BEFORE THE DEPARTMENT OF TRANSPORTATION WASHINGTON, DC 20590

) Establishment of Slot Exemption Proceeding ) At Ronald Reagan Washington National Airport ) Docket Pursuant to 49 USC §41718 ) DOT
- OST
- 2000
- 7182 )
Motion for Leave to File Unauthorized Pleading And Consolidated Sur
- Reply of JetBlue Airways Corporation Communications with respect to this document should be addressed to:

James Hnat Jonathan B. Hill Executive Vice President Corporate Affairs, J. Parker Erkmann General Counsel & Secretary Benjamin M. Berlin JetBlue Airways Corporation Cooley LLP 27

- 01 Queens Plaza North 1299 Pennsylvania Ave., NW Long Island City, NY 11101 Suite 7 00 Washington, D.C. 200 04

- 2400 (202) 962

- 8356 jhill@ cooley .com perkmann@ cooley .com Robert C. Land bberlin@cooley.com Senior Vice President for Government Affairs & Associate General Counsel Counsel for JetBlue Airways Corporation JetBlue Airways Corporation 1212 New York Avenue, N.W. Suite 1212 Washington, DC 20005

April 9 , 20141 BEFORE THE DEPARTMENT OF TRANSPORTATION WASHINGTON, DC 20590

________________________________________________ ) Establishment of Slot Exemption Proceeding ) At Ronald Reagan Washington National Airport ) Docket Pursuant to 49 USC §41718(b) ) DOT
- OST
- 2000
- 7182

________________________________________________) Motion for Leave to File Unauthorized Pleading And Consolidated Sur
- Reply of JetBlue Airways Corporation JetBlue Airways Corporation (“JetBlue”) hereby respectfully requests leave to file an otherwise unauthorized document pursuant to 14 CFR § 302.6(b), namely this Sur

- Reply to the competing applications and answers of Southwest Airlines Co. (“Southwest”) and American Airlines (“AA” or “American”) in this proceeding to reallocate a pa ir of slot exemptions for service at Ronald Reagan Washington National Airport (“DCA”) pursuant to the provisions of the Wendell H. Ford Aviation Investment and Reform Act for the 21st Century (“AIR

- 21”). 1
Good cause exists to allow this Sur

- Reply because : 1. Southwest ’ s failure to include its estimate of consumer savings in its application deprived competing air carriers of the opportunity to rebut Southwest ’ s estimate in their respective answers; and
2. Southwest ’ s failure to include the savings to existing consumers in its estimate of consumer savings provides the Department of Transportation (“Department”) with an inaccurate comparison of consumer savings 2 ; 3. Misstatements by American and Southwest must be correct ed.

1 49 U.S.C. § 41718(b). 2 Southwest ’ s failure to include savings to existing consumers in its current application and answer is mislead ing

. Indeed, Southwest calculated, included, and relied on savings to existing passengers in its 2012 application for slot exemptions to serve DCA

- HOU. Mor eover, Southwest ’ s “after

- the

- fact traffic forecast and fare proposal are improper, contrived and not credible.” Consolidated Reply of Southwest Airlines Co. and Motion for Leave to File at 4.2 In contrast to Southwest ’ s proposal to continue serving the DCA

– Kansas City, MO ( “ MCI ” ) market, JetBlue ’ s proposal to introduce low

- fare competition in the DCA

– Jacksonville, FL ( “ JAX ” ) market will result in greater consumer savings, an assertion that is supported by JetBlue ’ s demonstrable history of stimulating lower fares in American Airlines ’ ( “ AA ” ) monopoly markets , especially at DCA. JetBlue not only has the strong support of the Jacksonville community , 3 but is also prepared to introduce additional capacity through the use of larger gauge 150

- seat Airbus A320 and 190

- seat Airbus A321 jets as the “ JetBlue effect ” grows demand. JetBlue ’ s ability to bring about the maximum procompetitive effect has been wide ly recognized, most recently in a study conducted by the Massachusetts Institute of Technology. Based on the foregoing, an award of two AIR

- 21 slots to JetBlue would most strongly demonstrate the Department ’ s ongoing commitment to maximizing consumer benef it and introducing competition into markets that have long suffered under the dominance of a single carrier, such as DCA

