BEFORE THE DEPARTMENT OF TRANSPORTATION OFFICE OF THE SECRETARY WASHINGTON, D.C.

_____________________________________ ) Application of ) ) S OUTHWEST A IRLINES C O

. ) ) For exemptions from 14 C.F.R. Part 93, ) Docket DOT - OST
- 2000 - 7182 Subparts K and S, pursuant to 49 U.S.C. ) § 41718(b) ) ) For service between Oklahoma City (OKC) ) and Ronald Reagan Washington National ) Airport (DCA) )

_____________________________________ )

APPLICATION OF SOUTHWEST AIRLINES CO.

Communication with respect to this document should be addressed to:

Ron Ricks Robert W. Kneisley Executive Vice President

-- Associate General Counsel C hief Leg al and Regulatory Officer Leslie C. Abbott Madeleine Johnson Senior Attorney Vice President General Counsel SOUTHWEST AIRLINES CO. SOUTHWEST AIRLINES CO. 1901 L Street, NW 2702 Love Field Drive Suite 640 Dallas, TX 75235

- 1611 Washington, DC 20036 bob.kneisley@wnco.com (202) 263

- 6284

March 5, 20121 BEFORE THE DEPARTMENT OF TRANSPORTATION OFFICE OF THE SECRETARY WASHINGTON, D.C.

_____________________________________ ) Application of ) ) S OUTHWEST AIRLINES C O

. ) ) For exemptions from 14 C.F.R. Part 93, ) Docket DOT - OST
- 2000 - 7182 Subparts K and S, pursuant to 49 U.S.C. ) § 41718(b) ) ) For service between Oklahoma City (OKC) ) and Ronald Reagan Washington National ) Airport (DCA) )

_____________________________________ )

APPLICATION OF SOUTHWEST AIRLINES CO.

On February 17, 2012 , the Department of Transportation (“DOT” or “Department”) established a slot exemption proceeding pursuant to 49 U.S.C. § 41718(b) to request applications from air carriers using Stage 3 aircraft for two Vision

100 slot exemptions previous ly held by Delta Air Lines

. These slot exemptions authorize service to a small or medium hub airport within the 1,250

- mile perimeter established for civil operations at Ronald Reagan Washington National Airport (“DCA”) under Title 49 U.S.C. § 49109.
The selection criteria applicable to these exemptions, as laid out in the
D epartment’s February 17, 2012 Notice, are drawn from Title 49 U.S.C. § 41718(b), which directs the Secretary to distribute within

- perimeter slot exemptions in a manner that promotes air transportation:2

(1) by new entrant air carriers and limited incumbent air carriers; (2) to communities without existing nonstop air transportation to Ronald Reagan W ashington National Airport; (3) to small communities; (4) that will provide compet itive nonstop air transportation on a monopoly nonstop route to Ronald Reagan Washington National Airport; or (5) that will produce the maximum competitive benefits, including low fares. Consistent with these criteria, Southwest Airlines Co. (“Southwest”) applies for the two slot exemptions described in this proceeding. These slot exemptions would
enable Southwest to initiate the only nonstop service betweeen Washington National Airport a nd Oklahoma City, a small hub airport as classified by the FAA.

DETAILS OF SOUTHWEST’S SERVICE PROPOSAL
ROUTE: DCA

– OKC, with continuing single

- plane service to Dallas Love Field (DAL)
SCHEDULE WESTBOUND 14:50 DCA

– 16:50 OKC 17:35 OKC

– 18:30 DAL
SCHEDULE EASTBOUND 9:00 DAL

– 9:50 OKC 10:15 OKC

– 14:04 DCA
START DATE: Within 9 0 days of the Department’s Final Order
AIRCRAFT TYPE: Stage III Boeing 737 aircraft (137 seats)

I. Southwest’ Service Proposal Meets the Maximum Number of AIR - 21 Decisional C riteria Southwest Airlines is a recent new entrant to Washington National Airport, as it

w as only through its acquisition of AirTran Airways that Southwest was able to acquire slots and operating rights at DCA. Exhibit WN

- 101 displ ays Southwest’s four current3

routes and its propose d OKC route from DCA. The actual flight schedule for the DCA

OKC

- DAL round trip routing is shown in Exhibit WN

- 10 2 . Exhibit WN

- 103 indicates h ow expansion of routes and services at DCA will integrate well with Southwest’s entire
network , bringing its low fares , competition, and award

- winning customer service to passengers throughout the United States as well as p oints in the Caribbean and
Mexico. Southwest’s proposed service would significantly advan ce the statutory goals of
AIR

- 21 and Vision 100 by fulfilling four out of the five statutory criteria , the maximum number possible. See Exhibit WN

- 100. Specifically, Southwest’s proposal would: provide service by a limited incumbent air carrier at Washington National Airport ; Southwest is a limited incumbent at DCA; offer DCA nonstop service to a community currently without any such service ; OKC has no nonstop service to DCA ; provide DCA service to a small community ; OKC is classified as a “small hub” by the FAA; and produce the maximum competitive benefits, including low fares ; Southwest’s proposed DCA

- OKC

- DAL service will generate over $8 million in consumer fare savings annually, and will stimulate approximately 5 5,000 new passengers. See Exhibits WN

- 118 and WN

- 121

. In short, Southwest is uniquely positioned not only to fulfill the decisional criteria of AIR

21 to the greatest extent possible but to leverage these two available slot exemptions to
achieve maximum competitive benefits for consumers. 1

1 The only AIR

- 21 criterion that Southwest’s proposal does not meet is providing “competitive nonstop air transportation on a monopoly nonstop route to DCA,” as this factor is mutually exclusive with providing the
no nstop DCA service to a community “without existing nonstop air transportation to DCA.”4

II. Oklahoma City Is An Ideal Market For Selection In This Case Today, with no nonstop service between OKC and DCA, 33,664 O&D
passengers travel annually between these two points on connecting services. In fact,
O KC is the largest DCA market without nonstop service today (Exh ibit WN

