BEFORE THE U.S. DEPARTMENT OF TRANSPORTATION WASHINGTON, DC

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

- 2012

- 0029 for four beyond perimeter slot exemptions ) purs uant to 49 U.S.C. § 41718, as amended ) ) (Washington, DC (DCA)

– San Francisco, CA ) (SFO)) ) )

APPLICATION OF VIRGIN AMERICA INC. FOR SLOT EXEMPTIONS

Communications with respect to this document should be sent to:

John Varley Senior Vice President &

General Counsel Virgin America Inc. 555 Airport Boulevard, Suite 500 Burlingame, CA 94010 (650) 762

- 7108 john.varley@virginamerica.com John E. Gillick Jonathon H. Foglia Zuck ert, Scoutt & Rasenberger , L.L.P. 888 Seventeenth Street, N.W., Suite 700 Washington, DC 20006 Tel: (202) 973

- 7939 Fax: (202) 342

- 0683 jegillick@zsrlaw.com jhfoglia@zsrlaw .com Counsel for Virgin America Inc

.

March 12, 2012BEFORE THE U.S. DEPARTMENT OF TRANSPORTATION WASHINGTON, DC

__________________________________________ ) Application of ) ) VIRGIN AMERICA INC. ) ) Docket N o. OST

- 2012

- 0029 for four beyond

- perimeter slot exemptions ) pursuant to 49 U.S.C. § 41718, as amended ) ) (Washington, DC (DCA)

– San Francisco, CA ) (SFO)) ) )

APPLICATION OF VIRGIN AMERICA INC. FOR SLOT EXEMPTIONS

San Francisc o is

– far and away

– the largest metropolitan area in the country with the greatest number of passengers without current nonstop service to Ronald Reagan Washington National Airport (“DCA”). 1 Virgin America Inc. (“Virgin America”), which does not operate a single within

- perimeter or beyond

- perimeter flight at DCA, hereby applies, as a new entrant pursuant to 49 U.S.C. § 41718(g), for four beyond

- perimeter slot exemptions to operate two nonstop daily roundtrip flights between DCA and San Francisco Internat ional Airport, California (“SFO”). Virgin America’s proposed service will offer DCA

- SFO passengers the choice of both morning and afternoon/evening flights in each direction and permit Virgin America to provide effective competition to United Air Lines, Inc. (“United”), a carrier that operates dominant hub airports in both the Washington, D.C. and San Francisco metropolitan markets.

1 United Air Lines, Inc. has announced plans to begin operating one daily nonstop roundtrip flight in the DCA

- SFO

market on May 14, 2012 , pursuant to the FAA Reorganization and Reform Act of 2012, Pub L. N o. 112

- 95, 126 Stat. 11 (Feb. 14, 2012)

. See Notice of Intent in Docket OST

- 2012

- 0029 ( filed February 27, 2012).2 Introduction This proceeding offers the Department a long overdue and critically important opportunity to correct a serious inequity in previous allocations of 24 beyond

- perimeter exemptions awarded in accordance with the standards established in the Wendell H. Ford
Aviation Investment and Reform Act for the 21 st Century (“AIR

- 21”) and Vision 100

— Century
of Aviation Reauthoriz ation Act (“Vision 100”). 2 Those Congressionally

- mandated allocations were driven by the requirement to demonstrate “domestic network benefits” and “increasing competition in multiple markets” to meet the criteria set forth in AIR

- 21 and Vision 100 rather than the needs of the largest beyond

- perimeter communities. As a result (a nd as reflected in
Exhibit VX

- 8 ) the previously granted exemptions were almost exclusively focused on the happenstance of airports where carriers had established hubs beyond the pe rimeter (Phoenix, Las Vegas, Denver, Salt Lake City, and Seattle) rather than the markets with the greatest traffic to and from Washington, D.C., in general, and DCA, in particular. This single minded hub

- driven
allocation has resulted in the State of Cal ifornia, which accounts for 12 percent of the U. S. population 3 and 13 percent of the U.S. GDP, 4 being virtually ignored in previous allocation

procee dings, with only a single round trip flight being awarded to a California destination. The number of daily passengers traveling between Washington, D.C. (DCA and IAD) and SFO is significantly larger than all but one of the markets previously awarded beyond

- perimeter exemptions. VX

- 11; VX

- 13 . More to the point, SFO

– with no prior award in those proceedings

- is more than twice the size of nearly all of these beyond

- perimeter markets. Id

.

2 Wendell H. Ford Aviation Investment and Reform Act for the 21 st Century, Pub. L. No. 106

- 181, 114 Stat. 198

(Apr. 5, 2000); and Vision 100

– Century of Aviation Reauthorization Act, Pub. L. No. 108

- 176, 117 Stat. 2599 (Dec. 12, 2003).
3 U.S. Census Bureau, “State and Country QuickFacts,” available at quickfacts.census.gov.
4 Bureau of Economic Analysis, “Gross Domestic Product by State,” av ailable at www.bea.gov/regional/gdpmap

.3 Congress, having tipped the scales in the prior awards to large carriers demonstrating domestic network benefits at interior hubs, has now, pursuant to the FAA Reorganization and Reform Act of 2012, Pub L. No. 112

- 95, 126 Stat. 11 (Feb. 14, 2012) (“FAA 2012”), made available for immediate allocation a new set of 16 slot exemptions. Eight of those exemptions are available to the four largest DCA incumbent carriers to be used a t any beyond

- perimeter airport of their choosing

– with no need to show network benefits. Congress similarly revised the allocation criteria for the award of the remaining slot exemptions for new entrant and limited incumbent carriers emphasizing the impo rtance of nonstop service, competition and public benefits, thereby remedying prior AIR

- 21 and Vision 100 allocations to large network carriers, with new entrant Virgin America’s application providing the best opportunity to address a glaring deficiency in the prior allocations

— the lack of adequate nonstop flights to SFO, which is the largest beyond

- perimeter Washington, D.C. market without such service. Importantly, Virgin America is petitioning the Department for four exemptions under FAA 2012 to ensure that San Francisco customers have competitive flight choices at DCA (where Virgin America currently has no presence at all), sustain a long

- term and viable service pattern and offer travelers meaningful nonstop and connecting travel options. As discussed herein, the award of four exemptions would maximize the public benefits of Virgin America’s proposal and is justified by the large size of the Washington, D.C.

