Order 2012

- 5

- 12 Served: May 14, 2012

UNITED STATES OF AMERICA
DEPARTMENT OF TRANSPORTATION
OFFICE OF THE SECRETARY WASHINGTON, D.C.

Issued by the Department of Transportation

on the 14 th day of May , 20 12

D ocket DOT

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- 2012

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ORDER GRANTING BEYOND

- PERIMETER SLOT EXEMPTIONS AT
RONALD REAGAN WASHINGTON NATIONAL AIRPORT

SUMMARY

By this Order, the Department grants two beyond

- perimeter slot exemptions at Ronald Reagan Washington National Airport (DCA) to each of four new

entrant or limited incumbent carriers

, utilizing single

- aisle Stage 3 aircraft, to operate a nonstop roundtrip as follows:

• Alaska Airlines, Inc. (Alaska) for service to Portland, Oregon;

• JetBlue Airways Corporation (JetB lue) to serve San Juan,

Puerto Rico;

• Southwest Airlines Co. (Southwest) for service to Austin, Texas; and

• Virgin America Inc. (Virgin America) to serve San Francisco,
California

. Applications of:

AIR CANADA ; ALASKA AIRLINES, INC. ; FRONTIER AIRLINES, INC. ; JETBLUE AIRWAYS CORPORATION;
MN AIRLINES LLC d/b/a SUN COUNTRY
AIRLINES ; SOUTHWEST AIRLINES CO. ; and
VIRGIN AMERICA INC.

For exemptions from 14 C.F.R. Part 93, Subparts K and S, pursuant to 49 U.S.C. § 41718( g ), Special rules for Ronald Reagan Washington National Airport ( beyond

- perimeter slot exemptions) , as added by Section 414 of the

Federal Aviation Administration Modernization and
Reform Act of 2012- 2

-

Background

On February 14, 2012, President Obama signed into law the FAA Modernization and Reform Act of 2012 (FAA 2012), P ub . L. No. 112

- 95. Section 414 of FAA 2012 amended Section 41718 of Title 49 U.S. Code by adding a subsection (g), Additional Slot Exemptions, which directs the Department to grant , not later than 90 days after

enactment, eight slot 1 exemptions for nonstop service between DCA and airports beyond the 1,250

- mile perimeter (known as “beyond

- perimeter” sl ot exemptions) for service to be provided by new entrant and limited incumbents

. 2

By Order 2012

- 2

- 21 (February 24, 2012), the Department requested applications from new entrant and limited incumbent carriers for the eight additional beyond

- perimeter slot exemptions made available under 49 U.S.C. Section 41718(g)(2). 3

This is the fifth allocation proceeding for beyond

- perimeter slot exem ptions at DCA.
With the creation of these 16 additional exemptions

, 4 a total of 40 takeoffs and landings for service beyond the 1,250

- mile perimeter at DCA have been authorized by law. 5
Following the passage of the Wendell H. Ford Aviation Investment and Reform Act for the 21st Century (AIR

- 21), the Department awarded all 12 slot exemptions available under the law to America West Airlines, Inc. (America West), Frontier Airlines, Inc.

1 A slot is a reservation for an instrument flight rule takeoff or landing. Therefore, two slots are required to

o perate a roundtrip. 49 U.S.C . § 41714(h)(4). A slot exemption is an exemption from the slot limitations in the Federal Aviation Administration’s High Density Rule, 14 CFR Part 93, subparts K and S.

2 Section 414(c) of FAA 2012 amended the definition of a l imited i ncumbent c arrier by increasing the threshold of slots held or operated by an air carrier or commuter carrier, not including slot exemptions, slots operated under certain fee

- for

- service arrangements for another carrier, or slots held under a sale and
license

- back financing arrangement with another carrier, from fewer than 20 to fewer than 40.

3 Due to the timetable for decision established by statute, applicants were required to submit a schedule for their proposed operations, including takeoff and landing times at DCA.

4 Section 414 of FAA 2012 also directed the Department to grant eight beyond

- perimeter slot exemptions to incumbent carriers qualifying for status as a non

- limited incumbent at DCA as of the date of enactment, up to a maximum of two each, the operation of w hich is conditioned upon the carrier’s discontinuing use of an equivalent n umber of existing slots currently used for service between DCA and a large hub airport

within the 1,250 mile perimeter of DCA See, 49 U.S.C. §§ 41718 (c)(2)(B); (g)(1), (3)

- (5). The incumbent carriers meeting the Section 41718(g)(3) definition at DCA in cluded American Airlines, Inc. (American), Delta Air Lines, Inc. (Delta), United Air Lines, Inc. (United), and US Airways, Inc. (US Airways). By Order 2012

- 2

- 21 ( February 24, 2012 ) , the Department granted the incumbent carri ers qualifying under 49 U.S.C. Section 41718(g)(3 ) two exemptions for beyond perimeter use, subject to the

conditions set forth in the statute , and as required by 49 U.S.C. Section 41718(g)(3)

- (4) for daily nonstop roundtrips to three airports in California and one in Utah. American will discontinue one nonstop roundtrip

to Dallas

- Fort Worth International Airport and replace it with one nonstop roundtrip to Los Angeles International Airport, starting June 14, 2012. Delta will discontinue the use of two DCA slots for service to

New Yo rk La Guardia, in order to operate an additional nonstop roundtrip to Salt Lake City International Airport beginning June 7, 2012. Beginning May 15, 2012, United will convert the use of two DCA slot exemptions by discontinuing one roundtrip to O’Hare Inte rnational Airport and replacing it with a nonstop roundtrip to the San Francisco International Airport. US Airways will discontinue one nonstop roundtrip

between DCA and Dallas

- Fort Worth International Airport and, instead, provide one nonstop to the

San Diego International Airport beginning June 8, 2012.

