U.S. Department ofTransportation Office otthe Secretary ofTransportation

Ms. Julie Oettinger Managing Director Intel11ational & Regulatory Affairs United Airlines Assistant Secretary 

### MAy 2 6 2010

1025 ConnecticutAvenue, NW Suite J210 Washington, DC 20036
DearMs. Oettinger:**;,,~..** C' i) 

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### X1-100316-001

1200 New Jersey Avenue. SE Washington. DC 20590

Thank. you for your letters to the U. S. Department ofTransportatiol1 ("the Department") ofOctober2 and March 1, concerning applications under the Small Community Air Service Development Program ("Small Community Program," or "SCASDP") from Huntsville, Alabama ("Huntsville" or "HSV"), Greenville/Spartanburg, South Carolina ("Greenville/Spartanburg"), and Knoxville, Tennessee ("Knoxville" or "TYS").
Yourletters expressed concern over whetherthese three proposals were consistentwith the Department'spolicies on award, as you believed they sought grant funds to subsidize additional service in a market that was already served by another carrier 0)'carriers. Your March 1letter, sent after DOT selected the Huntsville and Knoxville proposals for award, I requested that we clarify that the communities would not be authorized to utilize the grant funds for service to any airport in the "Washington/Baltimore market." Underlying yourrequest is the fact that United serves Huntsville and Knoxville from Washington Dulles International Airp011 (lAD), and the premise that the "WashingtonIBaltimore market" is a single market that includes lAD, Ronald Reagan WashingtonNational Airport (DCA), and Thurgood Marshall Baltimore-Washington Airport (BWI). As background, the Small Community Program was established to help smaller communities address air service deficiencies, particularly issues related to high airfares and insufficient service. Congress appropriated $8 million for grant awards underthis program in Fiscal Year 2009. In orderto provide communities with latitude in developing solutions to their air service problems, the statute provides significant flexibility in how the financial assistance may be used. In their applications, Huntsville and Knoxville set out in detail theirreasoning for seeking assistance underthe Small Community Program. Their proposals were focused on

I In February 2010. the Department announced its SCASDP awards fol' 2009. As you are aware, Huntsville and Knoxville were recipients ofgrant awards of$I,OOO,OOO and $500,000, respectively. Greenville! Spartanburg was not selected for an award for 2009.X 1-100316-001

lowering airfares atthe airports, and theirapplications demonstrated thattheirairfares are significantly higherthan the national average (#1 highestand #3 highest inthe nation, respectively). Huntsville specifically targetedthe HSV -BWI market and the HSV

- Orlando market because those markets are the numbertwo and number three markets, respectively, that do nothave nonstop service. The HSV

- BWI market is approximately 54 passengers per day each way**("PDEW")~** while the HSV

- lAD market is 32 PDEW and currentlyhas multiple nonstop flights via United Express. Knoxville's application targeted the TYSBWI market. The proposals sought revenue guarantees and start-up cost offsets to assist theirtargeted carriers in establishing service. Turning to the question as to whetherthe Washington and Baltimore airports constitute a single domestic market, the Departmenthas found strong evidence that the three major airports serving the Washington/Baltimore market (lAD, DCA, and BWI) are not economic substitutes. In several tests weperformed, domestic price competition among the airports did not appearto be pervasive enough to discipline individual airportprices and eliminatethe substantial price differentials that exist. Following thatreasoning, the grant funds will notbe utilized to subsidize service in the "same market" that United serves. The Department's selection ofthese communities for grants is consistent with the statutory criteriafor award recommendations, and Ifind no reason to find the selections otherwise prohibited by ourpolicies. Had the two communities proposed serviceto lAD in direct competition with United, the applications would have been materially different and evaluated on different grounds. As is ournormal practice, I am placing acopy ofyour letter and this response in Docket OST-2009-0149 as a contact outside the**r~cord** ofthis matter. Iappreciate yourinterest in this program.
Sincerely yours,

Susan L. Kurland Assistant Secretary for Aviation and International Affairs

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