1 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

- 20 00

- 7182 )

Consolidated Response O f JetBlue Airways Corporation Communications with respect to this document should be addressed to:

James Hnat Jonathan B. Hill Executive Vice President for J. Parker Erkmann Corporate Affairs & General Counsel Dow Lohnes PLLC JetBlue Airways Corporation 1200 New Hampshire Ave., NW 27

- 01 Queens Plaza North Suite 800 Long Island City, NY 11101 Washington, D.C. 20036 (202) 776

- 2000 jhill@dowlohnes.com perkmann@dowloh n es.com Robert C. Land Senior Vice President for Government Counsel for Affairs & Associate General Counsel JetBlue Airways Corporation JetBlue Airways Corporation P.O. Box 1927 Rockville, Maryland 20849

- 1927 (301) 279

- 9727

December 19, 20122 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 ________________________________________________) Consolidated Response O f JetBlue Airways Corporation JetBlue Airways Corporation (“JetBlue”) hereby submits the following Consolidated Response to the competing applications for the pair of slot exemptions to be reallocated for service at Ronald Reagan Washington National Airport (“DCA”) pursuant to the provisions of the Wendell H. For d Aviation Investment and Reform Act for the 21 st Century (“AIR

- 21”). 1 In light of the Congressionally

- established criteria for awarding AIR

- 21 slot exemptions, JetBlue’s application to introduce low fare competitive service in the DCA

- Jacksonville, FL (“ JAX”) market with continuing service to San Juan, Puerto Rico (“SJU”) stands alone. As restated in the Notice, 2 these criteria are: the Secretary [shall] distribute within

- perimeter slot exemptions in a manner that promotes air transportation: (1) by new entrant air carriers and limited incumbent air carriers; (2) to communities without existing nonstop air transportation to DCA; (3) to small communities; (4) that will provide competitive nonstop air transportation on a monopoly nonstop route to DCA; or ( 5) that will produce the maximum competitive benefits, including low fares.

Notice at 1

- 2. The applications of US Airways and Southwest both undermine important directives in AIR

- 21. First, because three of the statutory criteria are directed at foster ing competitive service at DCA, an award of slot exemptions to US Airways, which is DCA’s dominant carrier, contravenes Congressional intent and exceeds the Department’s discretion. Second, because AIR

- 21 seeks to promote service to small communities, gra nting Southwest’s application to serve Houston, the fifth

- most populous metropolitan area in the country, also would be inconsistent with a fundamental Congressional directive.

1 See 49 U.S.C. § 41718(b).
2 Notice, Establishment of Slot Exemption Proceeding Pursuant to 49 U.S.C. § 41718(b), Docket DOT

- OST

- 2000

- 7182 (Nov. 13, 2012) (the “Notice”).3 Section 41718 does not provide the Department with guidance on how the criteria are to be weighted, and the Department has interpreted this lack of direction as providing it with the discretion to determine how much weight each factor deserves on a case

- by

- case basis. The Department reinforced this interpretation in Order DO T

- OST

- 2012

- 7

- 26 (July 24, 2012) , in which it rejected any requirement to award the slot exemptions to the application meeting the greatest number of statutory criteria and retained discretion to weight the criteria as it saw fit. Instead , the Department h as claimed discretion to decide which of the five criteria are most important on a case by case basis . Accordingly, JetBlue submits that in this proceeding it is the only limited incumbent carrier to propose competitive service on a true monopoly route be tween a medium

- hub airport and DCA , and only JetBlue’s proposal will produce the maximum competitive benefits , including the greatest reduction in fares in the proposed markets

. In
contrast , Southwest proposes to serve one of the nation’s largest markets but will have comparatively little impact on average fares

. Because, as will b e discussed below, JetBlue best satisfies the statutory criteria established for awarding AIR

- 21 slot exemptions, JetBlue respectfully requests that the Department reallocate the available slot exemptions for its proposed DCA

- JAX service.

I. The Department Should Not Award Additional Slot Exemptions T o US Airways. A fundamental Congressional goal in AIR

- 21 is the promotion of competition at DCA. Indeed, the statute directs the Department to favor: (1) new entrants and limited incumbent air

c arriers, (2) the introduction of competitive service on monopoly routes, and (3) the service that provides the maximum competitive benefits, including low fares. The Department has repeatedly stated that promotion of competition is a critical goal in the allocation of slot exemptions. See Order DOT

- OST

- 2000

- 7

- 2 (July 5, 2000) , at 20 (allocating slot exemptions because the “proposals would meet the statutory criteria of providing competitive nonstop air transportation on DCA monopoly nonstop routes by offe ring low

- fare service to compete with US Airways’ monopoly”); Order DOT

- OST

- 2004

- 8

- 3 (Aug. 9, 2004), at 12 (allocating slot exemptions because proposal “provide[d] competitive nonstop air transportation on a monopoly nonstop route to DCA” and “produce[d] t he maximum competitive benefits, including low4 fares.”)