— San Francisco market as well as barriers to entry faced by a new entrant airline seeking to offe r a competitive service pattern in direct nonstop competition with a hub airline.4 I. CONGRESS HAS SIGNIFI CANTLY MODIFIED THE STANDARDS TO BE USED BY THE SECRETAR Y TO AWARD EIGHT SLO T EXEMPTIONS TO NEW ENTRANTS AND LIM ITED INCUMBENTS. Congress has, in FAA 20 12, directed the Secretary to grant 16 exemptions for additional DCA beyond

- perimeter flights of which eight are set aside for new entrant and limited incumbent air carriers, using standards significantly revised from those previously applicable to
the all ocation of beyond

- perimeter exemptions under 49 U.S.C. § 41718.
Under AIR

- 21 and Vision 100, the Secretary’s authority was focused upon “domestic network benefits” and “increasing competition in multiple markets,” and the awards were predictably made to c arriers with hubs loca ted beyond the perimeter. VX

- 8 . Under the reformulated standards for the award of exemptions to new entrants and limited incumbents, however, these factors are now only two of several considerations, with Congress now directing
the Secretary to focus on (i) enhancing options for nonstop travel to and from the beyond

perimeter airports that will be served as a result of the grant of these exemptions, (ii) the positive impact that the grant of these exemptions will have on the overall level of competition in the new markets served with these exemptions, and (iii) the public benefits that will result from the grant of exemptions, including the likelihood that the service to airports located beyond the DCA perimeter will result in lower f ares, higher capacity and a variety of service options. This should, in turn, result in new service offerings based not on network airlines operating at hub locations as under the previous legislation but instead upon new entrants and limited incumbents o perating
nonstop service in point

- to

- point markets where the greatest demand exists.5 II. VIRGIN AMERICA’S PROPOSAL WILL EXPAND AWARD WINNING SERVICE OFFERINGS AND INCREASE CONSUMER CHOICE, BUILDING UPON THE AIRLINE’S ALREADY SUBSTANTIAL COMMITMENT TO BOTH WAS HINGTON, D.C. AND WEST COAST TRAVELERS. Virgin America will offer passengers attractive departure times at DCA with a flight at 8:25 a.m. and a second at 6:15 p.m. Passengers choosing Virgin America’s morning DCA departure will arrive in San Francisco a t 11:05 a.m., providing nearly a full day for a business meeting as well as leisure activities. Similarly, Virgin America’s evening departure will provide passengers with the ability to spend a full day in Washington with the assurance of arriving in
San Francisco at 8:55 p.m. Virgin American’s 9:05 a.m. departure from San Francisco will enable travelers to arrive in downtown Washington at 5:10 p.m. in time for a full evening of activities. Passengers preferring to work in San Francisco (or other West Co ast connecting cities) for the morning will be able to take the 1:35 p.m. departure and arrive in Washington at 9:40 p.m. in time for a good night’s rest before the business day begins. Virgin America ’s service proposal will use Airbus A 319 aircraft conf igured with 119 seats in three service classes, First Class, Main Cabin Select and Main Cabin. 5 The A 319 aircraft is a modern, quiet and efficient aircraft that is well suited to the DCA

- SFO market. Virgin America , named the “Most Eco

- Friendly Airline” b y Smarter Traveler in 2010 , will provide beyond

- perimeter service using aircraft that are up to 25% more fuel and carbon efficient
than other domestic airline fleets

. Virgin America’s A 319 aircraft is “right

- sized” for this important new market, allowing

t he airline, through the strategic deployment of an optimal number of seats , to provide mu ch needed competition and award

- winning service on a long

- haul route when fuel costs are steadily

5 Virgin America’s A319 aircraft is configured with 8 First Class seats, 12 Main Cabin Select seats and 99 Main

Cabin Select seats.6 increasing for a ll carriers. The size of the A 319, combined with Vir gin America’s proposal to
serve the route with two nonstop daily roundtrip flights, will allow Virgin America to be an effective, economically successful competitor against legacy network airlines, all of which operate to DCA from various intermediate hubs east of San Francisco. Virgin America's target
base of value conscious business and leisure customers, who have responded enthusiastically to the price, service, and quality options of its product offering, need the schedule flexibility that can only be offered by multiple daily flights at DCA. Fundamentally, the ability to provide meaningful and effective competition to a dominant hub carrier hinges on a viable service pattern involving at least two nonstop daily roundtrip flights in this large market, which will easily support multiple DCA frequenc ies. VX

- 4; VX

- 11

. Ever since Virgin America inaugurated operations in 2007, Washington, D.C., has been a
cornerstone of the airli ne’s long haul strategy and success. Virgin America currently operates up

to s even daily roundtrip flights from Dulles International Airport (IAD), including four daily SFO roundtrips. Virgin America’s proposed DCA

- SFO service will complement its existing
IAD

- SFO service. VX

- 5. Continuing to grow in the Washington, D.C.