5 Of these 40 beyond

- perimeter slot exemptions, 32 will have resulted in a net increase in DCA operations. The eight newly

- created slot exemptions for non

- limited incumbents correspond to a discontinuance of eight existing within

- perimeter slot allocations. 49 U.S.C. § 41718(a).- 3

-

(Frontier), National Airlines, Inc. (National), and Trans World Airlines , Inc (TWA)

, for various nonstop services to communities beyond the perimeter. Order 2000

- 7

- 1 (July 5, 2000). In 2001, the Department reallocated two of the 12 slot exemptions to Alaska Airlines, Inc. (Alaska) after TWA returned its holdings during its b ankruptcy and acquisition by another carrier. Order 2001

- 6

- 20 (June 22, 2001). In 2002, the Department reallocated two more of the slot exemptions to Delta Air Lines, Inc. (Delta) after National ceased operations at DCA. Order 2002

- 11

- 20 (November 27, 2 002). Similarly, following the passage of Vision 100

- Century of Aviation Reauthorization Act, P 

### .L. 108

- 176 (Vision 100 ), the Department awarded the 12 additional DCA beyond

- perimeter slot exemptions that were made available under the law to : Alaska for single daily nonstop roundtrip service to both Seattle, Washington, and Los Angeles, California; America West for a daily nonstop roundtrip to Phoenix, Arizona; and
Frontier for two daily nonstop roundtrips and United for one daily nonstop roundtrip to

Den ver, Colorado. 6

As detailed in Order 2012

- 2

- 21, Section 414 of FAA 2012 directs the Department to consider seven criteria in awarding the eight additional DCA beyond

- perimeter slot exemptions that have been created and made available to new entrant and limited

incumbent carriers . We are directed to consider the extent to which the exemptions will : (A) provide air transportation with domestic network benefits beyond the 1,250 mile perimeter; (B) increase competition in multiple markets; (C) not reduce t ravel options for communities served by small hub airports and medium hub airports within the 1,250 mile perimeter; (D) not result in meaningfully increased travel delays; (E) enhance options for nonstop travel to and from the beyond

- perimeter airports tha t will be served; (F) have a positive impact on the overall level of competition in the markets that will be served; or (G) produce public benefits, including lower fares, higher capacity, and a variety of service options. 7 The statutory amendments provid e three new criteria for our

6 See Order 2004

- 4

- 1.

7 Section 41718 (g)(1)

- (2) reads: (1) Increase in Slot Exemptions.

— Not later than 90 days after the date of enactment of the FAA Modernization and Reform Act of 2012, the Secretary shall grant, by order 16 exemptio ns from

— (A) the application of sections 49104(a)(5), 49109, and 41714 to air carriers to operate limited frequencies and aircraft on routes between Ronald Reagan Washington National Airport and airports located beyond the perimeter described in section 49109; and (B) the requirements of subparts K and S of part 93, Code of Federal Regulations. (2) New Entrants and Limited Incumbents

— Of the slot exemptions made available under paragraph (1), the Secretary shall make 8 available to limited incumbent air carriers or new entrant air carriers (as such terms are defined in section 41714(h)). Such exemptions shall be allocated pursuant to the application process established by the Secretary under subsection (d). The Secretary shall consider the extent to which the exemptions will

— (A) provide air transportation with domestic network benefits in areas beyond the perimeter described in section 49109; (B) increase competition in multiple markets; (C) not reduce travel options for communities served by small hub airports and medium hub airpo rts within the perimeter described in section 49109; (D) not result in meaningfully increased travel delays; (E) enhance options for nonstop travel to and from the beyond

- perimeter airports that will be served as a result of those exemptions;- 4

-

consideration in making these awards (new subsections (E), (F) and (G)) and do not require that an application meet each of the seven criteria.

Because we find that each of the proposals would not reduce travel options for

com munities served by small and medium hub airports with in the perimeter and would not result in meaningfully increased travel delays, we focus our analysis in this proceeding on the extent to which the applicants meet other statutory criteria.

APPLICATIONS

As summarized below, t he Department received applications from Air Canada, Alaska, Frontier, JetBlue, Southwest, MN Airlines LLC d/b/a Sun Country Airlines (Sun Country), and Virgin America

. The entire public record for this proceeding, including

proposa ls and reply comments, may be accessed online through the Federal Docket Management System at http://www.regulations.gov by doing a “ search” on docket

n umber DOT

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.

Air Canada

Air Canada has requested two slot exemptions in order to establish one daily nonstop roundtrip to Vancouver International Airport ( YVR) utilizing Airbus A 319 aircraft configured with 120 seats, including 14 in business c lass and 106 in economy.

Arguments in Support Air Canada states that, as Canada’s largest full

- service airline, it is the first and only foreign carrier operating out of DCA. 8 The carrier argues that it has made a significant financial investment in securing slots at DCA and is committed to maintaining a presence

(F) have a positive impac t on the overall level of competition in the markets that will be served as a result of those exemptions; or (G) produce public benefits, including the likelihood that the service to airports located beyond the perimeter described in section 49109 will result in lower fares, higher capacity, and a variety of service options. Prior to the 2012 amendment, the pertinent provision in Section 41718 read: (a) The Secretary shall grant, by order, 24 exemptions from the application of sections 49104(a)(5), 49109, 49111( e), and 41714 of this title to air carriers to operate limited frequencies and aircraft on select routes between Ronald Reagan Washington National Airport and domestic hub airports and exemptions from the requirements of subparts K and S of part 93, Code o f Federal Regulations, if the Secretary finds that the exemptions will

— (1) provide air transportation with domestic network benefits in areas beyond the perimeter described in that section; (2) increase competition by new entrant air carriers or in multiple marke ts; (3) not reduce travel options for communities served by small hub airports and medium hub airports within the perimeter described in section 49109; and (4) not result in meaningfully increased travel delays.

8 Air Canada states that it has operated flights be tween points in Canada and DCA since it was granted
access to DCA under the 1995 U.S.

- Canada Air Transport Agreement, which provides that Canadian carriers are to acquire necessary DCA slots “under the prevailing rules for slot acquisition and minimum
slot use applicable to United States Airlines,” DOT Order 95

- 4

- 30. Air Canada also states that it supported

the 2007 U.S.