. Given the Congressional directive, the award of additional slot exemptions to an air carrier with unequalled market dominance at DCA is untenable. This position is especially true given the recent rulings by the Department that have allowed US Airways to strengthen its position at the airport. US Airways ’ already dominant position at DCA was further enhanced when the Department approved the US Airways

– Delta Air Lines “slot swap” whereby US Airways acquired an additional 42 slot pairs. 3 Since that transaction closed, US Airways has only solidified its leading position. As shown in the charts below, before the slot swap, US Airways and its affiliated regional carriers operated 46 percent of all flights at DCA, and this has increased to 55 percent since the acquisition of Delta’s slots. 4 The Slot Swap Strengthened US Airways’ Market Position At DCA

Source : OAG Schedule, as provided by Diio. As described in JetBlue’s Application, this consolidation in DCA slot holdings has resulted in US Airways operating more monopoly routes and, as the preliminary data indicates, higher fares for consumers

. See JetBlue Application at 11. US Airways’ DCA dominance has resulted in the airport earning a dubious dis tinction: of the nation’s slot

- controlled airports, DCA has the most regional jet (or smaller) aircraft serving the airport

.

3 See Petition for Waiver of the Terms of the Order Limiting Scheduled Operations at LaGuardia Airport, 76 Fed. Reg. 63 , 702 (Oct. 13, 2011).
4 The 55 percent figure actually understates US Airways’ dominance at DCA. Through its codeshare with United, US Airways sells additional seats on United’s flights to Denver (“DEN”) and Chicago O’Hare (“ORD”), meaning that it sells seats on a full 58 percent of flights from DCA. US Airways

46%

DL 22% AA 12%

UA 8% Other 12% DCA Departures Share: Pre
- slot swap

Data for 4Q2011 US Airways

55%

DL 11% AA 12%

UA 8% Other 13% DCA Departures Share: Post slot swap

Data for 4Q20125 

### Small Aircraft Dominate The Sky At DCA

Source: OAG Schedule for 1Q2013, as provided by Diio
. By operating limited and valuable DCA slots, including many of its air

- carrier (non

- commuter designated) slots allocated for large jets with small aircraft, US Airways has effectively restricted capacity by limiting the number of seats in a given market. Because of the constraints on supply, the limited slots and the artificial limitation of the number of seats through the use of smaller aircraft, fares at DCA are very high. 5 As will be discussed in Section II.A , DCA

- JAX is a perfect example of this use of dominant market share at a capacity

- restricted airport. In light of th e use of smaller

- capacity aircraft and higher fares, the award of additional DCA authority to US Airways s hould not be considered seriously

. Independent of the broader considerations of competition at DCA overall, US Airways’ application to serve Oklahoma City (“OKC”) offers fewer benefits than does JetBlue’s proposed service to Jacksonville. First, JetBlue proposes to serve JAX with its 150

- seat A320 aircraft,

5 The D epartment has repeatedly found that fares at DCA are higher than at other airports. See, e.g., Notice on Petition for Waiver of the Terms of the Order Limiting Scheduled Operations at LaGuardia Airport, 75 Fed. Reg. 26 , 322, 26 , 323 n.12 (May 11, 2010) ( “DOT calculated that, at DCA, US Airways charged on average 124% of the Standard Industry Fare Level (SIFL), a cost

based index that the Department has used historically to assist in its evaluation of pricing. However, in markets where it held a 95 to 100% share of nonstop departu res, US Airwa ys charged substantially more.”)

.6 which is more than 50 percent larger than the 99

- seat E

- 190 proposed for OKC by US Airways. Second, US Airways’ offer to start service between OKC and its hub in Charlotte, NC (“CLT”) should be dismis sed for what it is: an irrelevant gimmick that requires no Departmental action if US Airways were interested in starting such service. See Order DOT

- OST

- 2004

- 12

- 6 at 7

- 8 (awarding slot exemptions to Atlantic Southeast Airlines over Northwest because Nort hwest would use the slot exemptions to “backfill for slots it elected to lease out to others”)

. Given US Airways’ DCA slot portfolio of approximately 470 slots and exemptions and its dominant hub operations at CLT, US Airways ha s the resources to start it s proposed OKC service at any time

. 6 If such service is economical, US Airways should start it and not ask the Department to induce the service through the award of scarce DCA slot exemptions.