— Sa n Franc isco market is an important part of Virgin America’s natural, low

- fare evolution, directly linking the seat of
the Federal Government from close

- in DCA to the San Francisco Bay Area, home to 10 of the 100 largest American corporations, accounting for a com bined $770 billion in annual revenue. 6

VX

- 14

. Of course, existing service at IAD is not, by any means, an effective substitute for maximizing competitive benefits at DCA, particularly in the context of new entrant access. A s

6 CNN, Fortune & Money, “Fortu ne 500: Our Annual Ranking of America’s Largest Corporations,” May 23, 2011.7 the Department wrote wh en reviewing and imposing conditions on an initial transaction between Delta and US Airways involving the transfer of slots at DCA: The Department also considered whether . . . the three [airports] in the Washington area effectively constitute the same mar ket for all passengers, such that if fares are perceived to be rising too high at one airport, the harm would be mitigated by consumers simply shifting to the other two. Department analysts, evaluating passenger ticket data that contained actual fare infor mation, looked at whether . . . the three [airports] in Washington were effective substitutes for each other, and concluded that they were not. In analyzing both overlap and all markets at the airports, they found that yields (i.e., revenue per passenger m ile) were substantially different among the airports. Specifically, they found that the average yield in all markets at BWI is 48 percent less than DCA, and the average yield in all markets at Dulles is 37 percent less than DCA. (Yield at DCA is 27 cents per mile, vs. 17 cents at Dulles and 14 cents at BWI.) . . . If the airports were effective economic substitutes for all passengers, we would expect to see a greater self

- equalizing of yields and the yield spreads would not differ so significantly.
75 Fed. Reg. 7306, 7310 (Feb. 18, 2010) (emphasis added)

. Virgin America’s proposed service will leverage the airline’s large SFO operation, the sixth largest U.S. airport 7 and where most of the airline’s 2,500 teammates are based. Indeed , in less than five year s, Virgin America’s nonstop SFO destinations ha ve grown from only four (4)
to 16 , VX

- 1, and in April 2011, Virgin America moved into its “new home” in SFO’s Terminal
2. VX

- 19. Virgin America’s remarkable growth, from a handful of aircraft in 2007 to nearl y 50 today (with plans to grow to 80 air craft in the next three years), is the result of its award

- winning product, with service consistently focused on improving guests’ in

- flight experience s . Included among the important features of that service are fl eet wide in

- flight WiFi, interactive Google
maps, seat

- to

- seat chat, power outlets and USB jacks at every seat, movies, satellite TV, premium TV, music videos, radio and games as well as on

- demand food and beverage ordering.

7 01DB database, year ending 3Q2011.8 VX

- 16. Virgin America’s very high service quality has been recognized on numerous occasions, including the following:

• “Best Domestic Airline” for the fourth year running in Travel & Leisure Annual World’s Best Awards Reader’s Survey,

• “Best Business/First Class” among domestic airli nes in Conde Nast Traveler’s 2008, 2009, 2010 and 2011 Business Travel Poll,

• “Best Domestic Airline ” among U.S. carriers in the Conde Nast Traveler’s 2008, 2009, 2010 and 2011 Reader’s Choice Awards and

• “No. 1 in First/Business Class” among mid

- sized dom estic carriers, and No. 1 in the Economy cabin among mid

- sized domestic carriers as well as highest overall individual score in 2010 in Zagat’s Global Airlines Survey. A more complete list of awards won by Virgin Ameri ca is set forth in Exhibit VX

- 18

. Eq ually important to Virgin America’s success has been its impact on fares. For example, in SFO, immediately prior to Virgin America’s launch, fare levels enjoyed a 16% premium over national averages. Today, that premium is largely non

- existent. 8 As disc ussed in
Section III.B.2 , infra , Virgin America’s entry into several long

- haul routes has seen fares fall , a benefit the Department has long documented. As far back as 2002, the Department examined the impact of low

- fare carriers on long

- haul markets, obs erving: Over the last few years, low

- fare carriers have demonstrated an increasing tendency toward exploiting unmet demand for lower priced service in long

- haul markets . . . the average fare declined by a larger percentage in the . . . long

- haul markets w ith low

- fare entry . . . than it did in the

. . . long

- haul markets that did not have low

- fare competition. 9

8 DOT, Office of Aviation Analysis, Domestic Airline Fares Consumer Report (Second Quarter 2007 and Third

Quarter 2011), at Table 7.
9 DOT , Office of Aviation Analysis, Domestic Aviation Competition Issue Brief: The Low

- Fare Evolution, Part II

–

Third Quarter 2002.9 Ultimately, and as discussed below, Virgin America’s proposed twice

- daily nonstop roundtrip service in the DCA

- SFO market will best promote compet ition and provide the revised service patterns sought by Congress in FAA 2012.

III. VIRGIN AMERICA’S PROPOSED DCA
- SFO SERVICE BEST MEETS THE REVISED STANDARDS ESTABLISHED FOR THE GRANT OF SLOT EXEMPTIONS TO NEW ENTRANTS AND LIMITED INCUMBENTS AT DCA AND WILL MA XIMIZE CONSUMER BENEFITS.
A. The Department Must Seize This Unique Opportunity t o Remedy Prior Awards to Large Network Airlines, Enhance New Entrant Access a nd Spur Competitive Growth In California and at San Francisco, One of t he Largest Beyond
- Perimeter O&D s . In awarding previous exemptions for DCA beyond

- perimeter flights , the Department was unavoidably limited by the statutory selection criteria enacted by Congress, including, among other factors, a mandatory focus on “domestic network benefits” and an inc rease in competition by new entrant air carriers or in multiple markets. As a practical consequence, these prior awards overwhelmingly resulted in service patterns between DCA and large carrier connecting complexes, i.e ., traditional hub

- and

- spoke service patterns, to the detriment of large population centers beyond the perimeter with pent up demand for nonstop DCA service. For example,
under AIR

- 21 and, later, Vision 100, the Department awarded a combined eight beyond

perimeter exemptions for service to Denver (including six to Frontier Airlines) , and six beyond

perimeter exemptions for service to Phoenix (all to America West Airlines)

— concentrating nearly 60% of the then

- current beyond

- perimeter exemptions among those two hubs alone . On the other hand, California, already at that time the most populous state and home to the largest gross state product in the country, received only a single daily roundtrip operation

. However, as a result of FAA 2012, the Department may now consider, either in isolation

or in combination, a number of new criteria, including the extent to which the award of10 exemptions will enhance options for no nstop travel to and from beyond

- perimeter airports , the overall level of competition in online markets and the likelihood that the n onstop service will result in lower fares, higher capacity, and a variety of service options. As a consequence, the Department has been presented with an historic opportunity to ensure an appropriate rebalancing of beyond