- 105). T he
DCA

- OKC market is 39% larger than DCA

- JAN (Exhibit WN

- 106) which has enjoyed nonstop service for many years from Atlantic Southeast Airlines d/b/a Delta Connection
and Comair , and most recently from US Airways under temporary authority. Further, OKC has the highest fare among the top ten inside perimeter markets without nonstop service to DCA (Exhibit WN

- 107). Given these facts, it is not surprising that
Southwest’s low

- fare nonstop service in th e DCA

- OKC market will produce significant
fare savings to tens of thousands of travelers

. Southwest Airlines has served Oklahoma City for 32 years. During this time OKC has served as a major gateway to Southwest’s network at Dallas Love Field due to the Wright Amendment restrictions on nonstop long

- haul service at DAL. In its June 2012 schedule Southwest will operate 146 weekly departures and 19,813 seat

departures to/from nine OKC nonstop cities (Exhibit WN

- 104). The DCA

- OKC route will integrate well in Southwest’s route system, providing one

- stop service between DCA and many beyond

- OKC connecting markets, four of which are less than 30% circuitous
for a DCA

- OKC passenger. Selecting Southwest’s proposal would provide the State of Oklahoma its only nonstop route to DCA, the close

- in airport to the Nation’s Capital . Oklahoma is the second largest state for natural gas production and the fifth largest in crude oil production. Approximately 25% of all employment in Oklahoma is tied to the energy5

industries (Exhibit WN

- 10 8 ). Consequently, efficient low

- fare nonstop service between
OKC and DCA is critical to serving the needs of the energy indust ry and will provid e
convenient access to federal government offices in Washington DC

. Beyond this, Washington always attracts a high volume of tourist traffic and Southwest expects a large leisure component to its traffic forecast.
III. Despite Being the Nat ion’s Largest Passenger Airline, Southwest is Severely Under - Represented at DCA
Southwest Airlines is the nation’s largest domestic airline in terms of passenger traffic carried . For YE Q3, 2011 Southwest carried 101.4 million domestic O&D
passengers. Delta was second with 78.9 million, and the other limited incumbents ranged from 5.5 million (Spirit) to 20.4 million (JetBlue). See Exhibit WN

- 110. Using four common metrics of size, Southwest ranges from 1.6 to 2.0 times the size of all new
entrants and limited incumbents combined (Exhibit WN

- 111 ) , yet operates far fewer
slots

. In fact, Southwest operates only 2.9% of DCA slots (through its AirTran subsidiary) today (Exhibit WN

- 110)

. D espite carrying over five times more passengers than the next largest limited incumbent (JetBlue), Southwest has about a third fewer DCA slots than JetBlue (25 vs. 34 slots respectively). Looking at the matter another way, Southwest holds by far the smalle st share of DCA slots and slot exemptions among limited incumbents relative to the number of passengers each airline carrie s

. As Exhibit
WN

- 113 shows, JetBlue and Republic hold more than seven and eight times more slots respectively than Southwest in rela tion to the number of passengers they carry. By all reasonable measures the under

- representation of Southwest at DCA is
obvious. An award to Southwest of additional slot exemptions in this proceeding would6

not only fully satisfy the AIR

- 21 criteria di scussed above but advance the public interest by enabling the nation’s largest airline to provide effective low

- fare access to DCA from
travel markets across the country.
IV. Southwest’s Proposal Will Generate Significant Public Benefits Southwest’s proposal will provide major public benefits not just for DCA

- OKC travelers but for consumers in many other DCA markets as well . Oklahoma City is currently a small hub without any nonstop service to or from DCA. While OKC has
service to both B altimore (BWI) and Washington Dulles (IAD), Southwest will provide the only nonstop flights in the DCA

- OKC market . In addition, Southwest will provide

ex cellent passenger options in the Washington

– Dallas market with single

- plane
service between and DCA and DAL. This will benefit thousands of Washington

- Dallas travelers by offering daily one

- stop service between close

- in DCA and close

- in Dallas Love Field. This will be a superior service for many passengers between Washington

Dallas , and will provide sorely

- needed competition to the high

- fare nonstops offered by American Airlines and US Airways between DFW and DCA. Furthermore, Southwest’s proposal will add on

- line connecting competition in
several other large markets beyond OKC , b y offering new travel options to and from DCA through OKC

. These connecting markets

- including Denver, Las Vegas, Phoenix and Houston (see Exhibit WN

- 205)

- will benefit not just from Southwest’s new nonstop
service between DCA and OKC, but also from Sou thwest ’s low fares and its “no fees” policy for checked baggage or reservations changes. 2

2 Unlike most other U.S. airlines, Southwest does not charge fees for checking one or two bags, or for making changes to passenger reservations

.7

One of the primary AIR

- 21 carrier selection criteria , echoed by the DOT’s February 17 Notice, is which carrier’s proposal . . . “will produce the maximum competitive benefits including low fares.” With respect to this factor , Southwest projects significant traffic stimulation and consumer fare savings as a direct consequence of its
low fares and significant service improvements in the markets discussed above

. With the assistance of the Campbell

- Hill Aviation Group, Southwest has projected that its proposed DCA

- OKC

- DAL service will generate over $8 million annually in consumer fare savings (Exhibit WN

- 118). This total amount is comprised of approximately $6 million in the DCA

- OKC market, $ .5 million in the DCA

- DAL market, and $1.5 million in connecting markets between DCA and points beyond OKC ( Id .).
The se projected fare savings are attributable primarily to the fact that current DCA

- OKC fares are 66% higher, and current DCA

- Dallas fares are 53% higher, than Southwest’s average fare levels for markets of the same distance. See Exhibits WN

- 119 and WN

120. Due to the expected fare reductions and improved service, Southwest expects to stimulate approximately 55,000 new passengers over the DCA

- OKC

- DAL route . See
Exhibit WN

- 121. This stimulation will occur due to both lower fares and superior service
in the D CA

- OKC and DCA

- DAL markets. Southwest will carry many of the new passengers of course, while others will be carried by competing carriers who lower their fares in response to Southwest. As a result, the market as a whole will grow significantly, and pass engers will benefit both directly by flying on Southwest’s new service and indirectly by patronizing competing carriers that are forced to reduce fares in response to Southwest’s competition.8

Details of Southwest’s traffic forecast and fare benefits calcul ations, including a full explanation of the methodology and assum p tions used by the Campbell

- Hill Group,
are set forth in the 200 series of exhibits attached hereto

.