II. JetBlue’s DCA

- JAX Application Is Superior To Southwest’s Proposal to Serve Houston. Southwest’s application to serve Houston’s Hobby Airport relies on inconsistent claims about its proposed service to mask the fact that it does not satisfy one of the important Congressionally

- established statutory criteria

. To be eligible to apply for the slots to be reallocated in this proceeding, Southwest has proposed service to a medium

- hub airport, Houston’s William P. Hobby Airport (“HOU”). Southwest Application at 1, 3. T he greatest purported benefits of S outhwest’s application do not stem from the benefits of serving HOU, but from its impact on the Houston market and more specifically its claim that the proposed service will compete against United’s service between DCA and Houston’s George Bush Intercontin ental Airport (“IAH”), which “is a large hub and therefore ineligible for service in this proceeding.” Southwest Application at 3. The Department has long considered HOU and IAH to be the same market

. Not only are IAH and HOU reported as a single market on Form 41 data provided to the Bureau of Transportation statistics, but as Southwest points out in its application, the U.S.

- Mexican Bilateral Aviation Agreement, as amended, designates Houston as a “ single point, which can be served by either airport .” S outhwest Application at 2 n.1. Accordingly, Southwest’s proposal is inconsistent with the statutory direction that the Department foster

6 Indeed, this week US Airways loaded changes to its DCA schedule, cancelling twice daily service to Ottawa, CA and six times weekly service to Northwest Arkansas effective February 2, 2013. See OAG Schedule. This action freed up almost three slot pairs that could be used to start OKC service without an AIR

- 21 slot exemption.7 service to small communities

. Because JetBlue proposes to serve a small er community than Houston and the DCA

- JAX se rvice will have a proportionately larger competitive impact than Southwest’s proposal, JetBlue submits that its application best satisfies the intent of Congress and offers the greatest consumer benefit within t he scope of the Congressionally mandated criteria.

A. JetBlue’s DCA

- JAX Service Will Provide Significant Competitive A nd Consumer Benefits. JetBlue’s proposed service to Jacksonville will result in significant competitive and consumer benefits for travelers between JAX and DCA. US Airw ays’ average annualized fare in DCA

- JAX is $214

. 7 JetBlue projects that its average fare will be $125, which is $ 89 or 4 1 percent less than the current average US Airways DCA

- JAX annualized fare.

7 The $214 fare is the annualized average US Airways has charged to all fared passengers in the DCA

- JAX market. See O & D Survey, as provided by Diio for YE 2Q2012. Since Delta’s exit from the market halfway through this period in January 2012, US Airways’ fares have increased 16 perce n t. See id ; Part II.C, infra

. This calculation excludes taxes and other government fe es and includes an estimate of baggage and rebooking/change fees. See O & D Survey, as provided by Diio for YE 2Q2012. For the purpose of this comparison , JetBlue attempted to replicate Southwest’s calculation of the average United fare in the DCA

- IAH ma rket. See Southwest Application Exhibit WN

- 103.8 

### JetBlue’s P rojected DCA

- JAX Fare Will Be 41% L ess than US Airways’ C urrent Fare 8

Consistent with JetBlue’s experience in other markets, see JetBlue Application at 4, 9

- 10, the lower fares will increase traffic in the market by an estimated 1 0 9 , 726 passengers. JetBlue will carry most of this traffic, but the lower fares also will stimulate additional passengers on US Airways’ flights. 

### JetBlue ’s P roposal W ill Grow The JAX

- DCA Market By Over 1 00 ,000

8 See O & D Data, as reported by Diio. The average fare used in the chart is the average fare charged by US Airways for nonstop service DCA

- JAX and excludes fares sold for connecting service on other airli nes. $214

$125

$0 $50 $100 $150 $200 $250

US DCA-JAX Fare Assumed B6 DCA-JAX Fare Average Fare

(41%) ($89)

78,840 30,886

0 20,000 40,000 60,000 80,000 100,000 120,000 140,000

1 US pax B6 pax Total: 109,7269 The introduction of competition in the DCA

- JAX market will result in considerable consumer benefit, an estimated $1 0. 6 million in fare savings. 

### JetBlue’s DCA

- JAX S ervice W ill G enerate $10. 6 M illion A nnually I n C onsumer F are S avings

In making these estimates, JetBlue used the same methodology employed by S outhwest in Appendix 1 of its A pplication. See Exhibit B6

- R

- 101. The results of that methodology reflect estimates based on conservative assumptions and JetBlue’s long track record of adding capacity and lowering fares when entering markets dominated by US Airways. 9 JetBlue’s proposal also adds more capacity to DCA than does Southwest’s proposal. Southwest proposes to use a Boeing 737

- 700 aircraft with 143 seats, Southwest Application at 3, while JetBlue has proposed to serve DCA

- JAX on i ts 150

- passenger A320

. B. Southwest’s Claims Of Consumer Benefits Are Inflated. Southwest’s Application makes aggressive claims about the amount of consumer benefit that will result from its proposed service to greater Houston. In particular, Southwest’s claims about United’s average fare in the DCA

- IAH market is the result of an elaborate calculation intended to inflate the average fare . When the same calculations are made in the JAX