- perimeter awards is made for new entrants/limited incumbents for service on routes between DCA and large metropolitan areas where the local market traffic has been forced to connect given the previous absence of nonstop service.
S ervice to the most populous city centers in general, and California in particular, had long been emphasized by Congress ional leaders . For example, over ten years ago, Senator Dian n e
Feinstein of California was seeking assurances that beyond

- perimeter fights would be available for the largest California cities w hen she remarked, “We would like to see the highest level of service provided to the most number of passengers.” And as Senator Barbara Boxer of California tellingly s aid , nonstop DCA service was a matter, “which affects the people of our

state . . .” Co ntinuing, she pointedly asked the then

- Chairman of the Senate Committee on Commerce, Science, and Transportation, “Specifically, would carriers be prevented from competing on route s from National Airport to . . . California airports under this bill?” 145 Congressional Record, daily ed., S19946 ( Sep. 25, 1998). Yet, under AIR

- 21 and Vision 10 0, 24 DCA beyond

- perimeter exemptions were awarded for nonstop service to Denver (eight exemptions), Phoenix (six exemptions), Seattle (four exemptions), Las Vegas (t wo exemptions), and Salt Lake City (two exemptions), with only one
award

— Los Angeles (two exemptions)

— allocated to California . As here relevant , other than Los Angeles, each of the other markets previous ly awarded beyond

- perimeter exemptions under11 AIR

- 21 and Vision 100 is much smaller than San Francisco . And, when compared to Los Angeles, the SFO

- Washington market is comparable in size:

Market Annual O&D 10

LAX

- WAS 1,121,930 SFO
- WAS 1,002,840 DEN

- WAS 676,740 SEA

- WAS 434,070 LAS

- WAS 422,650 PHX

- WAS 274,430 SLC

- WAS 218,340
At bottom, Virgin America’s proposal to serve San Francisco, the largest city in the United States currently without nonstop access to DCA, will benefit more local passeng ers than will any other applica t ion for the eight beyond

- p erimeter exemptions set aside for new entrants
and limited incumbents under FAA 2012. Moreover, from an O&D perceptive, Washington,
D.C.

- SFO is larger than any other beyond

- perimeter O&D that is served on a nonstop basis, with the exception of Los Angeles , and then by only a very small margin . VX

- 11

. Finally, over the last five years, passenger traffic at SFO has significantly outpaced passenger traffic at other West Coast airports. VX

- 12.
B. Virgin America’s DCA
- SFO Service Proposal Most Effectively Meets the New Statutory Criteria for the Award of These Eight Exemptions to New Entrants and Limited Incumbents.
As stated in Order 2102

- 2

- 21, FAA 2012 directs the Department to, among other things, grant a total of eight additional beyond

- perimeter exemptions to new entrant and limited incumbent carriers. Virgin America’s proposed nonstop DCA

- SFO service meets each of these

10 Exhibit VX

- 11.12 statutory criteria. Virgin America will provide its award

- winning excellent service with fuel efficient A319 aircraft and offer strong co mpetition in the very large and currently un

- served
DCA

- SFO nonstop market that links San Francisco, California and the Nation’s capital, an overall market with which Virgin America is very familiar, having served it via IAD since 2007. Virgin America’s s ervice also will provide additional competitive, one

- stop access to passengers in other cities in California and the Western United States traveling to close

- in DCA, without reducing travel opportunities for small and medium hub airports or increasing trav el delays. Virgin America and SFO should, therefore, be awarded four of the additional beyond

- perimeter exemptions that Congress has made available in FAA 2012.
1. Virgin America’s Nonstop DCA

- SFO Service Will Enhance Options for Nonstop Travel to and from S FO

. Virgin America’s proposal to provide two daily nonstop roundtrip flights between DCA and SFO will enhance options for nonstop travel in several important ways. First, as discussed in Section II , supra , Virgin America will offer passengers attractive
de parture and arrival times. Second, the capacity provided by Virgin America’s two roundtrip flights will permit the significant demand in the local DCA

- SFO market to be met with nonstop
rather than one

- stop service as is currently the case . As set forth i n Exhibit VX

- 11 , the local
DCA

- SFO market is very large, but today travelers in this city

- pair are forced to travel on o ne
stop or connecting services. Finally, Virgin America has had a long

- standing commitment to the Washington, D.C.

— San Francisco market , having inaugurated service in this market in the Fall of 2007. An award of four exemptions to Virgin America will allow the airline to reinforce and expand upon that commitment as well as assure that a range of options are provided for nonstop
travel be tween Washington, D.C. and San Francisco, a large, nonstop market whose needs have13 not been addressed in the twelve years that beyond

- perimeter exemptions have been made available by Congress.
2. Virgin America’s Nonstop DCA

- SFO Service Will Have an Extremely Favorable Impact on the Overall Level of Competition in the Washington, DC,

- San Francisco Market

. The Department has long recognized the critically important role that new entrants play in improving the level of price and service competition in airline ma rkets, a role that Virgin America has consistently played since it began operations and will certainly play if awarded the necessary slot exemptions to begin twice daily DCA

- SFO service. Since its August 2007 launch, Virgin America has lowered fares and pr ovided a unique new high

- quality service option for travelers. Indeed, The Wall Street Journal , shortly after Virgin America began service, described the competitive effect that the emergence of a new airline can have on fares as “the Virgin effect.” 11 Vi rgin America has had the following effect
on fares within the first year of launching nonstop service in a market:

• average fares between Dallas/Forth Worth International Airport and each of SFO and Los Angeles International Airport (LAX) fell 30% and 22%, respectively;

• average fares between Boston Logan International Airport and each of SFO and LAX fell 26% and 32%, respectively;

• average fares between New York John F. Kennedy International Airport (JFK) and SFO fell 16%;

• average fares between Las Vegas McC arran International Airport (LAS) and SFO fell 16%;

• average fares between JFK and LAS fell 13% ; and

• average fares between Chicago O’Hare International Airport and each of SFO and LAX fell 12% and 15%, respectively. 12 Initiation of nonstop service by Virgi n America in the DCA