C ONCLUSION For the reasons stated above, we urge the Department to grant the two slot exemptions at issue in this proceeding to Southwest Airlines to enable it to initiate the only nonstop service from Oklahoma City to Washington National Airport , with single plane s ervice beyond OKC to Dallas Love Field , as specified in the Application

.

Respectfully submitted ,

__________________________ Robert W. Kneisely

March 5, 2012CERTIFICATE OF SERVI CE

I hereby certify that on March 5 , 2012 , a copy of the foregoing was served via e

mail on the following persons:

msinick@ssd.com (Alaska Airlines) carl.nelson@aa.com (American Airlines) sascha.vanderbellen@delta.com (Delta Air Lines) jeff.morgan@delta.com (Delta Air Lines) robert.cohn@hoganlovells.com (Frontier Airlines) patrick.rizzi@hoganlovells.com (Frontier Airlines jhill@dowlohnes. com (JetBlue Airways) dkirstein@yklaw.com (Spirit Airlines) jyoung@yklaw.com (Spirit Airlines) John.Fredericksen@suncountry .com (Sun Country Airlines) dan.weiss@united.com (United Air Lines) howard_kass@usairways.com (US Airways) benjamin.slocum@us airways.com (US Airways) pmurphy@lopmurphy.com (USA3000) barbara.russell@virginamerica.com (Virgin America) susan.kurland@dot.gov todd.homan@dot.gov Mark Kranenburg Director of Airports Will Rogers World Airport 7100 Terminal Drive, Box 937 PO Box 59937 Oklahoma City, OK 73159

__________________________ Leslie C. Abbott

## Southwest’s Proposal Satisfies the Maximum Number of AIR - 21 Selection Criteria Docket OST
- 2000 - 7182 Exhibit WN
- 100



### Satisfied by AIR

- 21 Criteria Southwest Proposal
1. Is the applicant a new entrant or limited incumbent? YES
2. Does the applicant propose nonstop service to a community without existing nonstop service to DCA? YES 3. Does the applicant propose nonstop DCA service to a small community? YES 1
4. Does the applicant propose competitive nonstop service on a monopoly nonstop route to DCA? NO 2
5. Will the applicant's proposed service produce the maximum competive benefits, including low fares? YES

1/ OKC is classified as a small hub by the FAA. 2 / This factor is mutually exclusive with factor # 2 above.

# Southwest’s Service Proposal

## Southwest Airlines’ DCA
- OKC Proposal with Single
- Plane Service to DAL Docket OST
- 2000 - 7182 Exhibit WN
- 101

Source : OAG Schedules for the week of June 11 th through the 17 th , 2012 Current WN Routes Proposed WN Route The DCA
- OKC route is 1,158 nonstop miles, inside the 1,250 - mile DCA perimeter

## Southwest’s DCA
- OKC B737
- 700 Nonstop Service Proposal

1405

1015 0950

0900 Washington

(DCA)

Oklahoma City (OKC)

Dallas (DAL) 1450

1650 1735

1830 Daily Daily

Note: All Times Local. Freq / Wk Docket OST
- 2000 - 7182 Exhibit WN
- 102

## Southwest’s System Route Map Docket OST
- 2000 - 7182 Exhibit WN
- 103

Source : OAG Schedules for the week of June 11 th through the 17 th , 2012

Weekly Departures 27,690 Weekly Seat
- Departures 3,737,079 Airports Served 103 

### OKC

# OKC is the Largest Inside Perimeter

Market Without DCA Nonstop Service And Has Extremely High Fares

## From OKC, Southwest Serves DAL And Eight Other Large Markets Docket OST
- 2000 - 7182 Exhibit WN
- 104

Source : OAG Schedules for the week of June 11 th through the 17 th , 2012

Weekly Departures 146 Weekly Seat
- Departures 19,813 Airports Served 9 Current WN Routes Proposed WN Route Current DAL Route

## OKC is the Largest Inside Perimeter

Market Without Nonstop Service from DCA

(Top Ten Markets)
DCA Fared Passengers Docket OST
- 2000 - 7182 Exhibit WN
- 105

Source: US DOT O&D Survey YE Q3 2011, via Diio, LLC.

## DCA
- OKC Has 39% More Passengers than DCA
- JAN

+39%

Source : US DOT O&D Survey YE Q3 2011, via Diio, LLC; OAG Schedules June 2012 O&D Fared Passengers (YE Q3 2011)

Current Daily Nonstop Seats ( June 2012): 0 69 Current Daily Nonstop Flights ( June 2012): 0 1 Docket OST
- 2000 - 7182 Exhibit WN
- 106

## OKC Has the Highest Fare of the Top Ten Inside

Perimeter Markets Without Nonstop Service

DCA Average Fare 1

1/ Fared passengers only. Excludes all taxes and government charges. Includes estimated checked baggage and rebooking/change fee s. Source : US DOT O&D Survey YE Q3 2011; US DOT Form 41, via Diio, LLC. Docket OST
- 2000 - 7182 Exhibit WN
- 107

## Oklahoma And Texas Are the Nation’s Leading Energy Producers

1/ According to Mickey Hepner , an economist and Dean of the University of Central Oklahoma’s College of Business Administration. Source: http://stateimpact.npr.org/oklahoma/tag/energy

- industry/
Source : U.S. Energy Administration. 

### • Roughly one - quarter of all jobs in Oklahoma are tied to the energy industry, either directly or indirectly /1



### • Oklahoma is one of the top natural gas
- producing States in the Nation (ranking #2 in the U.S. in 2010 with 9%
- Texas was #1 with 31 %).



### • More than a dozen of the 100 largest natural gas fields in the country are found in Oklahoma

.

• Oklahoma was the 5th largest state for crude oil production in 2009

.