- DCA market, it is apparent that JetBlue will have a proportionately larger impact on the average fare

9 Indeed, JetBlue’s estimate made the very conservative assumption that its DCA

- JAX service would have no competitive impact on United’s JAX service from Dulles International Airport (“IAD”). $7.6M

$3.0M $10.6M

$0.0 $2.0 $4.0 $6.0 $8.0 $10.0 $12.0

Savings to Existing Passengers Savings to New Passengers Total Passenger Savings DCA
- JAX Consumer Fare Savings ($M)10 than will Southwest’s proposed service. Moreover , as will be discussed below, Southwest’s claims about the amount of consumer benefit are based on assumptions that are inconsistent with United’s re sponse to competition from Southwest in other markets. More than likely, United’s conduct in other markets will be replicated in the IAH/HOU

- DCA market, and Southwest’s proposed benefits will hardly be realized to the extent claimed.

1. The $334 Average F are In The DCA

- IAH Market Cited By Southwest In Its Application Is Overstated. Southwest claims significant competitive benefits because its proposed $207 average fare in the DCA

- HOU market will be less costly than the current $334 average fare charged by United on its DCA

- IAH route. See Southwest Application at 5, WN

- 101. JetBlue’ s analysis of the average fare in this market, however, suggests that Southwest’s number is significantly inflated. When JetBlue calculates the average fare in a market, it divides the passenger revenue as reported to DOT by the total number of local pass engers as reported to DOT. Using that methodology for United’s flights in the DCA

- IAH market results in an average fare of $ 272

. 10 The average fare for all carriers in the DCA

- IAH market, which includes connecting traffic, is $242. 11 Reaching the $334 ave rage fare requires multiple calculations . First, Southwest apparently has increased the average fare by removing zero

- fare passengers (such as loyalty

program redemption tickets) from the denominator of the average calculation. See Southwest Application at WN

- 103 n.1. Second, Southwest has included an adjustment to account for baggage and change fees, 12 which necessarily is a generalized estimate because the Form 41 data apparently used to calculate it is not available at the route level. See id. Properly a djusting for

10 See O & D Data, as provided by Diio. Data is for YE 2Q2012

. 11 See O & D Data, as provided by Diio. Data is for YE 2Q2012.
12 At first glance, Southwest’s inclusion of an estimate of these fees makes some intuitive sense. Because of its “bags fly free” policy, passengers have not paid these fees when they fly Southwest. But Southwest recently announced that it will begin charging more fees, including increasing fees for third and overweight bags, fees tied to the sale of open and premium boarding positions and a no

- show fee for restricted tickets that pas sengers fail to cancel. See Southwest Air Sets New Fees To Add $100mln To Revenue, Reuters (Dec. 14, 2012) (available at: http://www.reuters.com/article/2012/12/17/uk

- southwestair

- fees

- idUSLNE8BD01O20121217 ). JetBlue does not charge a fee for the first checked bag.11 these factors results in a much reduced average United fare in the DCA

- IAH market and hence a lower difference between Southwest’s fare and United’s fare

. 

### United’s Average DCA

- IAH Fare Is Only $272 13

The difference in the average f are calculation results in a meaningful difference in the evaluation of the competing proposals in this proceeding. Southwest’s estimate of the post

- slot award DCA

- IAH/HOU fare is only 19 percent lower than the current average fare in the DCA

Houston mark et . Using the adjusted assumptions to analyze JetBlue’s fare differential , it is clear that JetBlue’s proposed service will have a much larger impact on the DCA

- JAX market than Southwest will have on the Houston market . JetBlue’s estimate of the post

- slot award average DCA

- JAX fare is a full 28 percent lower than the current DCA

- JAX average fare, as depicted in the chart below:

13 See O & D Data, as provided by Diio. Data is for YE 2Q2012. $272 $42 $20



### $0 $50 $100 $150 $200 $250 $300 $350

UA Estimated Fare WN estimates fare @ $334

Base Fare, as reported in DOT O&D Survey Adjustment for zero

- fared passengers Bag and change fees, estimate12 JetBlue’s DCA

- JAX Service Will Reduce Average Fares By More Than Southwest 14

2. When Southwest and United Compete Head

- to
- Head in a Market, Fares Remain Above the Average Domestic Fare Curve. Based on past examples of head

- to

- head competition between Southwest and United, it is apparent that Southwest’s promises of average market fares below the DCA market fare curve will not be realized. Southwest claims that it will charge an average fare for DCA

- HOU equal to the average fare level of $207 for its BWI

- HOU service. Southwest Application Exhibit WN

103. This would be $26 below the n onstop f are c urve value of $233. See id. Exhibit WN

- 102. Prior examples of head

- to

- head competition between Southwest and United suggest, however, that average market fares will remain consistently higher than the average fare curve.