- JAX.
I. Southwest ’ s Consumer Savings Claims Fall Short of JetBlue ’ s When Savings to Existing Consumers are Considered As presented in its Answer , 4 Southwest ’ s calculation of its consumer fare savings takes the overly simplistic view that only its own passengers benefit from the fare stimulation that results from the disruption of a monopoly market. In fact, as Southwest ’ s own analysis in a previous application 5 demonstrates, it is well aware that the total surplus to consumers is composed of (a) savings to existing passengers and (b) savings to new passengers. Viewed in this

3 JetBlue ’ s application has the strong support of the Jacksonv ille community and Florida ’ s legislators, including U.S. Senator Bill Nelson, U.S. Representatives Corrine Brown, Ander Crenshaw, Ron DeSantis, and Ted Yoho. See Exhibit B6

- 2014R

- 101 to the Sur

- Reply for Senator Nelson’s letter of support and Exhibit B6

- 2014A

- 104 in JetBlue ’ s Answer dated April 1, 2014 for the letter of support from Representatives Brown, Crenshaw, DeSantis, and Yoho

. 4 See Answer of Southwest Airlines dated April 1, 2014 5 See Application of Southwest Airlines dated December 5, 20123 light, Southwest ’ s calculation of the fare savings that its DCA

- MCI service offers is both flawed and misleading. Southwest ’ s claim that its DCA

- MCI service saves consumers $900,000 more than
JetBlue ’ s proposed DCA

- JAX service is a deliberate attempt to distract the Department from an apples

- to

- apples com parison of the extent each market as a whole benefits from each of Southwest ’ s and JetBlue ’ s proposals. JetBlue performed an analysis 6 consistent with Southwest ’ s previous approach and found that Southwest ’ s proposed DCA

- MCI service would save existing passengers under an AA monopoly $4.4 million and new passengers carried on Southwest $1.8 million, for a total of $6.1 million. Interestingly, this figure is greater than the $5.3 million in savings that Southwest has given itself cred it for. When this same methodology is applied to JetBlue ’ s proposal, it becomes evident that Southwest has conveniently omitted the fare savings to existing passengers because its proposed
DCA

- MCI service results in a total consumer savings that is far l ess than that of JetBlue ’s, as shown below.

6 See Exhibit B6

- 2014A

- 102 in JetBlue ’ s Response dated April 1, 2014 for calculations of Southwest ’ s consumer savings. Calculations of JetBlue ’ s estimated consumer savings can be found in Exhibit B6

- 2014A

- 103.4 JetBlue ’ s Proposed DCA
- JAX Service Produces $8.4 Million More In Consumer Savings 7

II. Southwest Has Failed to Demonstrate That It Can Deliver on its Promises in the DCA
MCI Market JetBlue ’ s ability to generate higher consumer savings is in large part due to the fact tha t incumbent carriers react far more strongly by lowering fares when JetBlue enters a market than when Southwest does, a pattern that has repeated itself time and time again. In fact, t he Department need look no further than pricing trends in DCA

- MCI for evidence that the purported “ Southwest Effect ” is no longer a force for lowering fares. Since Southwest entered the DCA

- MCI market, American has raised its average fare from $186 to $188, while
Southwest ’ s own fare is $7 more than the average fare charged by Frontie r

— the carrier whose service it replaced. By virtue of its existing pendent e lite authority, Southwest has been afforded ample (though temporary) opportunity to de monstrate that its presence in the DCA

- MCI market can stimulate demand and lower fares for consumers, a crucial litmus test that it has failed. Thus,

7 See O&D Survey, as provided by Diio (YE 3Q1 3). Includes estimate of baggage and cancellation fees consistent with Southwest ’ s Application (Exhibit WN

- 2).5 the Department should view Southwest ’ s claim that its service will result in $5.3 million savings
for its own customers with significant skepticism, given its current market performance. Nonstop DCA
- MCI Fares Before 8 And After Southwest ’ s Entry 9

On the other hand, JetBlue ’ s proposed service in DCA

- JAX will result in nearly $4.8
million in savings to new consumers alone , as well as up to an additional $10 million in savings to existing consumers. As outlined in JetBlue ’ s Application, recent pricing trends in two domestic markets provide incontrovertible proof that American responds far more aggressively in lowering fares when JetBlue enters markets in which American holds a monopoly, unlike when Southwest does. Following JetBlue ’ s announcement in March 2014 10 of its intent to serve
DCA