• Oklahoma has five petroleum refineries with a combined capacity of roughly 3 percent of the total U.S. refining capacity.

• In terms of total energy production in 2009, Oklahoma ranked 8th in the country Docket OST

- 2000 - 7182 Exhibit WN
- 108

# Southwest is the Largest Domestic U.S. Carrier But is Severely Under
- Represented at DCA

## Despite Carrying More Domestic Passengers than

Any Other U.S. Airline Southwest Has Only 2.9% of DCA Slots

Source: FAA Slot Reports, Current and Future, dated 2

- 13

- 2012 and OAG schedules June 2012. Legacy/Foreign Flag Carriers Low Cost Carriers DCA Slots


### Total Slots = 851

Percent of Airport Total 54.1% 12.8% 11.4% 8.9% 2.1% 0.7% 4.0% 2.9% 2.4% 0.7% 

### 54% Docket OST
- 2000 - 7182 Exhibit WN
- 110

Total Domestic O&D Passengers (Millions) 41.6 78.9 46.2 64.2 N/A 15.1 20.4 101.4 10.7 5.5

## Southwest Is Nearly Twice The Size of All Other Limited Incumbents Combined

Ratio of Southwest to All Other New/Limited Incumbents Combined Docket OST
- 2000 - 7182 Exhibit WN
- 111

Sources: OAG Schedules for week of June 11

- 17, 2012; U.S. DOT O&D Survey YE Q3 2011 and U.S. DOT Form 41, via Diio , LLC.

## Southwest Carries Five Times More Passengers Than the Next Largest Limited Incumbent

Annual Domestic O&D Passengers (Millions)

Source: US DOT O&D Survey YE Q3 2011, via Diio, LLC. Docket OST
- 2000 - 7182 Exhibit WN
- 112

## Southwest’s Share of DCA Slots is Disproportionately Small Among Limited Incumbents

DCA Slots per 100,000 Domestic O&D Passengers

Source: US DOT O&D Survey YE Q3 2011, via Diio, LLC. Docket OST
- 2000 - 7182 Exhibit WN
- 113

# Summary of Benefits from Southwest’s DCA
- OKC
- DAL Proposal1/ From WN

- 202 2/ From WN

- 204, WN

- 207, WN

- 208, WN

- 209. 72,404 Fared Passengers 1 Carried by Southwest

$8.2 million Consumer Fare Savings
Total Market (Millions) 2 

# Summary of Southwest’s Consumer Benefits Forecast (First Normalized Year) Docket OST
- 2000 - 7182 Exhibit WN
- 117

DCA
- OKC DCA
- DAL DCA
- Cnx Beyond OKCDocket OST
- 2000 - 7182 Exhibit WN
- 118 

## Southwest’s DCA
- OKC Proposal Would Generate More Than $8 Million Annually In Total Consumer Fare Savings (First Normalized Year)



## $5.3 Million



## $2.9 Million Total Consumer Fare Savings (Millions) 

## $8.2 Million

Source: Sum of Exhibits WN

- 204, WN

- 207 and WN

- 208. DCA
- OKC DCA
- DAL DCA
- Cnx Beyond OKC

## Current DCA
- OKC Fares Are 66% Higher than 

# Southwest’s Average Fare Levels

+66%

1/ Fared passengers only. Excludes all taxes and government charges. Includes estimated checked baggage and rebooking/change fee s

. 2/ Based on Southwest Yield Curve (Appendix 6) Source : US DOT O&D Survey YE Q3 2011; US DOT Form 41, via Diio, LLC. Average Fare 1 

### DCA
- OKC Docket OST
- 2000 - 7182 Exhibit WN
- 119

2

## Current DCA
- Dallas Fares are 53% Higher than 

# Southwest’s Average Fare Levels

+53%

1/ Fared passengers only. Excludes all taxes and government charges. Includes estimated checked baggage and rebooking/change fee s

. 2 / DAL and DFW combined. 3/ Based on Southwest Yield Curve (Appendix 6) Source : US DOT O&D Survey YE Q3 2011; US DOT Form 41, via Diio, LLC. 

### DCA
- Dallas 2 Average Fare 1 Docket OST
- 2000 - 7182 Exhibit WN
- 120

3Source: Exhibits WN

- 203 and WN

- 206 Docket OST
- 2000 - 7182 Exhibit WN
- 121 

## Southwest’s Low Fares And DCA
- OKC Nonstop Service Will Generate nearly 55,000 New Passengers In the Single
- Plane Markets (First Normalized Year)



## 46,220

8,614 Fared O&D Passengers 

## 54,834

As a result of Southwest’s new nonstop service between DCA and OKC, and first single

- plane (one

- stop) service between DCA and DAL via OKC, Southwest will stimulate the markets and generate new passengers. This stimulation occurs due to lower fares and improved service. Assuming competitors respond by lowering their fares, some of the newly generated passengers will be carried by Southwest and others will be carried by competing carriers who lower their fares in response to Southwest. Southwest’s own traffic will be composed of some newly generated passengers (people who would not have traveled at all but for the lower fares and/or improved service), and some passengers diverted from other carriers.Docket OST
- 2000 - 7182 Exhibit WN
- 2 00 Page 1 of 6 

## Narrative Introduction t o the Southwest Airlines Traffic And Consumer Fare Savings Forecast

Introduction

One of the primary carrier selection criteria articulated by the D OT is which carrier’s proposal . . . “will produce the maximum competitive benefits including low fares.” 1 Southwest projects significant competitive benefits, traffic stimulation, and consumer fare savings as a direct consequence of its low fares and servi ce proposal . These benefits will accrue to passengers in the (1) local DCA

- OKC nonstop market, (2) DCA

- DAL one

- stop (single

- plane) market , and (3) DCA

- beyond OKC to points other than DAL. 2 In order to support the estimates of consumer savings and traffic stimulation occasioned by Southwest’s low fares in the new markets at issue, detailed forecasts have been prepared by Campbell

- Hill Aviation Group using several of its models. This narrative discusses the forecast methodology and summarizes the re sults

. Exhibit WN

- 201 shows Southwest’s proposed DCA

- OKC route that is 1,158 nonstop miles and well inside the perimeter. The data on this chart summarize the impact of Southwest on traffic stimulation , as well as the number of local O&D passengers it e xpects to carry. Exhibit WN

- 205 presents the complete DCA

- OKC

- DAL routing including the four connecting segments that would be less than 30% circuitous to/from DCA. The base year O&D traffic is also shown for each of the three relevant traffic components

.