14 For the purpose of this comparison, JetBlue used the average fare charged by all air carriers (as opposed to just United’s $272 average fare) on the DCA

- IAH /HOU route, excluding passengers who did not pay a fare from the calculation. See O & D Data, as provided by Diio for YE 2Q2012 . JetBlue also used the $200 average fare charged by all carriers (as opposed to the $214 average fare charged by US Airways) in the DCA

- JAX market, excluding passengers carried who did not pay a fare from the calculation. See id. J etBlue also used each carrier’s respective estimate of the impact of its entry on the average fare in each market. See Southwest Application, Appendix 1

. $292
$235

$0 $50 $100 $150 $200 $250 $300

DCA-HOU* fare today DCA-HOU* fare with WN entry Impact on Market Fare in DCA
- IAH

(19%)

$200
$145

$0 $50 $100 $150 $200 $250 $300

DCA-JAX fare today DCA-JAX fare with B6 entry Impact on Market Fare in DCA
- JAX

(28%)13 United

- Southwest Competition Results In High Fa res 15

Metro Market Carriers YE 2Q2012 Avg. Fare Fare Curve Expected Avg. Fare Dollar Diff. from Fare Curve % Diff. from Fare Curve HOU

- ABQ UA, WN $186 $181 $5 3% HOU

- RDU UA, WN $227 $199 $28 14% HOU

- STL UA, WN $196 $175 $21 12%
In stark contrast, in markets where JetBlue competes head

- to

- head with US Airways, the
average market fares are consistently well below the average fare curve. This phenomenon is depicted in the chart below: B6 Competition Against US Results In Fares Below The Average Fare Curve; WN Competition Against UA Results In Fares Above The Average Fare Curve 16

15 The average f are curve is derived from all domestic nonstop routes for all fared passengers and can be expressed with th e following equation: Fare = 56.2 ln(miles)

- 191.3. This calculation includes f ared passengers only and does not include bag or change fee estimates. See DOT O&D Survey for data YE 2Q2012, as provided by Diio. The HOU* metro market includes both IAH and HOU.

16 See DOT O&D Survey for data YE 2Q2012, as provided by Diio. The data depicted for the UA

- WN markets in this chart is the same as the data used in the previous chart. $0 $100 $200 $300 $400

300 500 700 900 1100 1300Average fare

Nonstop miles US Domestic Average Fare Curve metro nonstop markets, YE 2Q2012

HOU*

- ABQ HOU*

- RDU HOU*

- STL

BOS

- RIC BOS

- CLT

BOS

- BUF AVERAGE UA and WN only

AVERAGE US and B6 only14 3. United Is Unlikely To Match Southwest’s Fare Levels. Southwest’s claimed benefits also are overstated because United is unlikely to follow Southwest’s lead and price its fares at the Southwest level. In markets where United and Southwest compete, United historically do es not match Southwest’s prices and continues to charge a premium 38 percent higher than Southwest’s fares

. 17 In contrast, the premium that US Airways charges when it competes head

- to

- head against JetBlue is significantly lower , approximately 21 percent

. See Exhibit B6

- R

- 102 (depicting the premium charged by US Airways and United when competing against JetBlue and Southwest respectively in certain representative markets )

. JetBlue Has A Larger Impact On US Airways’ Fares Than Southwest Has On United’s Fares. 18

There are a number of reasons to believe this conduct will be replicated in the DCA

- Houston market. First, Southwest’s and United’s flights will not compete head

- to

- head against each other. They serve two different airports that appeal to different segments of the population of

17 Southwest’s application acknowledges this fact, stating that United “historically lowers its fares in response to direct Southwest competition” rather than stating that United matches Southwest’s fares. See Southwest Application at 5 (emphasis added).
18 T his chart summarizes the data contained in Exhibit B6

- R

- 102. 21% 38%

0% 10% 20% 30% 40%

US premium over B6 UA premium over WN15 Houston. Second, even if Southwest is awarded these slot exemptions, United will continue to fly more frequencies, offering a far more attractive schedule to business and leisure travelers alike

. Third, the market profile of DCA

- HOU is similar to the market profile of EWR

- HOU ( large metropolitan areas, slot controlled airports) where United’s average fares are 58 percent higher than Southwest’s. See Exhibit B6

- R

- 102. Fourth , the services offered by United and Southwest are different and compete in a number of ways other than price such as cabin configuration, the ability to reserve seats , connecting options and frequent flyer programs. As this data demonstrates , JetBlue’s service will have a more pronounced impact on fares than will Southwest ; thereby fulfilling the fifth statutory criteria that the proposed service make a significant impact on competition, including lower fares.