- CHS and DCA

- BDL, American immediately matched JetBlue ’ s su bstantially lower fares in both markets, lowering fares by as much as 74%. Thus, there is good reason to believe that American will respond similarly to JetBlue ’ s presence in the DCA

- JAX market and ultimately

8 See O&D Survey, as provided by Diio (YE 3Q13). Includes estimate of baggage and cancellation fees consistent with Southwest ’ s Application (Exhibit WN

- 2). 9 Application of Southwest Airlines (Exhibit WN

- 2). 10 Press Release, JetBlue Airways Corp., JetBlue Adds Three Nonstop Destinations for Customers at Ronald Reagan Washington Nat’l Airport, Offers Introductory One

- Way Fares as Low as $30 ( Ma rch 6, 2014 ), available at http://investor.jetblue.com/phoenix.zhtml?c=131045&p=irol

newsArticle&ID=1906649&highlight=

. $186 $140 $147 $188

Before WN (YE 3Q13) After WN (current)6 enable consumers to realize savings of $14.8 mi llion, or $8.4 million more than Southwest ’ s proposal. American Lowered Fares 11 Significantly When JetBlue Entered DCA
- BDL and DCA
- CHS in March 2014 12

11 Source: ATPCO GFS System (captured Mar. 17, 2014), lowest fare in each advance purchase bucket shown. 12 Press Release, JetBlue Airways Corp., JetBlue Adds Three Nonstop Destinations for Customers at Ronald Reagan Washington Nat’l Airport, Offers Introductory One

- Way Fares as Low as $30 (March 6, 2014), available at http://investor.jetblue.com/phoenix.zhtml?c=131045&p=irol

newsArticle&ID= 1906649&highlight=

. $91 $136 $136 $192

$55 $65 $110 $155

21 days 14 days 7 days 3 days Advance Purchase AA Fare Before B6 Entry AA Fare After B6 Entry DCA
- BDL

$201 $201 $220 $368

$53 $63 $113 $263

21 days 14 days 7 days 3 days Advance Purchase AA Fare Before B6 Entry AA Fare After B6 Entry DCA
- CHS7 III. Southwest ’ s Presence No Longer Correlates with Lower Fares Southwest, in its Answer , contests the findings of an objective, academic study conducted by the Massachusetts Institute of Technology 13 ( “ MIT Study ” ) that concluded that JetBlue was

“ the airline whose presence is associated with the largest decrease in average fares

. ” 14 In spite o f its bald

- faced attempt to “ correct ” the results of the MIT S tudy, Southwest refuses to acknowledge the reality that its presence in a market is no longer t he primary correlating factor behind lower fares. As even a simple “ back

- of

- the

- napkin ” analysis would illustrate , Southwest ’ s transformation into a “ bigger, mainstream airline has generally meant higher fares , ” 15 especially at airports where it has grown its presence the most over the past five years

. Growth Of Southwest ’ s Fares At Its Top 10 Airpor ts Exceeds The Average Fare Growth 16

13 Michael D. Wittman & William S. Swelbar, Mass. Inst. of Tech. Int ’ l Center on Air Transp., Evolving Trends of U.S. Domestic Airfares: The Impacts of Competition, Consolidation, and Low

- Cost Carriers , Report No. ICAT

- 2013

- 07 at 3

- 4 (Aug. 2013). 14 Id . at 20. 15 Jack Nicas, As Southwest Goes Mainstream, Will Direct Flights Go Extinct? , Wall St

. J

. Corporate Intelligence Blog (April 2, 2014 , 5:17 PM ) , http://blogs.wsj.com/corporate

intelligence/2014/04/02/as

- southwest

- goes - mainstream

- wil l

- direct

- flights

- go - extinct/

. 16 See O&D Survey, as provided by Diio (YE 4Q08 vs. YE 3Q13). 24% 27%

19% 31%

19% 24%
19% 29%
23% 29%

15% 11% 8% 24%

13% 14% 16% 17% 18% 15%

BWI DAL/DFW DEN HOU/IAH LAS LAX MDW/ORD OAK PHX SAN WN Average8 Southwest argues that the MIT S tudy fails to account for cross