1 DOT Notice served February 17, 2012, in this docket.

2 For purposes of this forecast Southwest has limited its participation in connecting markets to DCA

- HOU, PHX, LAS, and DEN.Docket OST
- 2000 - 7182 Exhibit WN
- 2 00 Page 2 of 6 Campbell

- Hill’s forecast follows the DOT tradition of estimating traffic and fare savings in the first normalized year. This is the 12 month period following six months of introductory marketing and operational activity. For purposes of this case Ca mpbell

- Hill assumed a July, 2012 start

- up of operations and so the first normalized year would be CY 2013. The base year for historical traffic is YE Q3, 2011. Campbell

- Hill used this as the initial level of traffic in CY 201 3 prior to the application of fare and service stimulation formula e

. Total fare savings in the DCA

- OKC local market are forecast to be $6. 1 million (Exhibit WN

- 204). In addition , consumer fare savings in the DCA

- DAL and DCA

- connecting beyond OKC markets will be $0.5 million and $1.5 million respectively (Exhibits WN

- 207 and WN

- 208). The total fare savings due to Southwest’s proposal is $8.2 million (Exhibit WN

- 209). This is the same amount of savings that is shown in Exhibits WN

- 117 and WN

- 118

. Total forecast consumer savings that will result from Southwest’s DCA

- OKC

- DAL service may be summarized as follows:

Market Consumer Savings

– First Normalized Year (Millions)
DCA

- OKC $6.1 DCA

- DAL 0.5 DCA

- Connections beyond OKC 3 1.5
Total $ 8.2 4

Source: Exhibits WN

- 204, WN

- 207 and WN

- 208.

3 Connecting passengers in four markets: DCA

- HOU, PHS, LAS, and DEN.

4 Total does not add due to roundingDocket OST
- 2000 - 7182 Exhibit WN
- 2 00 Page 3 of 6
The DCA
- OKC Local Market

Exhibit WN

- 202 presents the local traffic forecasts (Lines 1 through 7). Campbell

- Hill estimated traffic stimulation assuming all market participants reduce their fare to Southwest’s level. For YE Q3, 2011 the average fare was $271. The expected average fare to be ea rned by Southwest is $163 (Exhibit WN

- 106 ) 5

. When the fare values are input to the Campbell

- Hill price elasticity model , and using an elasticity coefficient of

- 1.2 (Appendix 1), the base traffic of 33,664 DCA

- OKC annual O&D passengers will increase by 8 5.1%. Using Campbell

- Hill’s QSI model 6 to estimate the additional service stimulation resulting from Southwest’s daily nonstop in the DCA

- OKC market , traffic is projected to increase by a further 28.2%. The combined stimulation is 137.3%. When the base traffic is increase d by 137.3% the resultant market forecast for the first normalized year is 79,884 passengers (Exhibit WN

- 202 , Line 5). Southwest’s share based on the QSI model will be 54.6%, or 43,617 local DCA

- OKC passengers for its nonstop flight.

5 For YE Q3, 2011 Southw est’s average fare earned in the BWI

- OKC local market was $205. BWI is a major focus city for Southwest and seats available to the local OKC

- BWI market are limited due to the significant capacity allocated to passengers connecting at BWI. This has the ef fect of raising the weighted average fare earned for the local BWI segment. In the case of the DCA

- OKC market, the share of seats available for the local market will be greater and it is expected that a larger share of the market will be leisure at DCA than at BWI . The leisure market books further in advance and pays lower fares than the business market. Finally, as a small DCA participant and a relative newcome r, Campbell

- Hill expects Southwest to be more price aggressive in order to create patronage and capture loyalty as it builds a more significant DCA presence over the long run. All factors considered, Southwest’s weighted average fare in the DCA markets will resemble its system average for comparable distances (see Appendix 6 ), rather than the BW I

- OKC average fare.

6 The Campbell

- Hill QSI model for estimating service stimulation includes all relevant schedule and capacity characteristics of competing fl ights, including on

- line connecting options.Docket OST
- 2000 - 7182 Exhibit WN
- 2 00 Page 4 of 6 Southwest has demonstrated to the Department in many previous proceedings 7 the significant traffic stimulation generated by its low fares. In fact, the DOT has publically characterized this phenomenon as the “Southwest Effect.” In this case the addition al traffic stimulated as a consequence of Southwest’s low fares and new service at DCA is 46,220 passengers in the local DCA

- OKC market and 8,614 passengers in the DCA

- DAL market. 8 Southwest’s traffic forecast conservatively claims no stimulation in the c onnecting markets beyond OKC, but in reality there would be some. The traffic projected to be carried by Southwest has two sources: (a) Southwest will carry a significant number of the newly generated passengers, and (b) it will divert some traffic from o ther carriers offering an inferior service. It is only coincidental that the Southwest local DCA

- OKC O&D traffic (43,617 passengers) is similar to the amount of stimulation in the market (46,220 passengers )

. Campbell

- Hill’s price stimulation model esti mates the change in traffic as a result of the change in average fare. For the DCA

- OKC local market the current average fare is $271 and the expected Southwest average fare, derived from its system yield curve, 9 is $163 (Exhibit WN

- 119). All fares shown in Southwest’s exhibits exclude taxes and government charges, but they include the estimated average amount of checked baggage and reservation re

- booking/cancellation fees per passenger. 10 The Campbell

- Hill model is presented in Appendix 1. It incorpora tes a price elasticity coefficient of

- 1.2 which is consistent with prior FAA findings (Appendix 1, page 3). The model assumes that competitors will reduce their fares to match the Southwest level ($163 per DCA

- OKC passenger). The estimated fare savings to existing passengers in the

7 See for example the pending 2012 Chicago

- Canc un Combination Service Proceeding , Docket OST

- 2012

- 0001.