- Canada Open Skies Agreement.- 5

-

at the airport. Air Canada confirms its status as a limited incumbent carrier at DCA, holding 16 slots and slot ex emptions 9

, and states that, despite its efforts to do so, it has been unable to secure additional slots to expand service at DCA . The carrier also
maintains that the statutory criteria that guided the award of previous DCA slot exemptions effectively prev ented it from participating because service was to be provided to airports within the United States.

Regarding its proposed service to YVR, Air Canada claims that the airport is Canada’s second busiest and that Vancouver is Canada’s third largest urban area. The carrier describes Vancouver as “the commercial heart of Western Canada,” and states that it is the largest market in Canada without nonstop service from the DC area. The carrier argues that its proposed service will reduce travel time to Vanco uver by at least 1 hour and 39 minutes when compared to existing one

- stop alternatives and will have a positive impact on competition. Air Canada proposes to use Airbus 319 aircraft configured with 120 seats, providing two

- class service. Air Canada also asserts that

, together with its regional partner, Jazz, the two airlines provide service to 10 communities in the United States, and to a total of 46 destinations in North America (including Mexico and Caribbean), Asia Pacific, and Europe from YVR. The ca rrier also argues that its proposed service would create new within network connecting opportunities to 17 new communities in Western Canada. The carrier asserts its proposed service will have a positive impact on competition by competing with existing on e

- stop service to YVR from DCA and Washington Dulles International Airport (IAD), operated by Delta, United,
American and Alaska.

In its March 27 answer, Air Canada reiterated the advantages that would be realized through its proposed service, and again a sserted that it is not economically feasible for it to offer service to YVR from IAD, due to the high costs and inefficiencies of providing service at two airports in the same metropolitan area

, and that its business travelers prefer
DCA. Air Canada also urges the Department to extend DCA service to as many new markets as possible

, rather than granting slot exemptions to markets already receiving nonstop DCA service.

Responsive Pleadings Many of the other applicants commented on Air Canada’s proposal. Th ey most commonly argued that Air Canada’s proposal would not provide low fares or domestic network benefits, and that Air Canada should not receive any preferential treatment as a

non

- U.S. air carrier. 10 Several carriers also explain that Air Canada alread y holds a comparatively significant number of within

- perimeter slots at DCA and provides air
service to its within

- perimeter hubs, which offer connecting service to Vancouver. Many of the applicants also make note of Air Canada’s proposed aircraft type, w hich would offer comparatively fewer seats

, and of the relative ly small size of the Vancouver

- Washington, D.C., market. Some highlight Air Canada’s code

- share relationship with
United and its Star Alliance membership and claim that an award to Air Canad a would

9 Air Canada holds slot exemptions under 49 USC 41718.

10 In this regard, some commenters argue that, because the U.S.

- Canada Air Transport Agreement subjects Air Canada’s access to DCA to the “prevailing perimeter rule,” the bilateral agreement does not require the Secretary to consider Air Canada’s application for beyond

- perimeter slots. See, Section 41718(h)(3 ), as added by FAA 2012.- 6

-

effectively provide a large incumbent carrier access to another transpacific gateway, which is contrary to the purpose of awarding DCA slot exemptions to new entrants or limited incumbents. Competing carriers also argue that the schedule included as part of Air Canada’s proposal is not convenient for customers in the local market, but intended to
facilitate connections to international destinations.

Alaska

Alaska has requested four total slot exemptions in order to operate one daily nonstop roundtrip each to Portland International Airport (PDX ) and San Diego International Airport (SAN), both utilizing Boeing 737

- 800 aircraft with 1 57 seats, 1 6 in first class and

1 41 in economy. The carrier states that the proposed service to PDX is its first priority and that proposed service to SAN would continue on a single

- plane basis to Honolulu,
Hawaii.

Arguments in Support

Alaska points to its presence along the entire West Coast

, the high load and completion

factors and on

- time performance of its service uti lizing DCA slot exemptions, comparatively low customer complaint ratio, history of providing lower DCA fares (and the associated p assenger cost savings), and status as a growing and financially strong
carrier with exc ellent relationships with its stakeholders. Alaska also points out that it is the only network carrier not to have filed for bankruptcy, that it has received industry awards, and that political, civic and employee interests support its application. Alaska states that it operates only three roundtrips at DCA

, which

, with the exception of Sun Country

, represents the smallest presence when compared to other carriers operating at

DCA. Alaska states that FAA 2012 added three new decisional criteria and changed the manner in which the criteria are to be applied by no longer requiring that an applicant

meet each enumerated standard

, but instead provid ed more flexibility for the Department to weigh each criterion separately. Alaska argues that the amended statute requires that

local market benefits be treated as a co

- equal decisional factor with beyond

- perimeter network benefits and that its proposal to serve Portland and San Diego, the two largest Washington , D

. C

. - area markets lacking nonstop DCA service, is the strongest application

in the docket.

In reference to its proposed service to PDX, Alaska argues that Portland is the third largest beyond

- perimeter market within its network system without nonstop service to

DCA. Alaska commits to providing low

- fares

, ap proximately 18 percent below existing
fares for Portland service at IAD

, for at least a year

, subject to adjustment as a result of increasing fuel prices. Alaska claims that its request would produce immediate network benefits by connecting to 10 communiti es from Portland, and over time, even more opportunities because of its substantial presence at the airport

. The airline claims that its proposal would offer service with a convenient schedule, provide additional capacity in the Washington

, D.C. area

– Pa cific Northwest market, represent a convenient, low

- fare alternative to existing service at IAD

, and increase competition.

Regarding its proposed service to SAN
, the carrier states that it would offer service to

close

- in DCA for a large volume of governme nt traffic, including military. Alaska- 7

-

argues that San Diego is the second largest beyond

- perimeter market within its network system without nonstop service to DCA . Similar to its proposal to PDX, the carrier commits to providing low fares

, approximately 31 percent below existing fares for SAN
service at IAD

, for at least a year

, subject to adjustment as a result of increasing fuel prices. Alaska asserts that its proposal would provide additional capacity and a convenient, low

- fare alternat ive to existing service at IAD and Baltimore/Washington International Thurgood Marshall Airport (BWI), and provide important new competition
as well

.