- SFO market can also have a

11 “The Virgin Effect: Lower Cross

- Country Fares,” Wall Street Journal, October 30, 2007.
12 U.S. DOT O&D Sur vey via diio.net.14 significant effect on competition against the well

- entrenched incumbents at DCA. With their multiple hub flights, incumbent carriers have a tremendous competitive advantage over carriers with no or only limi ted access to DCA. This within

- perimeter service allows the incumbent carriers to offer far more daily one

- stop connections to Western destinations than new entrants
and limited incumbents . Looking at United, in particular, it today offers a total of thr ee one
- stop, single

- plane flights and 37 one

- stop connecting fligh ts in the DCA

- SFO market. VX

- 9

. 3. Virgin America’s DCA

- SFO Service Will Produce Important Public Benefits, Including Lower Fares, Higher Capacity and a Variety of Price, Service and Quality Options

. The initiation of two daily, roundtrip, nonstop flights by Virgin America will provide several important public benefits, including lower fares, a wide variety of price, service and quality options and greater capacity in the DCA

- SFO market.
As w e ha ve demonstrated in section III.B.2 , supra , Virgin America’s entry into new markets has resulted in a significant reduction in the average level of fares in those markets as it competes wingtip

- to

- wingtip with much larger incumbent carriers that have pr eviously dominated those markets, often with very high fares. And, and previously discussed, Virgin America has reduced fares by over 30 percent in some markets, by over 20 percent in others and has reduced fares by over 10 percent in several others, clea rly demonstrating its ability to have a favorable impact on fares. Moreover, Virgin America has had this significant impact on average fare levels while offering a very high quality of service to its passengers. As discussed in Exhibits VX

- 15 , Virgin
Amer ica offers three cabins of service

— First Class, Main Cabin Select and Main Cabin. Additionally, Virgin America provides several in

- flight services and conveniences for use by its

passengers . VX

- 16.15 Virgin America’s proposed two daily roundtrip nonstop f lights will be provided with a new fleet of A319 aircraft that are up to 25 percent more fuel and carbon efficient than the average fleet domestically, VX

- 17, par ticularly, for example, older B 757 aircraft that have a far less desirable carbon footprint an d greater noise level than Virgin America’s quiet A319 aircraft, a consideration that is particularly important at noise and environmentally sensitive DCA

. Moreover, the addition of Virgin America’s two roundtrip flights help to accommodate the
demand for nonstop service in the DCA

- SFO market, which , as noted previously, is the largest beyond

- perimeter DCA market currently without any nonstop service.
4. Virgin America’s DCA

- SFO Service Will Increase Competition in Multiple Markets and Produce Important Domes tic Network Benefits in Areas Beyond the Perimeter

. A s may be seen from Exhibit VX

- 3 , the Virgin America system consists of long

- , medium

- and short

- haul services, including nonstop service from San Francisco to Seattle, Las Vegas, Los Angeles, Palm Spring s (seasonal) and San Diego in the Western United States, as well as nonstop service fr om San Francisco to the limited

- entry Mexican markets of Cabo San Lucas, Puerto Vallerta and Cancun. Virgin America’s proposed DCA

- SFO service will offer
convenient onli ne connection s to San Diego, Las Vegas, Seattle and Los Angeles, in both directions. As a consequence, there will be many opportunities for passengers wishing to travel to DCA from these other cities in the West to connect with Virgin America’s flights be tween SFO and DCA. Similarly, passengers wishing to work in these West Coast cities during the business day can make use of the morning DCA departure to reach their West Coast d estinations
in the afternoon. VX

- 4. Thus, Virgin America’s DCA

- SFO service w ill provide important benefits to passengers traveling to and from those other Western destinations and will provide a competitive alternative in several markets to other DCA services.16 5. Virgin America’s Nonstop DCA

- SFO Service Will Not Reduce Travel Options

. Virgin America does not currently hold any DCA slots or exemptions, and, therefore, its proposed service will not reduce travel options for communities served by small hub airports and medium hub airports within the perimeter of National Airport. Nor do es Virgin America anticipate that its proposed service would result in other carriers reducing service to cities within the DCA perimeter. Indeed, Virgin America’s new service will actually enhance service and competition to the benefit of the traveling p ublic, and, significantly, will grow the DCA

- SFO
market.
6. Virgin America’s DCA

- SFO Service Will Not Increase Travel Delays

. Virgin America’s new nonstop DCA

- SFO service is fully in accordance with the statutory requirements and will not increase travel dela ys. The statute requires that no more than two additional DCA slots be allocated in any one hour period. Virgin America’s proposal is consistent with that requirement. Additionally, new entrant and limited incumbent carriers are afforded a scheduling pr iority under the statute. See 49 U.S.C. § 41718(h). The slot exemptions requested by Virgin America will not, therefore, have any impact on congestion or delays at DCA or elsewhere in the national air transportation system.
C. Virgin America’s DCA
- SFO Servi ce is Clearly in the Public Interest. Throughout the history of the Department’s slot program, it has been guided by the pro

competitive policies of the Airline Deregulation Act as set forth in 49 U.S.C. § 40101(a), 13 including

—

• The availability of a variet y of adequate, economic, efficient and low

priced services;

13 Northwest Airlines v. Goldschmidt , 645 F.2d 1309, 1315 (8 th Cir. 1980).17 • Avoiding unreasonable industry concentration, excessive market domination, monopoly power, and other conditions that would tend to allow at least one carrier or foreign air carrier unreasonably t o increase prices, reduce services or exclude competition in transportation;

• Encouraging, developing and maintaining an air transportation system relying on actual and potential competition to provide efficiency, innovation and low prices and to determine the variety and quality of, and determine prices for, air transportation services; and

• Encouraging entry into air transportation markets by new and existing air carriers and the continued strengthening of small air carriers to ensure a more effective and competitive airline industry. Virgin America’s application for four slot exemptions in the DCA