- airport competition in markets served by more than one airport, such as Chicago O ’ Hare (ORD) and Midway (MDW). However, as the analysis above shows, Southwest ’ s fare growth still outpaces the average even on a consolidated basis, most nota bly at Dallas Love Field (DAL) where the carrier has a dominant presence. Despite Southwest ’ s attempt to spin the results of the MIT S tudy, the fact remains that Sou thwest ’ s fares are going up

– and at a rate that outpaces all domestic carriers: Southwest ’ s Fares Have Risen the Fastest of All Domestic Carriers 17

Sou thwest also contends that the inclusion of baggage and cancellation fees are integral to evaluating the cost of air travel, a point with which JetBlue agrees and has incorporated in to all relevant cost and savings calculations. However , even if cancellation and baggage fees were included in the MIT S tudy, these fees are not material and do nothing to underm ine the obvious

17 See Jack Nicas & Susan Carey, Southwest Airlines, Once a Brassy Upstart, Is Showing Its Age , Wall St. J. Bus. (April 1, 2014 , 10:38 PM ) , http://online.wsj.com/news/articles/SB10001424052702303949704579459643375588678?mg=r eno64

- wsj&url=http%3A%2F%2Fonline.wsj.com%2Farticle%2FSB1000142405270230394970457945 9643375588678.html

. Chart reproduced from the Wall Street Journal

.9 conclusion that Southwest ’ s pre sence in a market is no longer the primary catalyzing force behind lower fares. It should be noted that as of the year ending third quarter 2013, baggage and cancellation fees of major legacy carriers comprised only 5.3% of passenger revenues , 18 which makes it all the more surprising that Southwest ’ s fares have risen 21% from 2008

- 2013 (as shown above), over 7% more than the carrier with the next largest fare growth. This data would suggest to even the m ost casual observer that Southwest ’ s service does not offer consumers any additional benefits over and above those offered by other carriers ; in fact, Southwest ’ s aggressive fare growth more than compensates for the supposedly “ free ” bags and cancellations

. Most importantly, the Department should disregard Southwest ’ s alternative model whose conclusions can hardly be considered objective. Unlike the Southwest

- commissioned Campbell

Hill study , the authors of the MIT S tudy received neither consideration nor influence from one of the subjects of the study. JetBlue did not pay the authors of the MIT S tudy that determin ed “ the presence of JetBlue is one of the most important explanatory factors behind which airports have lowe r fares than others. ” 19 The findings of the MIT Study are not only directly relevant, but central to the Department ’ s decision to award these slots to the carrier that will deliver the maximum benefit to the traveling public, which in this case is JetBlue.
IV. JetBlue Can and Will Add Additional Capacity as the DCA
- JAX Market Grows Despite American ’ s attempt to mischaracterize JetBlue ’ s proposal to serve the DCA

- JAX market on an initial basis onboard its mainline 100

- seat Stage 3 Embraer E190 ( “ E190 ” ) jet as a sign of decreased market confidence, the opposite is true. The simple fact that JetBlue has applied twice to serve DCA

- JAX demonstrates its strong belief that this market continues to be a prime candidate for low fare competition.

18 See DOT Form 41 (v ia Diio) as of YE 3Q13. 19 MIT Study at 11.10 Unlike Southwest, JetBl ue possesses a diverse fleet of aircraft that allows it to better match supply with demand. As demand for low

- fare travel in the DCA

- JAX market grows in response to the “ JetBlue Effect , ” JetBlue is fully prepared to increase capacity through the use of its larger

- gauge 150

- seat Airbus A320 or 190

- seat Airbus A321 jets, which are 5% and 32% larger, respectively, than Southwest ’ s proposed 143

- seat B737

- 700 aircraft. As shown below, three of JetBlue ’ s debut markets at DCA

– BOS, FLL, and MCO were upgauged to t he A320 after only 18 months as demand once again warranted . The significantly lower unit costs on the A320 and A321 will in turn help to lower fares in the DCA

- JAX market even further and increase consumer fare savings beyond the $14.8 million that JetBlu e expects to achieve even on the smaller E190. JetBlue Increased Capacity to 3 DCA Markets on A320 After Only 18 Months 20