In its March 27 reply comments

, Alaska acknowledge s US Airways’ recent announcement to inaugurate DCA

- SAN service on June 8 and argues that its proposed service to SAN is even more important because it will provide much needed and well

timed competition in the market. Alaska also explains that, unlike U S Airways’ proposed service, its service would become permanent in nature due to the conditions associated with the beyond

- perimeter slot exemptions

, and be suitable for SAN originating passengers while US Airways’ service appears to be timed to accommodat e DCA originating passengers.

Comments of the Port of Portland The Port of Portland, the owner and operator of PDX, submitted reply comments in support of Alaska’s application on March 27. The Port asserts that it has been experiencing rapid growth in passenger traffic and that the PDX

- DCA market is the largest origin and destination (O&D) market without current or announced service in this proceeding. The Port also claims that DCA is PDX’s second largest destination without nonstop service. The Por t contends that it has better access to capital cities in Europe and
Asia than it does to DCA.

Comments of the San Diego County Regional Airport Authority (SDCRAA) SDCRAA, operator of SAN, also submitted comments in support of Alaska’s proposal on

March 27. SDCRAA explains that the City of San Diego is the second largest city in California and the County is the fifth most populous county in the United States and second most populous in California. The Airport Authority states that SAN is situated 18
miles from the US

- Mexico border and therefore serves a diverse bi

- national catchment area and has the highest airport

- wide load factor in this proceeding. SDCRAA states that the San Diego region represents the single largest concentration of active dut y military in the country and would benefit from direct access to the closest airport to the Pentagon. The airport operator also mentions that Alaska’s proposal would provide Honolulu

- DCA

passenger s with their first roundtrip single

- plane one

- stop fligh t. SDCRAA also asserts that Alaska’s proposal would introduce new airline competition in the Washington market and is supported by a broad coalition of over 100 political leaders, civic organizations, corporations and individuals.

Reply comments of Assoc iation of Flight Attendants

– CWA On March 27, the Association of Flight Attendants

- CWA (AFA) submitted reply comments in support of Alaska’s application. AFA explains that Alaska and its employees have a very good working relationship. The Association a lso makes note that- 8

-

Alaska is the only established network carrier that has not filed for bankruptcy and therefore has avoided major job losses and service terminations.

Responsive Pleadings Competing applicants explain that Alaska is not typically categorized as a low

- fare carrier and has already been awarded a significant number of beyond

- perimeter slot exemptions at DCA. Competitors also urge the Department not to award Alaska four slot exemptions in this proceeding. Several carriers highlight t hat both PDX and SAN already have mainline service to IAD and/or BWI and question the need for proposed SAN service based on US Airways’ recent announcement to provide service in the DCA

- SAN market beginning June 8. Several other carriers dispute Alaska ’s claims of network benefits based on the service the carrier already provides at the Los Angeles International Airport (LAX) and the Seattle

- Tacoma International Airport (SEA). Carriers offering single

plane service to an additional destination argue th at their respective proposals offer more benefits to a greater number of passengers. Applicants proposing aircraft with more passenger seats also argue that Alaska will offer service to fewer passengers.

Frontier

Frontier has requested two slot exemptio ns in order to offer one daily nonstop roundtrip

to Colorado Springs Airport (COS )

, utilizing Airbus A 3 20 aircraft with 1 68 seats, 36 of which have increased pitch

, while the remaining 1 32 are economy. Proposed service
would continue on a single

- plane bas is to San Diego, California.

Arguments in Support

Frontier claims to be a well

- established carrier known for offering low air fares and high quality customer service. Frontier confirms its status as a limited incumbent carrier and
states that Denver is the only beyond

- perimeter community it serves

, and that it provides
service to five within

- perimeter communities using slot s held by its affiliate, Republic Airlines. The carrier claims its nonstop DCA

- COS operation fulfills the statutory criteria
and wou ld best maximize the public interest and competition benefits.

Specifically for Colorado Springs, Frontier states that the community is the second largest city in Colorado and that Washington, D.C. is its largest destination due in part to

the Air Force A cademy and the significant presence of military personnel in the region. The carrier also argues that Colorado Springs is an underserved, high

- fare market without nonstop service to DCA, and asserts that its proposal would not only provide additional capa city and offer a convenient, low

- fare alternative to existing nonstop regional jet service at IAD and other connecting service, but also produce public benefits and introduce competition. In support of its claim to offer low fare service and stimulate

dem and in the COS market, Frontier references the 37 percent increase in DCA

- Denver passenger traffic and 13 percent decrease in average DCA

- DEN fares after it entered that market. Frontier also argues that its proposed service would enhance market structure

, competition and network benefits to at least five additional beyond

- perimeter communities, including its extensive network at Denver International Airport (DEN). Frontier also claims that its proposed service would increase competition by reducing the- 9

-

t ravel time to Colorado Springs by at least 1 hour and 44 minutes when compared to existing one

- stop alternatives. Also, Frontier claims that its one stop DCA

- SAN flight would inject low

- fare competition into the DCA

- SAN and broader WAS

- SAN markets.

In its consolidated answer of March 27, Frontier urges the Department not to grant any carrier more than one pair of slot exemptions

, in order to maximize the number of carriers receiving slot exemption awards

, and to limit the awards for service to cities th at will
receive first

- time nonstop DCA service. In addition to restating many of arguments made in its application, Frontier explains that, like Alaska and Virgin America, it lacks a
within

- perimeter hub from which it could flow traffic to the west. The carrier also explains that Colorado Springs is a newly established western focus city from which it plans to serve or already serves five different western markets, including its Denver hub, and asserts that its proposal would provide the only low

- cost, lo w

- fare service to Colorado Springs from the entire Washington, D.C., metropolitan area, thereby competing with United Express’ IAD

- COS service. 11 It argues that its proposal would provide more annual seats than any other applicant and states that its application has strong public support from government officials

, M embers of Congress, travelers and

businesses.