- SFO market advances each of these pro

- competitive, public interest objectives as well as meets each of the criteria in FAA 2012 and the slot exemptions should, t herefore, be awarded forthwith.
Conclusion
WHEREFORE , for the foregoing reasons, Virgin America’s application for four beyond

perimeter exemptions at Ronald Reagan Washington National Airport to operate two daily nonstop roundtrip flights to S an Francisco Internat ional Airport should be granted. Respectfully submitted,

John E. Gillick Jonathon H. Foglia Zuckert, Scoutt & Rasenberger , L.L.P. 888 Seventeenth Street, NW, Suite 700 Washington, DC 20006 Tel: (202) 973

- 7939 jegillick@zsrlaw.com jhfoglia@zsrlaw.com
Counsel for Virgin America Inc. March 12, 2012CERTIFICATE OF SERVICE

I hereby certify that a copy of the foregoing Application of Virgin America Inc. was served this 12th day of March, 2012, via email transmission on the following persons:

carl.nelson@aa

. com sascha.vanderbellen@delta

. com jhill@dlalaw .com scott.mcclain@delta.com steve

. morrissey@united.com
sam etta

. c. bamett@delta

. com mgoldman@sgbdc.com kquinn@pillsburywinthrop. com rsilverberg@sgbdc.com rbkeiner@crowell.com dhainbach@ggh-airlaw

. com esahr@eckertseamons.com mcmillin@woa.com bruce.rabinovitz@wilmerhale.com eskraft@j amhoff.com jonathan.linde@united.com dpdean@jamhoff.com bob.kneisley@wnco.com dkirstein@yklaw.com robert.land@j etb lue

. com jyoung@yklaw.com msinick@ssd.com william

. stallings@usdoj .gov cdonley@ssd.com dwight.moore@ustranscom.mil john

. martin@flysfo.com gbleopard@fedex.com j ohn

. allen@faa. gov david.heffeman@wilmerhale

. com kevin.montgomery@polaraircargo

. com recohn@hoganlovells.com jrichardson@j ohnlrichardson. com cjsimpson@zsrlaw

. com lhalloway@crowell.com pmurphy@lopmurphy.com efaberman@wileyrein.com lachter@starpower.net mroller@rollerbauer

. com anita.mosner@hklaw.com howard.kass@usairways.com jennifer.nowak@hklaw.com benjamin.slocum@usairways.com gmurphy@crowell.com dan. weiss@united.com russell. bailey@alpa.org
susan
. kurland@dot. gov todd.homan@dot.gov james.dann@dot.gov peter .irvine@dot. gov dennis.devany@dot.gov

Bryant H. Templeton

### Table of Direct Exhibits

Direct Exhibit Exhibit No.

Virgin America : Total Cities Served (By Year) VX

- 1 Virgin America : Historic and Projected Fleet Growth VX

- 2 Virgin America Route Map VX

- 3 Virgin America ’s Proposed DCA

- SFO Schedule VX

- 4 Virgin America’s Nonstop DCA

- SFO Service Strongly Complements its Existing IAD Service VX

- 5

Virgin America Qualifies as a “New Entrant” at DCA VX

- 6 Existing Slot s and Slot Exemption s at DCA VX

- 7 Previously Granted Beyond

- Perimeter Slot Exemptions at DCA V X

- 8 United Offers Multiple DCA

- SFO Flight Options Throughout the Day VX

- 9 Map of United’s DCA

- SFO Service VX

- 1 0 SFO Exceeds Nearly All Other AIR

- 21/Vision 100 Beyond

- Perimeter Markets VX

- 1 1
SFO Has Out

- Performed Other West Coast Airports: Change in Passenger Growth (2006

- 2011) VX

- 12

California Exceeds All AIR

- 21/Vision 100 Beyond

- Perimeter Markets Combined VX

- 1 3

The San Francisco Bay Area is Headquarters to 10 of the 100 Largest American Companies VX

- 1 4

Virgin America Interior Cabin View s VX

- 1 5 Virgin America ’s Onboard Services and Amenities VX

- 1 6 Virgin America and Environmental Sustainability VX

- 1 7 Virgin America Awards for Outstanding Service VX

- 1 8 Virgin America’s New SFO Terminal 2 Facilities VX

- 19EXHIBIT VX
- 1 Page 1 of 1

Source: Company Records

.EXHIBIT VX
- 2 Page 1 of 1

Note: Years 2012 and beyond reflect firm orders.

Source: Company Records

.EXHIBIT VX
- 3 Page 1 of 1

Virgin America Route Map

Source: Company Records

.EXHIBIT VX
- 4 Page 1 of 1

Virgin America’s Proposed DCA
- SFO Schedule
Airbus A319 Aircraft All flights operate daily.

DCA
8:25 AM 6:15 PM 5:10 P M 9:40 PM DPT DPT ARR ARR 2442 Miles

ARR ARR DPT DPT 11 :05 AM 8:55 PM 9:05 AM 1 :35 PM

SFO

Source: Company Records

.EXHIBIT VX
- 5 Page 1 of 1

Virgin America ’s Nonstop DCA

- SFO Service Strongly Complements its Existing IAD Service

WESTBOUND

1 DEPARTS IAD 7:05 AM ARRIVES SFO 10:05 AM 2 DEPARTS DCA 8:25 AM ARRIVES SFO 11: 05 AM 3 DEPARTS IAD 10:25 AM ARRIVES SFO 1:25 PM 4 DEPARTS IAD 5:05 PM ARRIVES SFO 8:05 PM 5 DEPARTS DCA 6:15 PM ARRIVES SFO 8:55 PM 6 DEPARTS IAD 7:50 PM ARRIVES SFO 10:50 PM

EASTBOUND

1 DEPARTS SFO 8:00 AM ARRIVES IAD 4:10 PM 2 DEPARTS SFO 9: 05 AM ARRIVES DCA 5:10 PM 3 DEPARTS SFO 10:50 AM ARRIVES IAD 7:00 PM 5 DEPARTS SFO 1:35 PM ARRIVES DCA 9:40 PM 4 DEPARTS SFO 2:35 PM ARRIVES IAD 10:45 PM 6 DEPARTS SFO 11:35 PM ARRIVES IAD 7:45 AM (NEXT DAY)

Source: Company Records

.EXHIBIT VX
- 6 Page 1 of 1 Virgin America Qualif ies a s a “ New Entrant ” a t DCA

Virgin America is an air carrier that does not hold a slot at DCA and has never sold or given up a slot at DCA after December 16, 1985 and therefore qualifies as a “new entran t”

under FAA 2012.