4. JetBlue’s DCA

- JAX Service Will Have A Larger Competitive Impact Because It Reflects The Entry O f A Genuinely New Competitor. Unlike Southwest’s proposed Houston service, JetBlue’s DCA

- JAX service represents the introduction of genuine competition from the greater Washington metropolitan area. JetBlue currently does not serve JAX from any of the th ree Washington

- area airports, DCA, IAD or BWI. In contrast, Southwest has three daily flights from HOU to BWI in competition with United’s considerable service between the greater Washington

- area and Houston. Southwest Already Competes With United On Routes Between The Washington Metro Area And Houston 19

Airport Carrier Frequency Daily Seats BWI

- HOU WN 3x daily 438 BWI

- IAH UA 3x daily 404 DCA

- IAH UA 8x daily 949 IAD

- IAH UA 6x daily 501

Accordingly, the fare structure of the Washington

- Houston market described in Southwest’s Application already reflects some level of competition from Southwest. In contrast, JetBlue’s service will be first of its kind and compete head

- to

- head on the same airport pair as US Airways’ monopoly route.

19 See OAG, as provided by Diio, (reflecting March 2013 OAG schedule).16 C. JetBlue’s Proposal Addresses T he Biggest Competitive Problem A t DCA While Southwest’s Fails To

. JetBlue’s proposal provides the greatest public benefit because it takes on the core competitive problem at DCA: the dominance of US Airways. In contrast, So uthwest’s proposal seeks to compete against DCA’s fourth

- largest carrier, United, which serves only its hubs from DCA. In approving the 2011 slot swap transaction, the Department implicitly embraced US Airways’ argument that a larger network at DCA result ed in efficiencies and consumer benefits despite the Department’s reservations that “the transaction d [id] raise concerns as to levels of airport concentration [and] the number of monopoly or dominant markets in which increased pricing power can be exercis ed.” 20 The Department concluded that limited divestitures would “address the competitive harm caused by the transaction.” 21 Unfortunately, because the divestitures were so limited, the Department’s concerns have come to fruition in markets like DCA

- JAX and fares have increased significantly. Since Delta exited the market after the slot swap , fares have increased and service has been cut: US Airways Has Raised Fares A nd Cut Capacity O n DCA

- JAX 22

20 See 76 Fed. Reg. at 63 , 70 5

. 21 See id. at 63 , 7 06

. 22 See O & D Survey, as provided by Diio. $50 $100 $150 $200

200 350 500 650

2004 2005 2006 2007 2008 2009 2010 2011 2012Average fareNonstop seats per day Historical Capacity vs. Fare in DCA
- JAX
Daily NS Seats Avg fare
DL exits

DL enters17 This phenomenon is observable across US Airways’ network at the airport. US Airways has acquired a monopoly in seven markets since the slot swap closed, DCA

- Columbus (“CMH”), DC A

- JAX, DCA

- Providence (“PVD ”), DCA

- Hartford (“BDL”), DCA

- Charleston (“CHS”), DCA

- Indianapolis (“IND”), and DCA

- New Orleans (“MSY”). In three of them, DCA

- CMH, DCA

- JAX, and DCA

- PVD, there is sufficient data to analyze the competitive impact. As one would expect, prices have increased in these markets by an average of 19 percent as depicted in the chart below: Fares Have Increased In US Airways Monopoly Markets 23

Market Remaining carrier YOY fare ∆

DCA

- CMH US Airways 4%
DCA

- JAX US Airways 16%
DCA

- PVD US Airways 40% **US Airways average 19%** 

Only JetBlue has taken on the consumer

- friendly task of going head

- to

- head against DCA’s dominant carrier. In contrast, as depicted in the chart below, Southwest uses the slots it holds to

serve m arkets that US Airways does not.

23 See O & D Survey, as provided by Diio.18 JetBlue Competes Aggressively Against US Airways At DCA 24

Having made the decision to allow US Airways to expand at DCA, JetBlue submits that the Department must use the other policy tools at its disposal to promote competition and reign in the dominant carrier. This is just such an opportunity, and the Department should exercise its discretion to grant t he slot exemptions to JetBlue, the only carrier willing to compete directly against US Airways.

D. Southwest’s Proposed Service to Houston is Inconsistent with Congress’s Direction I n AIR

- 21 T o Facilitate Service T o Medium

- Sized A nd Small Communities. Granting Southwest’s application would undermine a critical Congressional mandate when enacting AIR

- 21. In passing this statute, Congress sought to increase capacity at slot

constrained airports but was concerned that larger cities would enjoy all of the benefits of those capacity increases

. See 146 Cong. Rec. S1247

- 07 (Mar. 8, 2000) ( statement of Sen. Grassley), 2000 WL 255797 ( expressing concern that “ we would only see increased flights between major cities, to the exclusion of smaller airports. ”); 146 Cong. Rec. H1002

- 01 (Mar. 15, 2000) ( statement of Rep. Costello), 2000 WL 278237 (“ This legislation serves to increase competition and aid small communities. ”). As a result Congress created the AIR