Answer of the City of Colorado Sprin gs and the Colorado Springs Airport (COS) COS submitted comments strongly supporting Frontier’s application on March 27. COS emphasizes that the Washington, D.C., metropolitan area is its largest market in terms of daily passengers. The Colorado Springs representatives highlight many of the arguments made by Frontier and explain that because of the variability in travel time, the air service available at DEN is not an acceptable substitute for its community. COS reiterates that
Frontier would offer a low

- fare service alternative utilizing mainline aircraft with on

board amenities (including personal TVs) to compete against the regional jet service provided by a legacy carrier at IAD.

Responsive Pleadings

Most of the other applicants in the proceeding off ered comments on Frontier’s proposal. Many make note of the comparatively small size of the Washington, D.C.

- Colorado Springs O&D market and reference the existing regional jet service available at IAD. 12

Several carriers also claim that Denver is an ac ceptable substitute for Colorado Springs because of the reasonable driving distance between them. The carriers state that Frontier has already been awarded six beyond

- perimeter DCA slot exemptions to serve Denver

11 Frontier claims that its beyond

- COS connections would offer the traveling public an alternative, low

- fare service option that the Department should consider, citing our consideration of Alaska Airlines’ connecting service, in DOT Order 2004

- 4

- 1 (Apr. 1, 2004), at 17, as precedent

12 Southwest argues that, in measuring the Washington Metro region origin and destination traffic at COS, we should disregard the BWI and IAD traffic, because of a previous DOT/FAA determination that the three Washington area airports are “not interchangeabl e.” Notice Granting Petition with Conditions, 75 Fed. Reg., 26322

- 26333 (May 11, 2010). Frontier, in its April 11 Motion for Leave to File and Response to Second Unauthorized Filing by Southwest, argues that the proceedings are distinguishable because th e Delta

- US Airways slot swap divestitures were identified to address concentration and competition concerns that otherwise would have arisen with the slot exchange, and the Department of Justice noted that other area airports may be acceptable substitutes for price

- sensitive passengers.- 10

-

and explain that Denver is also served fro m IAD and BWI. Other applicants also dispute Frontier’s claims of domestic network benefits. They argue that many of the additional connections (including San Diego) that may be available on Frontier’s network at Colorado Springs already have

, or shortly will have

, nonstop service to DCA and that

Frontier has a very limited presence at SAN. Other carriers also argue that the carrier has

an uncertain future, as its parent, Republic Airways Holdings, Inc.

, has mentioned that Frontier may be spun off or sold.

JetBlue

JetBlue has requested two slot exemptions in order to add one daily nonstop roundtrip to

Luis Mu ñ oz Mar í n International Airport (SJU) in San Juan, Puerto Rico, and, if granted, another pair of slot exemptions to provide one daily ro undtrip to Austin

- Bergstrom International Airport (AUS) in Austin, Texas. Proposed service to SJU would utilize
Airbus A320 aircraft configured with 1 50 seats, while service to AUS would utiliz e 100

- seat Embraer E190 aircraft

.

Arguments in Support JetBlue highlights its award

- winning customer service, “everyday” air fa r e s , history of stimulating demand for service, and the standard features of its service , including no overbooking, first checked bag free, all one

- way fares, pre

- assigned seats, the a mount of legroom available in its seats , the relative ly young age of its aircraft fleet, unlimited snacks and drinks, and 136 channels of free entertainment. In support of its claims to stimulate demand and lower fares, JetBlue points to the highly favora ble impact of its
services on fares and traffic in the Jacksonville, FL

- SJU, Orlando, FL

- Bogota, Colombia markets, and Boston

- DCA markets, respectively. The carrier also explains that while it has recently begun service at DCA and that it has a growing pr esence at the airport through newly acquired and leased slots, it remains a limited incumbent carrier.

Regarding its proposed service to SJU, JetBlue explains that San Juan is the capital of
the Commonwealth of Puerto Rico and a focus city within its network. It states that with its partner Cape Air, the two airlines provide connections to eight domestic and international destinations from SJU. The carrier argues that its proposed service would provide an impor tant boost to Puerto Rico’s economy

, and therefore is consistent with the Obama administration’s goal of fostering and sustaining the economic development of Puerto Rico ( citing to Executive Order 13517, of October 30, 2009). JetBlue also explains that no nstop service between DCA and SJU currently does not exist and asserts that its proposal would introduce a unique coach product in the market, lower fares, increase capacity, expand service options and offer an increased level of competition to
service off ered at IAD and BWI.

Similar to its arguments in support of SJU, JetBlue describes Austin as the fifth largest market beyond the 1,250

- mile perimeter that does not have nonstop service from DCA. The carrier explains that the community’s population is inc reasing and describes the community as a growing center for business and tourism. The carrier states that it currently offers service to six destinations from Austin and asserts that its proposed service would offer meaningful competition, primarily in th e DCA

- AUS local market.- 11

-

Similar to its arguments for its proposed service to SJU, the carrier also claims that its AUS proposal would lower fares, expand service options, stimulate the markets, provide public benefits and increase competition. For exampl e, JetBlue states that its proposed $125

- $665 one way fare is “significantly” lower than United’s current one way IAD

AUS fare structure of $222

- $1,473

.

In its March 27 filing, JetBlue asserts that its proposal to SJU would introduce nonstop
service t o the Caribbean, a region that is not currently served from DCA. JetBlue also highlights the significant financial investment it has made in gaining competitive access

to

, and securing slots at

, DCA

, which the Department should recognize. In regard to it s proposed service to SJU, JetBlue note s reports that American Eagle may suspend operations at the airport , indicating that additional opportunities for its expansion at SJU may exist. The applicant also states that its SJU proposal would increase service to small hub airports and notes that its proposed schedule would occur at off

- peak times at DCA and therefore not increase travel delays. JetBlue states that its application is supported by C ongressional interests, economic development officials, the cru ise industry, and private citizens. In regard to Austin, JetBlue states that it would connect with service to Long Beach, and

, like its proposed schedule for SJU service

, its service would occur during uncongested times at DCA and not increase travel dela ys.