Source: 49 U.S.C. § 41714(h)(3).EXHIBIT VX
- 7 Page 1 of 2 Existing Slot s and Slot Exemption s at DCA

Carrier (s) Slots/ Within

Perimeter Exemptions Beyond

Perimeter Exemptions 1 Total

Non
- limited Incumbents
US Airways 2 452 8 460 American Airlines 3 103 2 105 Delta Air Lines 9 6 4 100 United Airlines 4 72 4 76
Subtotal 723 18 741
Limited Incumbents JetBlue Airways 5 34 0 34 Southwest Airlines 6 24 0 24 Frontier Airlines 7 16 6 22 Air Canada 16 0 16 Spirit Airlines 6 0 6 Alaska Airlines 0 6 6 Republic Airways Holdings, Inc. 8 2 0 2 Sun Country 9 2 0 2
Subtotal 100 12 112

New Entrants Virgin America 0 0 0

TOTALS 82 3 30 853

1 Includes six beyond

- perimeter exemptions for which No tices of Intent have been filed in Docket OST

- 2012

- 0029 ,

including United’s notice to serve DCA

- SFO. 2 Republic Airways Holdings, Inc. hol ds 113 commuter slots operated under a financing agreement with US Airways. 3 Reflects trade of 16 slots to JetBlue. 4 Reflects combination of United and Continental Airlines slots. 5 American traded 16 slots to JetBlue. JetBlue operates the slots but American remains the ho lder. JetBlue also

purchased 16 slots in the FAA’s recent DCA slot auction

. 6 Reflects combination of AirTran and Southwest. AirTran operates six slots obtained in a trade with Continental,

but Continental remains the holder of th e slots. 7 16 slots reassigned to Frontier after acquisition of Midwest by Republic. Two exemptions were reallocated to Sun

Country. 8 Two exemptions to be returned to Republic Airways Holdings, Inc. after a recent court decision. 9 FAA granted two exe mptions to Sun Country on March 2, 2012, to permit continuation of service.EXHIBIT VX
- 7 Page 2 of 2

105 100

76

34
24 22 16
6 6 2 2 0 

## Existing Slots and Slot Exemptions at DCA

Source: FAA Table 5

– “DCA Slots

– Previous, Current and as Proposed” in Docket No. FAA

- 2010

- 0109, “Notice of a Petition for Waiver and Solicitation of comments on Grant of Petition With Conditions , ” 76 Fed. Reg. 45323 (July 28, 2011). FAA Holder Report (April 1, 2011) as adjusted to reflect subsequent developments. Each slot authorizes either one departure or one arrival. 460EXHIBIT VX
- 8 Page 1 of 1 Previously Gr anted Beyond

- Perimeter Slot Exemptions at DCA

AIR 21 Vision 100
PHX (4) US PHX (2) US LAS (2) US DEN (4) FL DEN (2) FL DEN (2) UA SLC (2) DL LAX (2) AS SEA (2) AS SEA (2) AS AIRPORTS/CARRIERS
PHX (6) US LAS (2) US DEN (8) FL (6), UA (2) SLC (2) DL SEA (4) AS LAX (2) AS

Source: DOT Order s in Docket OST

- 2000

- 7181

.EXHIBIT VX
- 9 Page 1 of 2 United Offers Multiple DCA

- SFO Flight Options Throughout the Day 1

UA DCA
- SFO Connecting and One Stop (Through) Flights

Source: I nnovata schedules via diio.net

.

1 Includes flights operated by United and Continental. Flight Opt ion Connecting/ One
- Stop Dep Time Via Arr Time 1 CNX 0600 ORD 1052 2 CNX 0635 CLE 1127 3 CNX 0636 EWR 1210 4 CNX 0700 ORD 1159 5 CNX 0745 ORD 1240 6 CNX 0800 IAH 1343 7 CNX 0830 EWR 1441 8 CNX 0835 ORD 1449 9 1 STOP 0930 ORD 1449 10 CNX 0930 ORD 1 554 11 1 STOP 1022 ORD 1554 12 CNX 1115 EWR 1716 13 CNX 1130 ORD 1647 14 CNX 1210 IAH 1834 15 CNX 1235 ORD 1754 16 CNX 1330 IAH 2024 17 CNX 1330 ORD 1844 18 CNX 1459 EWR 2101 19 CNX 1525 IAH 2122 20 CNX 1539 ORD 2010 21 CNX 1633 ORD 2122 21 CNX 1738 IAH 2326 23 CNX 1740 DEN 2359EXHIBIT VX
- 9 Page 2 of 2

UA SFO
- DCA Connecting and One Stop (Through) Flights

Source: I nnovata schedules via diio.net

. Flight Option Connecting/ One
- Stop Dep Time Via Arr Time 1 CNX 0031 IAH 1122 2 CNX 0540 DEN 1613 3 CNX 0600 EWR 1631 4 CNX 0600 IAH 1650 5 CNX 0605 ORD 1551 6 1 STOP 0705 ORD 1651 7 CNX 0705 ORD 1751 8 CNX 0734 EWR 1818 9 CNX 0825 IAH 2008 10 CNX 0905 ORD 1853 11 CNX 1000 ORD 1958 12 CNX 1102 ORD 2058 13 C NX 1133 EWR 2256 14 CNX 1202 ORD 2150 15 CNX 1202 IAH 2259 16 CNX 1403 ORD 2343 17 CNX 2313 ORD 0841EXHIBIT VX
- 10 Page 1 of 1 Map of United’s DCA

- SFO Service

Source: I n novata schedules via diio.net

.EXHIBIT VX
- 11 Page 1 of 1 SFO Exceeds Nearly All Other AIR

- 21/Vision 100 Beyond

- Perimeter Markets

Airport Annual WAS 1 O&D Passengers Daily WAS O&D Passengers AIR

- 21/ Vision 100 Awarded Exemptions Daily Passengers Per Exem ption LAX 1,121,930 3,074 2 1,537 SFO 1,002,840 2,748 0
-- DEN 676,740 1,854 8 232 SEA 434,070 1,189 4 296 LAS 422,650 1,158 2 579 PHX 274,430 752 6 125 SLC 218,340 598 2 299

Source: OD1B database YE 3Q2011.