- 21 slot exemptions with attributes designed to promote se rvice to small communities. There is a requirement that

24 See OAG Survey, as provided by Diio. 0 5 10 15 20 25 30 35 40

B6 WN Total Slots in Usage against other against US19 exemptions be allocated to medium

- hub and smaller airports, and an express direction that the Department consider service to: “ distributing slot exemptions for flights within the perimeter to such a irports

. . . in a manner tha t promotes air transportation . . . to small communities. . . .” 25

Southwest ’s application is directly at odds with th is Congressional directive. Southwest itself touts the fact that Houston is the “fifth largest metro in the U.S.” Southwest Application at
7. The application also points out that IAH and HOU are operated together: “IAH and HOU are both owned by the City of Houston and operated by the Houston Airp ort System (“HAS”). Southwest Application at 2 n.1. Southwest even argues that consumer demand for service from IAH and HOU is equivalent : “Clearly, the demand for service to HOU is as strong as it is to IAH.” Id. at 7. Indeed, all of the purported co nsumer cost savings from Southwest’s application is realized in the market between DCA and the city of Houston , which is a hub for two major airlines

. In contrast to Houston , Jacksonville is a much smaller community; Houston’s population of six million is more than four times the population of Jacksonville. 26 Accordingly, Jacksonville is a medium

- sized city of the type to which Congress sought to promote service when creating AIR

- 21 slot exemptions.
Because JetBlue proposes to serve a smaller community than Houston, its service will have a disproportionately larger impact on the community. Both JetBlue and Southwest project cost savings from their respective services. The benefits of JetBlue’s servi ce, however, will be realized across a much smaller population. As a result, the average cost savings realized per local re sident as a result of JetBlue’s proposal are significantly greater.

25 49 U.S.C. § 41718(b) (3); s ee 49 U.S.C. § 41718( c) (requiring the Department to award 16 of 20 AIR

- 21 slot exemptions to medium

- hub or smaller airports).
26 American Fact Finder, Census.gov, http://factfinder2.census.gov/faces/nav/jsf/pages/index.xhtml ( ACS Demographic and Housing Estimates for 2011 reporting Houston’s population as 6,086,895 and Jacksonville’s as 1,358,593).20 JetBlue’s Consumer Cost Savings Are Greater On A Per Capita Ba sis 27

At bottom, Southwest’s proposal will have a small impact on a very large market; JetBlue will have a significant impact on a much smaller community. The statute directs the Department to consider the interests of smaller communities in this procee ding. By proposing to serve one of the nation’s largest cities through a smaller airport , Southwest has attempted a regulatory end run, which t he Department should not reward . Instead, the Department should award the slot exemptions to the only limited incumbent proposing to serve a small or medium

- sized community consistent wit h the Congressional directive.

27 To make this comparison, JetBlue accepted the consumer cost savings estimates of both Southwest ($19.1 million) and JetBlue ($10.6 million) and averaged them across the population of each Metropolitan Service Area as reported in the Census. See Southwest Exhibit WN

- 106; American Fact Finder, Census.gov, http://factfinder2.census.gov/faces/nav/jsf/pages/index.xht ml ( ACS Demographic and Housing Estimates for 2011 reporting Houston’s population as 6,086,895 and Jacksonville’s as 1,358,593). 

### $3.1 $7.8

$0.0 $3.0 $6.0 $9.0

WN B6 

### Estimated Saving per Capita21 E. Southwest Does Not Propose to Serve a Genuine Monopoly Route.
Because Southwest proposes to serve Houston’s Hobby Airport rather than George Bush Intercontinental Airport, it does not satisfy completely another of the statutory criteria. AIR

- 21 directs the department to select a route where a carrier “will provide competitive nonstop air transpo rtation on a monopoly nonstop route to [DCA].” 49 U.S.C. § 41718(b)(4). Southwest’s proposal to serve a different airport in Houston than United is logical, as Southwest has significant operations at HOU. But as a result, Southwest will not compete as d irectly with United as if it proposed to serve the true monopoly nonstop route, DCA

- IAH. This is evident in the data that Southwest presented in its own application. Southwest competes with United between BWI and Houston, but again flies to HOU while Uni ted flies to IAH. The differentiation in services results in a price difference of $33. See WN

- 104. If the same effect is observed at DCA, similar far e differences will be expected. In contrast, JetBlue’s JAX

- DCA proposal takes on the monopoly service of US Airways on the exact same routing in direct satisfaction of the statutory criterion with corresponding benefits to competition and the

consumer.

