexico Air Transportation Operations, Order 1988-7-43, July 26, 1988, p.1 

(Docket OST-DOT-45728) cited on p. 2 of United’s Joint Application (“By this order, we tentatively 

establish procedures for acting on authority requested by U.S. carriers pursuant to the recently amended 

U.S. – Mexico Agreement, and invite all U.S. carriers (certificated and small aircraft) interested in serving 

the U.S. – Mexico market to file applications with the Department.”) 

6 Notice of Action Taken, issued Sept. 3, 2014, in Dockets DOT-OST-2014-0129 and -0130, p. 2. 

Similarly, in response to concerns raised by Southwest that the Houston-SJD market would be fully 

subscribed if United and its partner carriers were permitted to hold all three designations for any period of 

time, the Department prohibited both SkyWest and ExpressJet from simultaneously holding designations 

as a United Express carrier in that market. Since that time, Spirit has been awarded the third Houston –

SJD designation and thus no more U.S. carrier designations are available. See Notice of Action Taken, 

issued July 29, 2014, p. 2, in Dockets DOT-OST-2014-0100 and -0101.
Reply of Southwest Airlines

January 8, 2015

5

Beyond this, Department precedent favoring new entrant carrier access to U.S. –

Mexico markets supports the relief Southwest is requesting. For example, in 2005 four 

carriers sought the final LAX-MEX designation. In awarding authority to Alaska Airlines, 

the Department cited the competitive benefits it would bring to the market as a new 

entrant carrier, while denying a competing application by American because it already 

had access to the market via a code share relationship: 

...Alaska would be a new entrant in the Mexico City market, a market it 

has long sought to enter. Not only will this mean that it will bring new 

service options to consumers, and a competitive impetus to incumbents to 

improve their service offerings as well, but it should give Alaska an 

incentive to increase and maintain a presence in this important 

transborder market.

....Selection of American would create a less meaningful gain in U.S. 

carrier presence vis-à-vis selection of Alaska because American already 

serves this market through its code share with Mexicana.7

The Department addressed a similar issue in 2000 in selecting a carrier for the 

final designation in the LAX-SJD market. The DOT concluded that greater public 

benefits would result from selecting a new entrant (in that case American) over United, 

which had access to the market via a code-share with Mexicana: 

United now serves the Los Angeles – San Jose del Cabo market under its 

code-share arrangement with Mexicana, and since there are no frequency

limitations on services provided under the U.S.-Mexico aviation 

agreement, United is free to increase this service in conjunction with its 

partner in response to market demand. On the other hand, American 

does not now serve Los Angeles – San Jose del Cabo and would be a 

new entrant to the market. The 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.8

 7 Los Angeles-Mexico City Exemption Proceeding, Order 2005-05-01, May 4, 2005, p. 6 (Docket-OST2005-20406). 8 Los Angeles-San Jose del Cabo Proceeding, Order to Show Cause 2000-11-23, Nov. 21, 2000, p. 6, 

confirmed by Final Order 2001-1-11, January 18, 2001 (Docket-OST-2000-8361). 
Reply of Southwest Airlines

January 8, 2015

6

Consistent with this policy of favoring new entry in U.S.-Mexico markets, we urge 

the Department to grant Southwest’s Application without delay. Granting Southwest’s 

Application is even more strongly warranted in this case given that United will retain 

unencumbered access to the markets in question with its own aircraft. 

II. The DOT Should Grant Southwest the Authority It Seeks under the Current 

U.S. – Mexico Bilateral Agreement; United is Free to Seek Extra-Bilateral 

Relief for its Duplicate Designations. 

United argues that the DOT should grant “extra-bilateral authority” to Southwest 

to operate on the routes where United controls two designations, rather than 

withdrawing one of United’s duplicate designations and reallocating it to Southwest. 

Southwest has no objection to United seeking extra-bilateral relief to enable it to 

continue operating a second designation on these routes. However, there is no 

justification for requiring Southwest to obtain extra-bilateral authority – after all, 

Southwest is a new entrant that requires a designation to gain first-time access to these 

markets. 

