BEFORE THE DEPARTMENT OF TRANSPORTATION

WASHINGTON, D.C.

A pplication s of AMERICAN AIRLINES, INC. DELTA AIR LINES, INC. HAWAIIAN AIRLINES, INC. in the matter of 2010 U.S.

- Haneda Combination Services Allocation Proceeding Docket DOT

- OST

- 2010

- 0018

REPLY OF AMERICAN AIRLINES, INC. TO OBJECTIONS TO ORDER 2015 - 3 - 17
Howard Kass Vice President

– Regulatory Affairs Robert A. Wirick Managing Director, Regulatory and International Affairs Abigail Donovan Director, Congressional and Federal Affairs American Airlines, Inc. 1101 17th Street, N.W. Washington, DC 20036 (202) 326

- 5153 howard.kass@aa.com robert.wirick@aa.com abigail.donovan@aa.com Jonathan Hacker Burden H. Walker O’Melveny & Myers, LLP 1625 Eye Street, N.W. Washington, DC 20006 (202) 383

- 5300 jhacker@omm.com bwalker@omm.com

April 13 , 2015BEFORE THE DEPARTMENT OF TRANSPORTATION

WASHINGTON, D.C. Application s of AMERICAN AIRLINES, INC. DELTA AIR LINES, INC. HAWAIIAN AIRLINES, INC. in the matter of 2010 U.S.

- Haneda Combination Services Allocation Proceeding Docket DOT

- OST

- 2010

- 0018 April 13 , 2015

REPLY OF AMERICAN AIRLINES, INC. TO OBJECTIONS TO ORDER 2015 - 3 - 17 In the course of this proceeding, Delta Air Lines, Inc. (“Delta”) promised to provide “daily year round” service between Seattle and Tokyo’s Haneda airport, should the Department of Transportation (“Department” or “DOT”) agree to permit Delta to retain slot authority for that service. Order 2015

- 3

- 17 (the “Order”) simply gives Delta the chance to fulfill that promise. Delta’s objections are makeweight, as its proposed alternative, which would permit Delta to provide service as infrequently as every other week, a distant cry from the daily service that Delta promised, the Department requires, and American Airlines, Inc. (“American”) will provide, if and when Delta violates its service obligation. American thus submits that the Department sho uld reject the objections filed by Delta, as well as those filed by Hawaiian Airlines, Inc. (“Hawaiian”) and make final its tentative decision set forth in the Order. American also supports the Department’s award of back up authority to American.2 AMERICAN’S REPLY TO DELTA’S OBJECTION S I. T he Proposed Conditions Merely Hold Delta to the Promise It Made to the Department. DOT’s proposed Order gives Delta exactly what it asked for

— continued ability to use a slot pair for daily year

- round Seattle

- Haneda service. Delta now objects to what it calls an “extreme condition” 1 imposed on its slot authority, but the Order merely reflects the promise Delta made in the course of this very proceeding

— to operate the Seattle

- Haneda route on a “daily year

- round” basi s. 2 Delta can hardly now protest a condition that Delta itself proposed. Delta’s promise of “daily year

- round” service between Seattle and Haneda was no rhetorical flourish

— Delta made the promise for the specific purpose of retaining its Seattle

Haneda sl ot pair. Before the Department instituted this proceeding, Delta was willing to promise only that it would offer “daily service” between Seattle and Haneda for a limited period, i.e., from March 29 “through the [2015] summer season.” 3 After the Departmen t decided to take a fresh look at the allocation of the Haneda slot pair, a chastened Delta shifted course, and has ever since proclaimed to DOT its unwavering commitment to provide “daily year

- round” service should it be allowed to retain the Haneda

- Seatt le slot pair. 4

1 Objections of Delta to Order 2015

- 3

- 17, April 6, 2015, Docket DOT

- OST

- 2010

- 0018, p. 1. 2 Response of Delta to Evidence Request, January 5, 2015, Docket DOT

- OST

- 2010

- 0018, p. 2.

3 Consolidated Answer of Delta Air Lines, Inc., October 17, 2014, Docket DOT

- OST

2010

- 0018, p. 5, n.2.