Answer of the City of Austin in Support of the Applications of JetBlue and
Southwest The City of Austin (Austin), owner and operator of AUS, submitted comments in support of both carriers’ applications. The city explains that it is only 65 miles beyond the current 1,250 mile perimeter from DCA and argues that it would already have multipl e nonstop flights to DCA, if the perimeter rule did not exist. Austin claims that originating travelers to DCA are currently paying significantly higher fares than from

other destinations under consideration. The C ity also states that with the recent

ann ouncement of United to SFO and US Airways to SAN, Austin is the second largest market in this proceeding without nonstop service to DCA. Austin also maintains that yields to DCA are the highest among destinations included in the applications under

conside ration. The City also asserts that service to AUS would create public benefits at San Antonio International Airport (SAT). The owner and operator of AUS also states that both carriers’ applications have support from its 16 elected leaders, their more th an

two million constituents, twenty

- one Austin area business and economic development groups, two major universities, the Austin Convention and Visitors Bureau and Texas Department of Transportation, four national associations based in Austin, and the

AFSC ME, Local 1624.

Responsive Pleadings Most competing applicants in the proceeding offered comments on JetBlue’s application. These carriers note that while JetBlue has not been awarded previous DCA slot exemptions, it has already established a significant presence at DCA, operating more flights than any other applicant in this proceeding. The commenting carriers provide details on the existing service to both SJU and AUS that is available at IAD and BWI
from low

- cost and legacy carriers. Other applicants note that JetBlue’s proposal would- 12

-

serve smaller and/or leisure markets, utilize aircraft with fewer passenger seats, offer very limited connecting opportunities

, and assert that monopoly routes from DCA usually result in fares that are comparatively more expensive. 13 One of the other applicants also mentions JetBlue’s cooperative agreement with American Airlines, which operates a significant number of DCA slots, and questions the likelihood of any resulting pricing discipline on fares.



### Southwest

Southwest’s proposal is for two slot exemptions to establish one daily nonstop roundtrip

to AUS, initially utilizing Boeing 737

- 700 aircraft with 1 37 seats and, by November 2012, Boeing 737

- 800 aircraft with 175 seats

. Service would also continue on a sin gle

plane basis to San Diego, California.

Arguments in Support Southwest’s application assert s in particular the fare savings it would bring to passengers in Austin, San Diego, and other connecting markets. The carrier also highlights its award winning customer service, lower air fares, “no

- fee” policy for checked baggage and reservation changes, the popularity of its frequent flier program and status as the nation’s largest domestic airline in terms of passenger traffic. The carrier also relates it has only a small presence at DCA

, with access to 25 slots and slot exemptions , all through its

AirT ran subsidiary.

Similar to JetBlue’s arguments in support of proposed service to Austin, Southwest also notes the lack of nonstop service from DCA and the economic growth the community has recently experienced. The carrier also details its presence at AUS by explaining that

in June 2012

, it will operate nonstop to 20 communities. Southwest also stresses that its proposed service to AUS will provide immediate connecting service to Dallas Love Field (DAL) and William P. Hobby Airport (HOU), offering a lo w

- fare competitive alternative to customers that prefer close

- in airports in Dallas and Houston, Texas. The carrier also argues that its proposal will produce public benefits in the form of fare savings, traffic stimulation, new service options and increa se d competition. In support of these claims, for example, Southwest claims that its projected DCA

- AUS fare will be 36 percent lower than the current average DCA

- AUS fare and that it will compete with

United’s IAD

- AUS service by offering lower fares.

On M arch 27, Southwest filed a consolidated answer asserting that when compared to the other proposals, DCA

- AUS is the second largest market that currently does not have nonstop service, that market yields are the highest, and that its proposed service will generate 147,000 new passengers, which it claims is the largest estimate of traffic stimulation among the applicants. The applicant also states that, based on its presence in the domestic market, it holds the smallest relative portfolio of DCA slot or slo t exemptions and that offering single

- plane, one

- stop service to an underserved market increases competition and maximizes network benefits. Southwest claims its fares would

13 The carriers note that the Department, in the past, has favored carriers offering greater capacity in

restricted

- entry proceedings, citing to DOT Order 2005

- 3

- 25, at 4.- 13

-

be significantly lower than JetBlue’s in the DCA

- AUS market and that it would att ract more passengers due to its relatively large AUS presence.

Comments of the City of Austin in Support of the Applications of JetBlue and
Southwest See discussion above, at page 11.

C omments of the Southwest Airlines Pilots’ Association (SWAPA) On March 27, the Southwest Airlines Pilots’ Association (SWAPA) submitted comments in support of Southwest’s application. SWAPA notes that when compared to the other applications, Southwest’s Boeing 737

- 800 aircraft will provide th e highest level of

seati ng capacity. SWAPA also argues that the network benefits associated with Southwest’s proposal could extend to additional communities with adjustments in

schedule. SWAPA claims that Southwest will maximize the utilization of a scarce resource and produce the greatest public benefits.

Responsive Pleadings The other applicants contend that Southwest already has a substantial presence at DCA via its AirTran subsidiary. Several applicants also note that Southwest’s proposal offers very limited connecting opp ortunities at AUS and that monopoly routes from DCA usually result in fares that are comparatively more expensive. Several carriers detail the existing mainline service to AUS available at both BWI and IAD

. O ther carriers also downplay any of the additio nal network benefits that may exist at SAN, DAL and HOU, arguing that numerous connecting opportunities to DCA already exist and that Southwest’s connections to DAL and HOU should not be considered because they are
each within

- perimeter destinations. JetB lue also compares Southwest’s forecast traffic stimulation with its own and asserts that if several assumptions and the methodology used were consistent among the two proposals, the differences in stimulated passenger demand
would be small.

Supplemental Pleadings On April 3, Southwest filed a limited response and motion for leave to file. In response to comments from the other applicant proposing service to Austin, Southwest asserts that its presence in Austin is larger, that it will operate aircraft wit h more seats and offer lower

fare s and

, therefore, its proposal will produce greater stimulation in the DCA

- AUS market. Southwest references the Department’s finding in the recent Delta

– US Airways slot swap proceeding to argue that BWI and DCA are not ef fective substitutes for one another. Second, Southwest explains that traffic stimulation is expected to be larger in the earlier periods of service and taper off as service on the specific route matures.