Beyond this, United implies that the extra-bilateral option is virtually guaranteed

and risk-free, but this is not the case. The U.S. Government cannot grant extra-bilateral 

relief unilaterally; it must convince the Government of Mexico to agree. There is no 

guarantee whatsoever that the Mexican Government would be willing to grant such 

authority outside the recently negotiated bilateral agreement. Indeed, the extra-bilateral 

authority that United describes is likely to be perceived by Mexico as controversial and 

premature, particularly given that the new agreement has not been fully approved within 

the Mexican Government. 
Reply of Southwest Airlines

January 8, 2015

7

In fact there is no guarantee that the new U.S. – Mexico aviation agreement will 

go into effect on January 1, 2016 as United asserts. At the very least, the new 

agreement is subject to internal ratification by the Mexican Senate, a process in which 

industry politics and extraneous events create uncertainty. If the Mexican Government 

does not ratify the agreement, the existing U.S.-Mexico bilateral agreement (and its 

strict limits on U.S. carrier designations) would continue to govern the availability of 

route authorities in trans-border markets. Southwest’s new Houston -- Mexico service 

should not be put at risk by being subjected to these kinds of uncertainties outside 

Southwest’s control. Accordingly there is no basis for requiring Southwest to obtain 

extra-bilateral authority to access U.S. - Mexico markets in which United retains double 

designations under the current agreement. However, Southwest has no objection to 

United seeking such extra-bilateral authority for itself or its partner carriers if it wishes to 

do so. 

III. There is No Justification for the Department to Delay the Approval of 

Southwest’s Application Due to Airport Facilities or CBP Resources. 

Finally, there is no merit to United’s contention that the DOT should not even 

consider Southwest’s Application until Southwest has “demonstrated” that the Hobby 

International Terminal will be completed on time and that sufficient Customs and Border 

Protection (CBP) resources will be available for international service.

9

 These issues 

are outside the scope of this proceeding, and conditioning the grant of international 

route authority upon these factors would create a terrible DOT precedent.

 9 United Answer, p. 6-8.
Reply of Southwest Airlines

January 8, 2015

8

The Department holds unique and independent jurisdiction among federal 

agencies over international air transportation, including the authorization of U.S. carriers 

to serve specific routes. There is no reason or justification for the Department to

predicate the grant of international route authority on the availability of particular airport 

facilities or CBP resources. For the Department to do so would in effect delegate its 

unique jurisdiction over the grant of international route authorities to other federal

agencies or entities that are neither authorized nor qualified to make decisions 

regarding international aviation policy. United has given no reason why the DOT 

should depart from its standard practice in granting new international route authorities 

and impose additional or unique requirements in this case. 

Apart from that, United’s argument is a red herring in any event because 

construction of the Hobby International Terminal remains on schedule and is projected 

to be completed well prior to the planned launch of Southwest’s Houston – Mexico 

service. Moreover, both the Houston Airport System (HAS) and Southwest have 

received assurances from both the Department of Homeland Security (DHS) and CBP 

that the required resources will be in place by the time of Southwest’s new service. 

~~~~~~~~~~~~~~~~~~~

For the reasons given above and in its Application, Southwest urges the 

Department to expeditiously (1) withdraw one of the two authorities held by United and 

its partner carrier in the Houston – MEX and Houston -- SJD markets, and (2) grant the 

exemption authority and corresponding designations requested by Southwest. The 

record of this proceeding conclusively demonstrates that Southwest’s new entry into the 

proposed Houston - Mexico markets will provide independent competition and
Reply of Southwest Airlines

January 8, 2015

9

significant new low-cost travel options for passengers, and clearly is in the public 

interest. 

Respectfully submitted,

______________________

Robert W. Kneisley

January 8, 2015
CERTIFICATE OF SERVICE

I hereby certify that on January 8, 2015, 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 Airlines)

robert.land@jetblue.com (jetBlue Airways)

jhill@cooley.com (jetBlue Airways)

perkmann@cooley.com (jetBlue 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.weiss@united.com (United Airlines)

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. Abbott