4 Response of Delta to Evidence Req uest, January 5, 2015, Docket DOT

- OST

- 2010

- 0018, p. 2.3

It was entirely reasonable for the Department to take Delta at its word. Indeed, the Order expressly relies upon Delta’s “daily year

- round” service pledge in allowing Delta to retain its slot pair authority: The principal question before th e Department therefore is whether,

despite Delta’s past conduct, we can now rely on Delta to deliver the public interest benefits for the Seattle

- Haneda route that were central to the Department’s previous decision and remain just as critical to the presen t tentative decision. The Department would not tentatively be selecting Delta here if the Department did not have a justifiable basis to believe that Delta could be relied upon to provide the service it now promises. The Department has tentatively decide d that, based on Delta’s statements and the evidence submitted in this proceeding, combined with other protective measures the Department is adopting and will discuss below, the Department has a sufficient basis to permit Delta to retain the Seattle

- Haneda route. Importantly, Delta has expressly committed to resume a full pattern of daily service beginning on March 29, 2015, and to continue that daily service not only through the Summer season but also through the following Winter season

. 5 There is nothing arbitrary and capricious in the Department’s reliance on Delta’s own commitment to provide service both “daily” and “year

- round,” as opposed to service broken intermittently for as many as 15 days at Delta’s discretion. II. The Proposed Con ditions Are Also Consistent with DOT Authority And Narrowly

Tailored to Best Service the Public Interest. The Department has the duty and the authority to allocate and, when necessary, reallocate slot pairs “to ensure that they are used effectively and i n a manner that promotes competition and

5 Order to Show Cause, March 27, 2015, Docket DOT

- OST

- 2010

- 0018, p. 7

- 8 (footnote omitted) (emphasis added).4

otherwise best serves the public interest.” 6 The conditions proposed by the Department reflect a careful balance among (1) fulfilling its obligation to maximize public benefits; (2) ensuring that Delta abides by it s service commitment pledge for daily year

- round service; and (3) recognizing the need for a procedure that would allow Delta legitimate relief from the service commitment pledge for legitimate non

- commercial cancellations as the need arose. Delta’s object ions rest on a serious mischaracterization of the proposed conditions. Delta describes the proposed Order as imposing an “unyielding 365

- day

- a - year mandate” 7 that creates a public safety risk by omitting any exception for flight cancellations related to s afety, weather, or other unforeseeable non

- commercial reasons. But the Order does no such thing. To the contrary, the “waiver” provisions described in Order 2015

- 3

- 17 permit Delta all necessary latitude to cancel flights for legitimate non

- commercial rea sons, whether those reasons are known in advance or occur at the last minute. First, in advance of an anticipated discontinuation of service, the Order expressly grants Delta the ability to request a waiver of the proposed conditions, 8 and the Order gives the Director of the Office of International Aviation the “power to grant or deny any [Delta] request for waivers.” 9 Second, “when emergency circumstances outside of Delta’s control make it impossible” to meet its commitment to daily year

- round service, t he Order makes clear that seeking DOT permission to suspend services is not even required. 10 Nothing on the face of the Order, or in the history of DOT oversight of U.S. carrier

6 Order 2014

- 12

- 9 , December 9, 2014, Docket DOT

- OST

- 2010

- 0018, p. 5 ( citing Order 95

- 2

- 30, Feb. 14, 1995, Docket 49760, p.5; Order 94

- 12

- 7, Dec. 6., 1994, Docket 49760, p. 8;)

7 Objections of Delta , p. 5. 8 Order to Show Cause, March 27, 2015, Docket DOT

- OST

- 2010

- 0018, p. 9. 9 Id. , p. 8, n.27. 10 Id., p. 9.5

performance under authority conferred by DOT, suggests that legitimate non - com merci al cancellations would be rejected

. The Department is certainly entitled to impose a condition in general terms like “emergency circumstances outside of Delta’s control,” rather than attempt to predict and specify in advance exactly which circumstan ces will justify a non

- waiver cancellation. See Cement Kiln Recycling Coalition v. EPA , 493 F.3d 207, 218 (D.C. Cir. 2007) (“[W]hen Congress has not specified the level of specificity expected of the agency, the agency is entitled to broad deference in picking the suitable level.” (internal quotation marks and alterations omitted) )

. Indeed, any such effort would be contrary both to the public interest and Delta’s own interest. Delta thus has no basis for objecting to the general condition now