8 Exhibits WN

- 203 and 206.

9 Appendix 6

.
10 Estimated by analysis of carrier revenues reported in DOT Form 41 filings.Docket OST
- 2000 - 7182 Exhibit WN
- 2 00 Page 5 of 6 market is determined by multiplying the difference in average fare 11 by the YE Q3, 2011 actual passenger volume. This amounts to $3.6 million (Exhibit WN

- 204). The next step is to estimate the monetary value of Southwest’s l ow fares to the newly generated passengers. They are consumers who would not have made the trip at all except for the availability of Southwest’s fare, or the matching fare by one of Southwest’s competitors. For this purpose Campbell

- Hill employs a consu mer surplus model as it has been utilized by the FAA. 12 This benefit amounts $2.5 million for the newly generated passengers (Exhibit WN

- 204). Adding together the two components of consumer fare savings produces a projected value of $6.1 million in the DC A

- OKC local market (Exhibit WN

- 204). Campbell

- Hill recognizes that all competitors may not match Southwest’s fare precisely. Some carriers may charge more than Southwest, and for certain segments of the market some carriers may charge less than Southwe st. On average, however, the operative assumption about fare

- matching is reasonable. If competitors do not reduce fares to the same level of Southwest, then Southwest will achieve a higher market share than Campbell

- Hill has forecast using only its QSI a nalysis. Either way it is reasonable to conclude that Southwest will achieve its traffic and load factor, as forecast in Exhibit WN

- 202.

The DCA

– Beyond OKC Markets

To estimate the number of passengers Southwest will generate for markets beyond OKC Campbell

- Hill examined other comparable market scenarios in the Southwest system. For this purpose the BOS

- STL and beyond STL markets

11 $271 minus $163 , or $108 per passenger (Exhibit W N

- 119 ).

12 See Appendix 1, page 4.Docket OST
- 2000 - 7182 Exhibit WN
- 2 00 Page 6 of 6 were utilized. In this example, the flow and single

- p lane beyond

- STL traffic is 66% as great as the local BOS

- STL passengers (Appendix 3). Applying this factor to the projected Southwest local DCA

- OKC passengers produces an estimate of 28,787 passengers who will originate or terminate at DC A and travel beyond OKC, either single

- plane to/from DAL, or they will be connecting in OKC to other Southwest flights (Exhibit WN

- 202 , Line 8). The portion of beyond traffic that is forecast to be DCA

- DAL is 10,337 passengers. This is based on the rel ationship between Southwest’s BWI

- OKC and BWI

- DAL (single

- plane through OKC) passengers. In this instance BWI

DAL is 23.7% of the local BWI

- OKC traffic. (Exhibit WN

- 202 , Line 9 and Appendix 2). The residual amount beyond OKC traffic is 18,450 passengers which is only 2.1% of the total 880,830 passengers in four beyond markets (Exhibit W N

- 202 , Line 10 and Exhibit WN

- 20 5 ). The total fared passengers that originate or terminate at DCA is forecast to be 72,404 (Exhibit WN

- 20 2, Line 11). Adding 8.6% for z ero - revenue passengers brings the total on

- board to 78,630 passengers and a load factor of 80.2% in the first normalized year (Exhibit WN

- 20 2, Lines 12

- 14). Exhibit WN

- 207 utilizes the same Campbell

- Hill methodology to estimate consumer savings that will accrue to existing and newly generated passengers in the DCA

- Dallas market. The total is $518,000 in the first normalized year. 13 Exhibit WN

- 20 8 show s the projection of annual consumer fare savings for the OKC connecting passengers Southwest expects to carry in four markets: DCA

- HOU, PHX, LAS, and DEN. To be conservative Campbell

- Hill has made no assumption of fare

- matching or traffic stimulation in t hese connecting markets. Consequently, the projection of consumer savings for connecting passengers is limited to only the savings obtained by the passengers who travel on Southwest. This will amount of $1.5 million in the first normalized year (Exhibit WN

- 20 8 ).

13 See also Appendix 4

.

# Southwest’s

Traffic and Consumer Fare Savings Forecast

## After Stimulating the Market with Its Low Fares and Nonstop Service

Southwest Will Carry 43,617 Local DCA
- OKC Passengers (First Normalized Year) Docket OST
- 2000 - 7182 Exhibit WN
- 201

1 Base Year O&D 2 Market After Stimulation 3 Newly Generated (stimulation) 4 WN Local O&D 33,664 79,884 46,220 43,617

1/ Line 2

– Line 1 2/ Southwest’s share of the total market after stimulation. Source : Exhibit WN

- 202 1,158 Nonstop Miles

Line DCA
- OKC

Market Annual Passengers

1
2

## Southwest Airlines’ DCA
- OKC Passenger Forecast (First Normalized Year) Docket OST
- 2000 - 7182 Exhibit WN
- 202

Source/Basis 1 Base Passengers 33,664 YE Q3 2011 from O&D Survey via Diio, LLC.

2 Fare Stimulation 85.1% See Appendix 1.

3 Service Stimulation 28.2% From Campbell
- Hill Aviation Group QSI Model.

4 Total Stimulation 137.3% (1+Line 2) x (1+Line 3)
- 1.

5 Passengers After Stimulation 79,884 Line 1 x Line 4.

6 Southwest Share 54.6% From Campbell
- Hill Aviation Group QSI Model.

7 Southwest Local Passengers 43,617 Line 5 x Line 6.

8 Total One - Stop DAL and Connecting Passengers Beyond OKC 28,787 Calculated at WN'S BOS
- STL One - Stop/Connecting to Local Ratio = 66% (See Appendix 3).

9 Estimated DCA
- DAL One - Stop Southwest Passengers 10,337 Estimated at 23.7% of Local (Line 7) based on WN's experience in its BWI
- OKC and BWI - DAL markets (See Appendix 2).

10 Other Beyond OKC Southwest Passengers 18,450 Line 8 - Line 9. This equates to 2.1% of the Other Beyond OKC base passengers (Exhibit WN
- 201)

.
11 Subtotal Southwest Fared Passengers 72,404 Line 7 + Line 8.