Finally, Southwest appears to have misunderstood the legal definition of regional jet as set forth by Congress , 21 which applies to aircraft with a seating capacity of 70 seats or less. Accordingly, JetBlue ’ s proposal to operate nonstop DCA

- JAX service on board its mainline 100

- seat E190 jets indeed qualifies as large

- jet service. In fact, m any JetBlue customers prefer the

20 See JetBlue schedules for December 2010 and July 2012. Daily seats by equipment. 21 The term “ regional jet, ” as used in 49 USC 41718, is explicitly defined to mean “ a passenger, turbofan

- powered aircraft with a certificated maximum passenger seating capacity of less than 71. ” 49 USC 41714(h)(6). 700 800 300

Dec-10 Jun-12 

### DCA
- BOS

100 100 300

Dec-10 Jun-12 

### DCA
- MCO

E190 A320 100 100 300

Dec-10 Jun-12 

### DCA
- FLL11 E190 aircraft on routes of similar stage length because it offers the most legroom in coach , complimentary SiriusXM radio and DirecTV, and all

- leather seating with no middle seats

. The competitive schedule set forth, along with JetBlue ’ s industry

- leading Core Experience leaves no room for doubt that its proposal to serve DCA

- JAX will maximize both the convenience and comfort of business and leisure customers alike.
JetBlue ’ s E190 is Superior to Competing Aircraft Proposals 22
JetBlue

E190 Southwest B737

- 700 American CRJ

- 200 Seat pitch Core: 32" Even More Space : 39" 31" 31"

Seat width 18.25" 17" 17.3"

V. Conclusion JetBlue requests that the Department accept this Sur

- Reply as part of the record in this slot exemption proceeding. Based on the strength of the evidence presented throughout JetBlue ’ s initial Application, Answer and the foregoing Sur

- Reply, the Departmen t can and should award the AIR

- 21 slot exemption s to JetBlue, in recognition of the significant consumer benefits that JetBlue ’ s proposed nonstop DCA

- JAX service would deliver. Dated: April 9 , 2014 Respectfully submitted,

Robert C. Land Senior Vice President for Government Affairs And Associate General Counsel

22 See http://www.seatguru.com/charts/shorthaul_economy.phpExhibit B6
- 2014R
- 101 Letter of Support from U.S. Senator Bill NelsonCertificate of Service I hereby certify that a cop y of the foregoing Motion for Leave to File Unauthorized Pleading And Consolidated Sur

- Reply of JetBlue Airways Corporation was served this 9 th day of April, 2014 via email transmission on the following persons: robert.wirick@aa.com francis.heil@aa.com howard.kass@aa.com sascha.vanderbellen@delta.com jeff.morgan@delta.com bob.kneisley@wnco.com leslie.abbott@wnco.com Charles.donley@squiresanders.com marshall.sinick@squiresanders.com robert.cohn@hoganlovells.com patrick.rizzi@hoganlovells.com john.fredericksen@suncountry.com thomas.ting@suncountry.com dan.weiss@united.com steve.morrissey@united.com jonathan.linde@united.com karine.faden@united.com lhalloway@crowell.com gmurphy@crowell.com john.varley@virginamerica.com jegillick@zsrlaw.com jhfoglia@zsrlaw.com anita.mosner@hklaw.com Jennifer.nowak@hklaw.com mike.morisi@flypex.com shawn.voyles@flypex.com dhernandez@vedderprice.com nssparks@fedex.com sl lunsford@fedex.com jyoung@yklaw.com lgrunewald@yklaw.com steve.grossman@flyjacksonville.com quince.brinkley@mwaa.com Susan.Kurland@dot.gov Esta.Rosenberg@dot.gov Todd.Homan@dot.gov brian.ctr.meehan@ faa .gov fbavent@airlineinfo.com info@airlineinfo.com and via First Class Mail on the following: Mayor Vincent Gray Executive Office of the Mayor 1350 Pennsylvania Avenue, NW Suite 316 Washington, DC 20004 Mayor Alvin Brown Mayor ’ s Office City Hall at St. James Building 117 W. Duval St Suite 400 Jacksonville, F L 32202 John Potter President and CEO Metropolitan Washington Airports Authority 1 Aviation Circle Washington, DC 20001

___________ /s/

____________________ Michael R. Radlick