— a proper objection would arise only if the Department were to administer th e condition in an arbitrary and capricious manner by, for example, revoking Delta’s slot authority after a cancellation genuinely made for emergency reasons beyond Delta’s control. See Spr int Corp. v. FCC , 331 F.3d 952, 956 (D.C. Cir. 2003) (“[W]here agency retains substantial discretion to implement its decision, the decision is not ripe for judicial review until it has been implemented in particular circumstances.” (emphasis added) ). Nob ody, of course, expects the Department to administer the condition unreasonably. III. Delta’s Attempt to Narrow the Scope of This Proceeding Is Contrary to the Clear Intent of the Department Set Forth in the Instituting Order . Delta’s Objections mischaracteri ze the scope of this proceeding. Delta suggests that when DOT initiated the proceeding, it somehow conclusively restricted its options to “targeted conditions” solely addressed to “Delta’s cutback in service during the past winter season.” 11

11 Objections of Delta, p. 2.6

While Delta’s abandonment of the Seattle

- Haneda route this past winter may have been the catalyst for instituting proceedings, the Department stated from the outset that the proceeding would do more than simply address Delta’s 2014

- 2015 winter season actions. As the I nstituting Order states, the “public interest requires a fresh ex ami nation of ... the best use of the Seattle

Haneda opportunity ,” including “ whether the public interest would be better served by reallocating the slot pair for service from another U.S. city by another U.S. carrier .” 12 “ The principal objective in this proceeding ,” DOT emphasized, “ will be to maximize public benefits with this scarce resource .” 13 The proceeding was never limited to merely addressing Delta’s winter cutbacks. IV. Delta’s Novel “Alternative” Condition Is Patently Unacceptable . While objecting to the exercise of authority to impose any conditions on Delta’s Seattle

Haneda authority beyond the 90

- day dormancy rule, Delta nonetheless proposes an alternative condition: authority co uld be revoked only upon “15 consecutive days of nonuse.” 14 Delta’s proposal, raised for the first time in its Objections, is not a true safeguard but a thinly

- veiled attempt to return to the status quo ante. Under its purported “alternative,” Delta could meet the conditions, and retain its Seattle

- Haneda slot pair authority, by operating only a single flight every 15 days. That translates to a requirement of about 25 annual Seattle

- Haneda flights, which is actually fewer than the 34

- flight

- per - year pace o n which Delta was proceeding

12 Order 2014

- 12

- 9, Docket DOT

- OST

- 2010

- 0018, p. 5 (footnotes omitted). 13 Id. 14 Objections of Delta, p. 47

before DOT initiated this proceeding. 15 Such a proposal certainly does not fulfill Delta’s “daily
year - round” service commitment, nor does it do anything to satisfy DOT’s initial concern that Delta’s prior performance was not s erving the public benefit. For these reasons, Delta’s proposed alternative is not remotely “reasonable,” as Delta asserts. 16 V. DOT is Under No Obligation to Treat Delta and American the Same. Delta also argues that the Order “imposes substantially differential burdens on Delta . . . and American” because the daily year

- round service requirement has only been imposed on Delta, as the primary slot authority holder, and not on American, as the backup. 17 But the APA requires only that agencies treat “ si milar situations ” similarly, County of Los Angeles v. Shalala , 192 F.3d 1005, 1022 (D.C. Cir. 1999), and American and Delta are not similarly situated parties,

s ee, e.g., Muwekma Ohlone Tribe v. Salazar , 708 F.3d 209, 216 (D.C. Cir. 2013) ( where parties

“ n ot similarly situated,” APA claim of arbitrarily differential treatment fails ) . To the contrary, the Department has every reason to treat them differently. First, the daily year

- round service requirement was crafted specifically in response to Delta’s hi storic failure to use its Seattle

Haneda slot pair authority adequately

. As only the backup, American has not yet been given the opportunity to make good on its promise to provide daily year

- round service to Haneda. Should American become the primary slo t authority holder and establish a service record similar to

15 See Application of American Airlines, Inc., January 5, 2015, Docket DOT

- OST

- 2010

- 0018, p. 9 (noting that Delta had only operated or scheduled 17 Seattle

- Haneda flights in a six

month period).

16 Objections of Delta, p. 4. E ven if Delta’s proposed alternative were reasonable

— that is, even if it were timely raised, ad equately supported by evidence, and consistent with the public interest

— the agency would not be required to adopt it just because Delta proffered it. The APA does not impose a “narrow tailoring” requirement

— so long as a given agency action is consistent w ith the public interest and is not arbitrary and capricious, the agency is not required to adopt a proffered alternative merely because that approach, too, would be reasonable.