12 Adjusted Passengers Including Non Fared 78,630 Calculated at 108.6% of fared passengers derived from WN system
- wide O&D traffic for YE Q3 2011.

13 Total Seats 98,010 137 seats x 365 days x 2 directions x 98% completion.

14 Load Factor 80.2% (Line 12 / Line 13) x 100%Source: U.S. DOT Origin & Destination Survey, via Diio, LLC. 1/ Includes fare and service stimulation based on QSI. See Appendix 1 for details of stimulation estimates. Note: Includes fared p assengers o nly. Docket OST
- 2000 - 7182 Exhibit WN
- 203 

## Southwest Service Would Generate 46,220 Additional DCA
- OKC Passengers Assuming Other Carriers Match Its Low Fares (First Normalized Year)

+137% DCA
- OKC Annual Passengers
79,884

Potential Stimulation 1 46,220

33,664



### (YE Q3 2011) (First Normalized Year) 33,644Source: Appendix 1. Docket OST
- 2000 - 7182 Exhibit WN
- 204 

## Southwest’s DCA
- OKC Service Would Generate More Than $6 Million Annually In Consumer Fare Savings to Local Passengers (First Normalized Year)



## $3.6 Million $2.5

Million DCA
- OKC Consumer Fare Savings (Millions) 

## $6.1 Million

(Market Stimulation)

# Southwest’s DCA
- OKC
- DAL Single
- Plane Service Will Provide

Connecting Opportunities to Almost 900,000 Passengers Annually (Constrained to Maximum 30% Circuity )

1/ YE Q3 2011 Source : OAG Schedules for June 2012, US DOT O&D Survey YE Q3 2011, via Diio, LLC. DCA
- OKC DCA
- DAL/DFW Other Beyond OKC Total Passengers 33,664 410,214 880,830 1,324,708 O&D Passengers 1 Current WN Routes Proposed WN Route Docket OST
- 2000 - 7182 Exhibit WN
- 205Source: U.S. DOT Origin & Destination Survey, via Diio, LLC. 1/ Service stimulation only. See Appendix 4 for details of stimulation estimates. Note: Includes fared p assengers o nly. Docket OST
- 2000 - 7182 Exhibit WN
- 206 

## Southwest’s Service Would Generate 8,614 Additional DCA
- DAL Single
- Plane Passengers Due To Service Stimulation (First Normalized Year)

+2.1% DCA
DAL/DFW Annual Passengers 418,828 Estimated Stimulation 1 8,614 410,214



### (YE Q3 2011) (First Normalized Year) 410,214Source: Appendix 4. Docket OST
- 2000 - 7182 Exhibit WN
- 207 

## Southwest’s DCA
- DAL One - Stop Service Would Generate More Than $518,000

Annually In Consumer Fare Savings For Dallas Passengers (First Normalized Year)



## $148,000 $370,000 DCA
- DAL/DFW Consumer Fare Savings (Thousands) 

## $518,000

(Market Stimulation)Source: Appendix 5. Docket OST
- 2000 - 7182 Exhibit WN
- 208 

## Southwest’s DCA
- OKC Service Would Generate $1.5 Million Annually In Consumer Fare Savings to Beyond OKC Passengers (First Normalized Year)



## $1.5 Million

0 DCA
- Beyond OKC Consumer Fare Savings (Millions)


## $1.5 Million

(Market Stimulation) Conservative AssumptionSource: Sum of Exhibits WN

- 204, WN

- 207 and WN

- 208. Docket OST
- 2000 - 7182 Exhibit WN
- 209 

## DCA
- OKC
- DAL Proposal Will Generate $8.2 Million of Annual Consumer Fare Savings

(First Normalized Year 

## )



## $5.3 Million
$2.9

Million Total Consumer Fare Savings (Millions) 

## $8.2 Million

(Market Stimulation)

This corresponds to the same fare savings shown in Exhibits WN - 117 and WN - 118

# Appendices

## Summary of Consumer Surplus Benefits from Southwest Proposed DCA

– OKC Service Appendix 1 Page 1 of 4(A) Nonstop Miles (B) DCA fared passengers for YE Q3 2011 (C) Predicted Service stimulation from Campbell
- Hill Aviation Group, QSI model

. (D) Average Fare for Fared Passengers (excludes passengers using frequent flier miles). Includes nonstop and connecting passenge rs. Uses

YE Q3 2011 U.S. DOT Origin
- Destination Passenger Survey data via Diio, LLC. ( E) Average checked baggage and rebooking/cancellation fees per passenger derived by Campbell
- Hill Aviation Group using DOT Form
- 41 and

DOT data (YE Q3 2011). (F) Column D + Column E (G) DCA
- OKC fare calculated at Southwest’s yield curve (Appendix 6) for YE Q3 2011, plus checked baggage and rebooking/cancellation fees. (H) Column G

– Column F (I) Column H / Column F (J) Calculated using a price elasticity coefficient of
- 1.2 (See Appendix 1, page 3).

The arc elasticity formula is: Arc Ep = [(Q2
- Q1)/((Q1+Q2)/2)] / [(P2
- P1)/((P1+P2)/2)] , where Q1 = passengers before WN service, Q2 = Passengers after WN service, P1=Fare Before WN service, P2 = Fare After WN service. (K) Column B x (1+ Column C) x (1+ Column J) (L) Column K

– Column B (M) Column H x
- 1 x Column B (N) Column H x Column L x 0.5 x - 1. This is the triangle area in Appendix 1, page 4. (O) Column M + Column N 

## Summary of Consumer Surplus Benefits from

Southwest Proposed DCA

– OKC Service Appendix 1 Page 2 of 4

## Lower Fares Would Increase Passenger Volume

“Total elasticity of demand for air travel is a measure of air travelers’ response to variations in the cost of air travel. This parameter measures the percentage change in air passenger trips resulting from a one
- percent change in trip prices. Total elasticities are negative because price and quantity demanded are inversely proportional. ...
... FAA sponsored an extensive review of the economic literature regarding total elasticity of demand for air travel at a national level. The findings of this review are summarized in Chapter 2 and Appendix G of Report to Congress: Child Restraint Systems , Vol. 1 and 2, May 1995. The elasticity values found in the academic literature range from

– 0.6 to

– 4.5. 