1 WAS count includes DCA and IAD.EXHIBIT VX
- 12 Page 1 of 1

23.38%

1.35% 9.48%

- 3.38% - 2.62% 

## SFO Has Out
- Performed Other West Coast Airports: Change in Passenger Growth (2006

- 2011)

SFO LAX SEA SAN PDX

Source: O D 1 B databse YE3Q2011

.EXHIBIT VX
- 13 Page 1 of 1

California Exceeds All AIR

- 21/Vision 100 Beyond

- Perimeter Markets Combined

Airport Annual WAS 1 O&D Passengers LAX 1,121,930 SFO 1,002,840 Subtotal 2,124,770

D EN 676,740 SEA 434,070 LAS 422,650 PHX 274,430 SLC 218,340 Subtotal 2,026,230

Source: OD1B database YE3Q2011.

1 WAS count includes DCA and IAD.EXHIBIT VX
- 14 Page 1 of 1

The San Francisco Bay Area is Headquarters to 10 of the 100 Largest American Companies

Company Count y 2011 Revenues (millions) Chevron Contra Costa $196,337 Hewlett

- Packard Santa Clara $126,033 McKesson San Francisco $108,720 Wells Fargo San Francisco $93,249 Apple Santa Clara $65,225 Intel Santa Clara $43,623 Safeway Alameda $41,050 Cisco System s Santa Clara $40,040 Google Santa Clara $29,321 Oracle San Mateo $26,820

Source: CNN, Fortune & Money, “Fortune 500: Our Annual Ranking of America’s Largest Corporations,” May 23, 2011.EXHIBIT VX
- 15 Page 1 of 2 Virgin America Interior Cabin Views
Main Cabin (Economy)

Main Cabin Select (Premium Economy)EXHIBIT VX
- 15 Page 2 of 2

First Class

Source: Company Records.EXHIBIT VX
- 16 Page 1 of 1 Virgin America’s Onboard Services and AmenitiesEXHIBIT VX
- 17 Page 1 of 1 Virgin America and Environmental Sustainability
As the only California

- based airline and as a Virgin

- branded carrier, Virgin America’s goal has been to build an airline from the ground up that makes environmentally

- sustainable practice s part and parcel of its business model, right down to the use of organic hand

- soap in the lavatories and a focus on locally grown and organic food in its
menus. Although no airline can be perfect, Virgin America’s goal as a new airline is to understand a nd mitigate its climate impact via fleet investment and the use of best practices on the ground and in the air. The airline was named Most Eco

- Friendly Airline in SmarterTravel Editor’s Choice Awards in 2010 and Greenopia’s “Greenest” Dome stic Airline in 2011. Environmental milestones include: From its launch, Virgin America has employed progressive practices and training to reduce its carbon footprint, such as single engine taxiing, maximizing use of efficient ground power, utilizing advanced avionics to fly more efficiently, and cost index flying

– the practice of regulating cruising speeds to reduce fuel burn. Virgin America publishes a Climate and Sustainability Report, which includes an overview of its industry

leading sustainabili ty efforts and comprehensive emissions data. Virgin America’s new fleet is up to 25% more fuel and carbon efficient than the average fleet flying in the U.S. The airline was the launch customer for both the new eco - efficient Airbus A320neo aircraft and t he GE/CFM LEAP engine , which are slated for delivery in 2016 and together are projected to yield 15% additional improved fuel efficiency, corresponding improvements in carbon efficiency and double digit reductions in NOx emissions. The A320neo is projecte d to emit 3,600 fewer tons of CO2 per aircraft on an annual basis. Virgin America was the first U.S. airline to list its carbon footprint according to globally

- accepted standards via The Climate Registry

. Virgin America was the first U.S. airline to offer guests the ability to offset the carbon footprint of their flight

– in

- flight via the touch

- screen Red seatback entertainment throug h partner CarbonFund.org

. The airline offsets its annual corporate headquarters footprint on an annual basis via CarbonFund.org

. Virgin America’s Company

- wide Gree n Teams direct employee volunteering and resources to key environmental projects

– including Virgin America’s ongoing sponsor of California Parks Foundation restoration projects in Northern California

. Virgin America is a member of Ceres , a leading coalition of investors, environmental groups and public interest organizations that wo rks with companies to address sustainability challenges. Although the nature of airport operations makes sustainable practices challenging, since Virgin America’s launch the airline has worked with airports that enable recycling to reduce and recycle its o nboard waste. In its first full year of our operations, the airline recycled aluminum cans on 47% of its departures. By 2010, the airline recycled aluminum cans on 67% of its flights, and plastic, paper and glass on 32% of its flights. Virgin America i s affiliated with the Virgin Group, which has committed to reinvesting all profits from Virgin

transport related businesses to renewable fuels research and other initiatives that combat climate change. Virgin America publishes an annual Climate and Sustain ability Report, which includes an overview of its industry

- leading sustainability efforts and comprehensive emissions data. Virgin America’s Burlingame

- based headquarters is LEED

- Silver certified and the airline’s new home at San Francisco International Airport’s Terminal 2 (T2) is the first LEED

- Gold certified airpor t in nation

– with Virgin America further investing in its T2 office spaces to achieve the highest possibl e LEED

- Platinum CertificatioEXHIBIT VX
- 18 Page 1 of 1 Virgin America Awards for Outstanding ServiceEXHIBIT VX
- 19 Page 1 of 2 Virgin America’s New SFO Terminal 2 FacilitiesEXHIBIT VX
- 19 Page 2 of 2