17 Id . at 6.8

Delta ’s disuse , American would expect the imposition of conditions similar to those imposed on Delta. Further, the record evidence shows that when American could not effectively use the Haneda authority it was awarded, it voluntarily returned the slot pair to DOT . Delta has done the opposite. Delta and American are not situated identically at all, and thus need not be treated identically with respect to slot authority conditions. VI. Delta’s Res urrection of the “Security of Route” Principle Is to No Avail . Finally, Delta tries to resurrect a more than half

- century old Civil Aeronautics Board (“CAB”) case to suggest that the Department’s Order 2015

- 3

- 17 violates a “security of route” principle. See CAB v. Delta Air Lines, Inc. , 367 U.S. 316 (1961). The holding of CAB v. Delta , however, was that given the carrier’s investment interest in its route, a certificate cannot be altered without formal notice and hearing . Congress did want to assure carriers that their “investment in operations would be protected insofar as reasonably possible” the Court observed, but Congress “show[ed] no intent to preclude reconsideration, either judicial or administrative, after notic e and hearing.” 18 The Department here afforded Delta everything to which it was entitled under the “security of route” principle recognized in CAB v. Delta : Delta received both formal notice (Order 2014

- 12

- 9) and a hearing (the evidentiary processes invol ved). Delta’s reference to CAB v. Delta thus actually supports the propriety of the Department’s procedures and actions in this proceeding.

18 See CAB v. Delta , 367 U.S. at 328 n.11.9 AMERICAN’S REPLY TO HAWAIIAN’S OBJECTION S I. Hawaiian Ignores the Department’s Thought ful Rationale for Granting Back up Authority to American . Hawaiian opposes the Department’s tentative decision to designate American as the backup carrier to serve Los Angeles

- Haneda should Delta fail to comply with the conditions and requirements in the Order. Hawaiian gives little justification for its objection, even though the Department explained in great detail why American’s Los Angeles

- Haneda service “offers a number of benefits that warrant its tentative selection over Hawaiian’s Kona

- Haneda proposal.” 19

A. Hawaii an Was Not Selected as a Backup Carrier Because Its Proposal Does Not Enhance Competition . The Department tentatively awarded American backup authority because it provides robust competition benefiting U.S. consumers. American’s Haneda proposal, the Orde r observes, will “provide service in the largest U.S.

- Tokyo O&D market in this proceeding, and would enhance competition in the Los Angeles market.” 20 As the Department recognizes, Hawaiian’s Kona

- Haneda service proposal does not provide similar competitiv e benefits. Hawaiian already enjoys Honolulu

- Haneda service, and no other U.S. carrier provides Haneda service in Hawaii. As the Department noted, the State of Hawaii already enjoys three of the eight total U.S.

- Haneda slot pairs, and granting a fourth s lot pair for Kona

- Haneda service would not maximize the public benefit. 21

19 See Order to Show Cause, p. 9. 20 Id . American’s Los Angeles

- Haneda proposal also enhances intra

- gateway and intra

alliance competition at Los Angeles. See Application of American, p. 3

.

21 See Order to Show Cause, p. 7.10 B. Hawaiian’s Service Proposal Would Benefit Japanese Leisure Travelers Rather Than U.S. Consumers . Hawaiian’s objections distort the Department’s efforts to maximize the public be nefits of the Haneda slot pair for all U.S. consumers. Hawaiian complains that the Department was focused only on U.S. business travelers, but the Department did not prioritize the interests of U.S. business travelers to the exclusion of leisure travelers . The Department instead determined the two groups’ interests to be aligned. Specifically, DOT rejected Hawaiian’s Kona

- Haneda proposal because it would “minimize Haneda’s advantages to U.S. travelers in general , and U.S. business travelers in particula r. 22 By contrast, the Department noted that Hawaiian’s Kona

Haneda proposal would primarily benefit Japanese

- originating leisure traffic to Hawaii. 23 Hawaiian cannot expect the Department to award backup authority of the valuable Haneda slot pair to a ro ute that would primarily benefit Japanese tourists over a proposal that would inure to the benefit of all U.S. consumers.