### Representative values for business and non
- business travelers are presented in Table C.2. Values in Table C.2 can be tailored to the mix of passengers at an airport. Overall weighted values are

– 0.79 and

– 1.59 for business and non
- business travelers, respectively, with an overall average (assuming the 50/50 mix typical of the nation at large) of

– 1.2. ...”

Source: “ FAA Airport Benefit

- Cost Analysis Guidance ”, Office of Aviation Policy and Planning, Federal Aviation Administration, December 15, 1999. Appendix 1 Page 3 of 4

## Consumer Surplus Illustration

Source: “ FAA Airport Benefit

- Cost Analysis Guidance ”, Office of Aviation Policy and Planning, Federal Aviation Administration, December 15, 1999. Appendix 1 Page 4 of 4

## Calculation of BWI
- DAL One - Stop Passengers As a Percent of BWI - OKC Local Passengers Appendix 2

Source/Basis 1 WN BWI - OKC Local Passengers 40,200 From O&D Survey via Diio, LLC., YE Q3 2011.

2 Total WN BWI - DAL One - stop Passengers - All Routings 46,130 From O&D Survey via Diio, LLC., YE Q3 2011.

3 OKC Share of BWI
- DAL One - Stop Seats 20.64% From OAG YE Q3 2011.

4 Estimated DAL One
- stop Passengers via BWI
- OKC 9,521 Line 2 x Line 3.

5 DAL One - stop Passengers As a % of BWI
- OKC Local 23.7% (Line 4 / Line 1) x 100%.

## Calculation of WN One
- Stop/Connecting Percentage for DCA
- OKC

Based on Southwest’s BOS
- STL Experience Appendix 3

Source/Basis 1 WN BOS
- STL Local 94,428 From O&D Survey and T
- 100 Data via Diio, LLC., YE Q3 2011.

2 WN BOS
- STL Flow and Direct 62,734 From O&D Survey and T
- 100 Data via Diio, LLC., YE Q3 2011.

3 Flow % of Direct 66% (Line 2 / Line 1) x 100%.

4 BOS
- STL Distance (Miles) 1,044



## BOS
- STL is comparable to DCA
- OKC because they both are east - west markets with 

## little flow behind the east coast point, and the markets

are similar in distance

## Summary of Consumer Surplus Benefits from

Southwest Proposed DCA

– DAL Single
- Plane Service Appendix 4 Page 1 of 2



## This analysis conservatively assumes no fare matching by other carriers.

## Summary of Consumer Surplus Benefits from

Southwest Proposed DCA

– DAL Single
- Plane Service Appendix 4 Page 2 of 2

(A) Nonstop Miles. (B) DCA fared passengers for YE Q3 2011. (C) Predicted Service stimulation from Campbell
- Hill Aviation Group, QSI model

. (D) Average Fare for Fared Passengers (excludes passengers using frequent flier miles). Includes nonstop and connecting passenge rs. Uses YE

Q3 2011 U.S. DOT Origin
- Destination Passenger Survey data via Diio, LLC. (E) Average checked baggage and rebooking/cancellation fees per passenger derived by Campbell
- Hill Aviation Group using DOT Form
- 41 and DOT

data (YE Q3 2011). (F) Column D + Column E (G) DCA
- DAL/DFW fare calculated at Southwest’s yield curve (Appendix 6) for YE Q3 2011, plus checked baggage and rebooking/cancellation fees. (H) Column G

– Column F. (I) Column H / Column F. (J) For this one
- stop market Southwest did not estimate traffic stimulation due to its lower fares. (K) Column B x (1+ Column C) x (1+ Column J) (L) Column K

– Column B (M) 10,337 forecast WN DCA
- DAL passengers less the stimulated passengers from Column L. This is the estimated passengers divert ed from

current DCA
- DAL/DFW flights. (N) Column M x
- 1 x Column H. (O) Column H x Column L x 0.5 x - 1. This is the triangle area in Appendix 1, page 4. (P) Column N + Column O.

## Summary of Consumer Surplus Benefits from

Southwest’s Connecting Service Beyond OKC Appendix 5 Page 1 of 2



## This analysis conservatively assumes no traffic stimulation or fare matching by other carriers in these four connecting markets.(A) Nonstop Miles (B) DCA fared passengers for YE Q3 2011 (C) Assumed no service stimulation for connecting markets. (D) Average Fare for Fared Passengers (excludes passengers using frequent flier miles). Includes nonstop and connecting passenge rs. Uses YE

Q3 2011 U.S. DOT Origin
- Destination Passenger Survey data via Diio, LLC. (E) Average checked baggage and rebooking/cancellation fees per passenger derived by Campbell
- Hill Aviation Group using DOT Form
- 41 and

DOT data (YE Q3 2011). (F) Column D + Column E (G) DCA
- Beyond fare calculated at Southwest’s yield curve (Appendix 6) for YE Q3 2011, plus checked baggage and rebooking/cancellation fees. (H) Column G

– Column F (I) Column H / Column F J) For Beyond OKC markets Southwest did not estimate traffic stimulation. (K) Column B (no stimulation is assumed) (L) Share of O&D passengers from Column K (M) Fare Change from Column H weighted by O&D share from Column L (N) Forecast WN connecting passengers. Assumes that all are diverted from existing services. (O) Column H x
- 1 x Column N 

## Summary of Consumer Surplus Benefits from

Southwest’s Connecting Service Beyond OKC Appendix 5 Page 2 of 2

## Southwest's Yield Curve

Nonstop Miles YE Q3 2011 Nonstop Market Yield

Yield is based on fared passengers.
Note : Fare curve includes markets with nonstop service and over 600 one

- way departures for YE Q3 2011. Source: U.S. DOT, O&D Survey and Schedule data, YE Q3 2011, via Diio, LLC. Appendix 6