Frontier replied to Southwest’s response on Apri l 5. Frontier argues that Southwest is inconsistent in its arguments regarding the availability of competing service in the Washington, D.C., area and argues that traffic data at all three airports (BWI, DCA and IAD) are competitive alternatives and makes note of Southwest’s significant presence at

BWI. T he carrier explains that the Department’s finding in the recent slot swap between
Delta and US Airways was in the context of a slot exchange of within

- perimeter slots to- 14

-

mitigate competition issues specif ic to DCA and not in regard to specific beyond

perimeter route applications.

On April 6, JetBlue also replied to Southwest’s filing. JetBlue challenges Southwest’s traffic stimulation projections , and argues that Southwest’s projections are overly opti mistic

.

In response to Frontier and JetBlue, Southwest filed a second response on April 9. In that filing, Southwest makes references to several additional statements made by the Department in the Delta

– US Airways slot swap case to further justify it s claims that BWI and DCA are not interchangeable. Moreover, Southwest details the recent results of
the mandated divestiture as a result of the Delta

– US Airways slot swap to illustrate the value airlines place on the possibility of operating a few flights at DCA. Southwest also explains that its pricing strategy is based on distance and not on competition, and therefore its projected fares are based on its yield curve. In responding to JetBlue, Southwest provides additional detail with regard to its calculations.

Frontier also filed a response to Southwest’s second filing on April 11. In the reply, Frontier provides several examples of the fares Southwest offers in monopoly markets. Frontier uses these examples to argue that Southwest’s estimated average DCA

– AUS fare of $169 is unrealistic, to challenge Southwest’s claim that its fares are based on distance rather than the competitive landscape and as further evidence to indicate that Southwest may not provide low fares in markets where competition does not exist.

Sun Country

Sun Country applied for two slot exemptions to operate one daily nonstop roundtrip to Las Vegas McCarran International Airport (LAS), utilizing Boeing 737

- 700 aircraft with 129 seats, including 12 in first

- class

.

Arguments in Support Sun Country states that it is an independent low

- fare carrier that has been recognized for its low fares, quality of service and customer satisfaction. It claims that it has a history of increasing passenger demand and lowering air fares in the markets it enters. Sun Count ry states that it qualifies as a limited incumbent , not ing that it currently operates only a single roundtrip at DCA. The carrier argues that it could reduce it s airport unit costs and serve its customers better if it could increase its presence at DCA.

Regarding its proposed service to LAS, Sun Country explains that it has served the community for 29 years and that the demand for flights continues to increase. The carrier also notes that Las Vegas is a major convention and trade show destination and the fourth largest O&D market beyond the 1,250 perimeter at DCA . The airline acknowledges that the Department has already granted slot exemptions for service to Las Vegas (operated now by US Airways), but argues that its proposal would offer service with a m ore attractive schedule, provide convenient, low

- fare travel

, additional capacity and enhanced service options in the two markets, produce public benefits and increase competition.- 15

-

Sun Country submitted additional comments on March 27. The carrier argu es that based
on the size of the DCA

- LAS market

, additional service is warranted. Sun Country restates many of the arguments made in its original application and urges the Department to award these slot exemption s to carriers that are not adequately repre sented at DCA. The applicant also highlights the competitive impact its DCA

– Lansing, Michigan, service has had and states that an award of two additional slot exemptions would be helpful in obtaining “a critical mass of slots” at DCA

. 14

Responsive Pleadings Several other applicants argued that Las Vegas is primarily a leisure market with low fares that limit the extent of competitive benefits, and that service would be provided with aircraft with comparatively smaller seating capacity. Other partie s make note of both the existing service in the DCA

– LAS market and the additional low

- fare nonstop service available at IAD and BWI. The other carriers also mention that the carrier has a very limited presence at LAS

, and highlight the lack of domestic network benefits associated with Sun Country’s proposal.

Virgin America

Virgin America has requested four slot exemptions in order to establish two daily nonstop roundtrip s to SFO utilizing Airbus A 319 aircraft with 8 first class seats, 12 main

cabin sel ect seats and 99 seats in the main cabin, or 119 seats in total. The proposed service will offer both morning and afternoon/evening flights in each direction.

Arguments in Support Virgin America summarizes its growth in size as an airline since beginning service in 2007, describes its focus towards improving customers’ in

- flight experience, including the features of its award winning product (fuel efficiency, in

- flight WiFi, interactive flight sta tus maps, seat

- to

- seat chat, power outlets, USB jacks at every seat, movies, satellite TV, premium TV, music videos, radio, games, on

- demand food and beverage ordering), and explains its history of lowering air fares in the markets it enters. The

carrier also confirms that it qualifies as a new entrant carrier and that it has never held, sold or given up a DCA slot. The applicant argues that the size and significance of the local market, rather than a strict focus on demonstrating “domestic network benefi ts” and “increasing competition in multiple markets,” should now play a more prominent role when evaluating applications, in light of the additional statutory selection criteria included in FAA 2012 and the fact that the Department may choose to consider t he criteria either in isolation or in combination. Virgin America, accordingly, suggests the Department should select the service proposed at a beyond

- perimeter market serving a large metropolitan area with significant O&D traffic.

In regard to its propo sal to serve San Francisco, the carrier argues that the San Francisco Bay Area is the largest metropolitan area and O&D market in the country without

14 Sun Country refers to the DOT/FAA Notice Granting Petition with Conditions, 75 Fed. Reg., 26322

- 26333 (May 11, 2010), in which we recognized the importance of a critical mass of slots by structuring a slot auction for DCA and LaGuardia Airport slots in bundles of eight slot pairs.- 16

-

nonstop service to DCA

, and therefore its proposal will benefit more local passengers than any other appli cation in this proceeding. The carrier states that SFO serves as its base of operations where it offers service to five (one seasonally) destinations in the west and three in Mexico. Virgin America also asserts that the Washington, D.C.