C. Hawaiian Cannot Meet the 60 - Day Start - Up Commitment That I s Necessary to Provide Continuity of Service Should Delta Violate t he Conditions and Requirements Tentatively Imposed . American’s commitment to start Los Angeles

- Haneda service within 60 days was another important reason why the Department’s choice of American as backup slot authority holder was reasonable. Indeed, American ’s commitment to quickly begin service should it assume Delta’s slot authority “[took] on additional weight in the context of tentatively awarding backup authority” because it assured DOT of the continuity of service necessary to maximize the public benefi ts of the valuable Haneda slot pair. 24

22 Id. , p. 10 (emphasis added). 23 Id. 24 Id, p. 9.11

Hawaiian cannot make the same commitment because Kona does not have an operable U.S. Customs and Border Protection (CBP) Federal Inspection Services (FIS) facility. 25 Hawaiian again fails to address this key flaw of it s Kona

- Haneda proposal. II. Hawaiian’s Claim That the Department Failed to Comply with the APA Is an Attempt to Hide the Inferiority of Its Proposed Kona - Haneda Service . Hawaiian argues that the Department fails to comply with the APA because “the Show Cause Order fails to adequately explain its decision.” 26 But, in its Order, the Department explained in detail why Hawaiian was neither awarded the slot pair, nor selected as a backup carrier. Among the many reasons for rejecting Hawaiian’s proposal contained i n the Order, DOT observed that the State of Hawaii already “enjoys three of the eight U.S.

- Haneda route

opportunities available,” that Kona

- Haneda service would “minimiz[e] Haneda’s advantages to U.S. travelers,” and that American had an ability to “start service promptly.” 27 After failing to convince the Department of the merits of its Kona

- Haneda service, Hawaiian must accept that its proposal cannot meet the competitive or consumer benefits associated with the valuable Haneda slot pair.

25 Jason Ubay, Opening Hawaii’s Kona Airport for International Flights Has Benefits, but Obstacles Remain, Pacific Business News (January 7, 2015), available at http://www.bizjournals.com/pacific/news/2015/01/07/opening

- hawaiis

- kona

- airport

- for

international.html?page=all; Ex. AA

- SR

- 102. Nancy Cook Lauer, County Seeks International Flights to Kona, W. Hawaii Today (Jan. 28, 2014), available at http://westhawaiitoday.com/news/local

- news/county

- seeks

- international

- flights

- kona.

26 Objection of H awaiian, April 6, 2015, Docket DOT

- OST

- 2010

- 0018, p. 9. 27 Order to Show Cause, pp. 7, 9.12 C ONCLUSION For the reasons set forth above, American Airlines, Inc. respectfully submits that the Department should make final its tentative decision in Order 2015

- 3

- 17 in its entirety and unchanged. Should Delta not accept the conditions and safeguards imposed on D elta as a condition to utilizing that Seattle

- Haneda slot pair authority, the Department should reallocate that slot pair to American.

Respectfully submitted,

Howard Kass Robert A. Wirick Abigail DonovanCERTIFICATE OF SERVICE

I, Abigail Donovan, certify that, on April 13 , 2015, I ca us ed to be served a copy of the foregoing Reply of American Airlines, Inc. to Objections to Order 2015

- 3

- 17 by email upon those addressees listed below: paul.gretch@dot.gov (DOT) brian.hedberg@dot.gov ( DOT) brett.kruger@dot.gov ( DOT) todd.homan@dot.gov (

DOT) peter.irvine@dot.gov ( DOT) e ngle ts @state.gov (

Dep’t of State ) cristinasa@state.gov ( Dep’t of State ) eugene.alford@ita.doc.gov ( Dep’t of Commerce) ejam es@jamhoff.com (

Allied Pilots Association ) seth.waxman@wilmerhale.com ( Delta ) sascha.vanderbellen@delta.com (Delta) chris.walker@delta.com (Delta) Mike.Donatelli@alpa.org ( Delta MEC/ALPA) john.s.duncan@faa.gov ( FAA ) jhill@cooley.com (Hawaiian) p erkmann@cooley.com ( Hawaiian) Robert.Lamansky@hawaiianair.com (Hawaiian) glindsey@lawa.org ( Los Angeles World Airports) ishiwata.k@portseattle.org ( Port of Seattle) safora.i@portseattle.org (P ort of Seattle) dan.weiss@united.com ( United) steve.m orrissey@u nited.com ( United) gmurphy@crowell.com ( United) sseiden@crowell.com ( United) i nfo@airlineinfo.com (AirlineInfo.com)

_________________________________ Abigail Donovan