III. The Department Should Select JetBlue’s Application

. While Congress has directed the Department to consid er certain criteria in awarding slot exemptions, it retains discretion to make an award based on its evaluation of the relative merits of the different applications: the statute “provides the Department with the essential flexibility it needs in comparing these applications, ensuring that its determinations in these matters will maximize public benefits.” Order 2000

- 7

- 2 at 15. Accordingly, the Department has the discretion to premise an award based upon satisfaction of less than the greatest number of crite ria, or even one criteria, listed in Section 41718(b), based upon the Department’s analysis of the relative merits of each carrier’s proposal when evaluated under the Section 41718(b) criteria.

DOT

- OST

- Order 2012

- 7

- 26 (July 24, 2012), at 16

. JetBlue respectfully submits that the evaluation of these criteria in light of the Congressional intent requires an award to JetBlue for its proposed DCA

- JAX. JetBlue’s application will:

• Reduce fares and stimulate traffic, resulting in more than $1 0 mil lion in consumer savings;22 • Introduce direct, head

- to

- head competition on a n actual monopoly nonstop route;

• Serve a true small communi ty (a medium

- sized city), not a major city;

• Increase competition against the network of US Airways, DCA’s dominant high

- fare carrier;

• Reduce fares by the greatest percentage of all the applications in this proceeding;
Southwest’s claims of consumer benefit all derive from the fact that it proposes to serve a larger city than JetBlue or US Airways. Its calculations of consumer benefits from its service result in larger absolute numbers because of the size of the Houston market, not due to Southwest’s proposal. JetBlue will have a much larger impact in the Jacksonville market. Indeed, looking at consumer benefits as a percentag e of population served, JetBlue’s consumer impact is proportionately greater than those assumed by Southwest. Given the statutory direction to consider service to smaller communities, the proportionally larger impact of JetBlue’s proposal is outcome deter minative in this proce eding.

Conclusion In light of the considerable consumer and the superior competitive benefits of JetBlue’s application, the Department should exercise its discretion to select JetBlue’s proposed DCA

- JAX service.

Dated: December 19, 2012 Respectfully submitted,

Robert C. Land Senior Vice President for Government Affairs and Associate General Counsel23 Certificate of Service I, J. Parker Erkmann, hereby certify that a copy of the foregoing Consolidated Response of JetBlue Airways Corporation was served this 19 th day of December , 2012 via email transmission on the following persons: dhainbach@ggh

- airlaw.com john.varley@virginamerica.com jyoung@yklaw.com bob.kneisley@wnco.com leslie.abbott@wnco.com howard.kass@usairways.com robert.wirick@aa.com francis.heil@aa.com Karine.f aden@united.com dan.weiss@united.com Sascha.vanderbellen@delta.com john.fredericksen@suncoutry.com robert.cohn@hoganlovells.com marshall.sinick@squiresanders.com charles.donley@squiresanders.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 steve.g rossman@flyjacksonville.com jegillick@zsrlaw.com jhfoglia@zsrlaw.com

and via First Class Mail:

Arnaldo Deleo General Manager Aviation Bureau Port Authority Government of Puerto Rico PO Box 362829 San Juan, PR 00936

- 2829

/s/ Parker Erkmann J. Parker ErkmannExhibit B6

- R

- 101



### JETBLUE’S DCA

- JAX SERVICE WILL RESULT IN $10.6 MILLION IN CONSUMER BENEFIT

Fare Change

O&D Market Miles Passengers Before Stimulation Predicted Service Stimulation (revenue) Base Fare Fees Total Projected B6 Fare Absolute % Fare Stimulation Passengers After Stimulation New Passengers Existing Passengers New Passengers Total Consumer Surplus DCA-JAX 634 138,036 30% 186 13.35 200 $125 -$74 -37% n/a 247,762 109,726 $7,602,010 $3,021,457 $10,623,467 Average Fare Before B6 Fare Stimulation Consumer SurplusExhibit B6

- R

- 102

JETBLUE HAS A LARGER IMPACT ON US AIRWAYS FARES THAN SOUTHWEST HAS ON UNITED FARES

Source: DOT O&D Survey data from YE 2Q2012, as provided by Diio. BOS

- DCA and BOS

PIT use data from 2Q2012 only because Delta flew in the markets until March 201 2

. Market Carrier Avg. Fare Premium over B6 Market Carrier Avg. Fare Premium over WN BOS-BUF US $113 13% HOU*-ABQ UA $215 26% B6 $100 WN $170 BOS-CLT US $139 27% HOU*-CHS UA $228 27% B6 $110 WN $179 BOS-RIC US $124 17% HOU*-EWR UA $309 58% B6 $107 WN $196 Data from 2Q2012 only HOU*-IND UA $269 33% BOS-DCA US $151 19% WN $203 B6 $127 HOU*-RDU UA $288 53% BOS-PIT US $139 28% WN $189 B6 $108 HOU*-SAN UA $261 27% WN $204 HOU*-MCI UA $199 24% WN $161 HOU*-OKC UA $232 53% WN $151 US average premium over B6 in competitive markets 21% UA average premium over WN in competitive markets 38%