– San
Francisco m arket is important to the carrier by referencing its current service at IAD, which has been in place since 2007. The carrier urges that the proposed service will complement this existing service and allow it to continue to grow the market. The applicant also argues that its proposal would offer a viable service pattern of at least two daily nonstop flights in the market, and provide convenient one

- stop connections to four of its other destinations in the west. The carrier claims its proposed service will also provide public benefits, including lower fares, offer a wide array of price, service and quality options

, greater capacity in the market, and enhance competition. In support of this claim, Virgin America asserts that average fares fell in several ma rkets within a year after it commenced service, including DFW

- SFO/LAX, BOS

- SFO/LAX, JFK

- SFO,
LAS

- SFO, JFK

- LAS, and ORD

- SFO/LAX. Virgin America also states that its DCA

SFO service will offer convenient online connections to other western cities.

In its M arch 27 filing the carrier reiterates that it is the only carrier in this proceeding that does not operate at DCA, 15 and that with the revision to the statutory selection criteria included in FAA 2012, the size of the local market should play a more promine nt role when applications in this proceeding are evaluated, with less weight given to domestic network benefits and increased competition in multiple markets. 16 It stresses
that the SFO

– DCA market is significantly larger than those included in other appl ications. The carrier acknowledges United’s recent announcement to inaugurate

DCA

– SFO service on May 14 th and argues that its proposed service to SFO is even more important because it will provide much needed and well

- timed competition in the
market. V irgin America argues that its request for two roundtrips in the same market is consistent with some of the Department’s previous DCA slot exemption awards 17 and necessary for it to compete with United, which has a much larger presence at both DCA
and SFO.

Comments of the City and County of San Francisco and San Francisco International Airport (SF0) SFO submitted comments strongly supporting Virgin America’s application on March 27. Similar to the carrier’s arguments, SFO explains that Virgin America is the only new entrant in the proceeding and has provided important service quality and fare competition since its launch in 2007. The San Francisco parties also highlight the revisions made to the statutory selection criteria in FAA 2012 and assert that much

15 Virgin America claims that the Department has favored new entrants in the past, citing to the DOT/FAA O’Hare Notice, 71 Fed. Reg. 51381, 51388

- 90 (Aug. 29, 2006) and to the US Airways/Delta slot swap for the proposition that a new entrant needs a critical mass of slots. 75 Fe d. Reg. 7130

- 11 (Feb. 28, 2010).

16 In this regard, it refers to one of our former beyond

- perimeter selection cases in which we indicated that

the AIR

- 21 selection criteria did not afford us sufficient discretion to consider the size and significance of

the local beyond

- perimeter market. Order 2002

- 11

- 20 (Nov. 27, 2002).

17 DOT Order 2000

- 7

- 1 (Jul. 5, 2000), awarding four exemptions to America West under AIR

- 21 to provide two roundtrip DCA

- PHX flights; and Order 2004

- 4

- 1 (Apr. 1, 2004), awarding four Vision

- 100 exemptions to Frontier for two roundtrip DCA

- DEN flights.- 17

-

greater emphasis should be placed on the size of the local markets proposed and competitive benefits associated with each proposal. The commenters explain that the

SFO

– Washington, D.C., market (approximately one million passengers) is nearly three
times larger than the next largest market which does not have nonstop service to DCA. SFO estimates that, based on the size of the SFO

- DCA market, six flights would be
warranted.

Responsive Pleadings The majority of other applicants filed reply comments on Virgin America’s application. Competitors urge the Department not to award half of the slot exemptions available in this proceeding to a single applicant. 18 Several of the competing carriers highlight the existing service available at BWI and IAD, includi ng more than 12 daily frequencies at IAD, a portion of which is provided by Virgin America. The other carriers also make note of the relatively low average market load factors and fares to argue that the San

Francisco

– Washington, D.C. market is already well

- served. The other carriers also question the need for the proposed SFO service based on United ’s recent announcement to provide service from DCA beginning May 14, 2012. Several other carriers also dispute Virgin America’s claims of network benefits based on inefficient routing that would occur from SFO and because many of the communities that Virgin America’s proposed service would connect to already have or soon will have nonstop service from

DCA. 19 One of the competing applicants also references a recent news article and questions the performance capability of the engines on Virgin America’s proposed aircraft and suggests that an upgrade will be required to ensure the maximum number of passenger seats will be available for sale. 20

Comments of the Me tropolitan Washington Airports Authority (MWAA) On March 27, MWAA filed comments to inform the Department and applicants of the circumstances at DCA. MWAA does not state a preference for any application. Rather,

MWAA explains that the new service to be a warded under this proceeding will increase both congestion and noise within the vicinity of DCA and place additional strain on the airport’s facilities, including automobile parking. MWAA explains that the 44 gates and overnight aircraft parking spaces at DCA are heavily utilized and that carriers hoping to gain access to the airport may have difficulty securing gates and other essential operating

space. MWAA also expresses concern with the increase in authorized flights at DCA
and the decline in domestic service at IAD. 21

18 Frontier, for example, referred to a 2000 Order in which we allocated twelve slot exemptions by granting two per carrier. DOT Order 2000

- 7

- 1.

19 The carriers also refer to DOT Order 2000

- 7

- 1, at 24, where we declined to find significant beyond

perimeter network benefits in a proposal that offered circuitous routings and duplicative service.

20 On March 30 and April 2, Virgin America filed responses stating that engine upgrades are in process a nd will be completed on any of the aircraft that will be used to operate at DCA by June 30.

21 These additional slot exemptions, however, were mandated by FAA 2012, which also increased permissible operations by two per hour. We note that MWAA, in the past , has successfully managed to accommodate requests by new or expanding airlines to gates and facilities. MWAA has facilitated access by airlines that leased, purchased or traded slots, received slots through lotteries, or were granted slot exemptions. We firmly expect MWAA to similarly facilitate these additional operations.- 18

-

DECISION

All of the applications have merit and have received strong community support. In reaching our decision, we have carefully revie wed the applications and responsive pleadings, and we have evaluated the extent to which each application met the revised factors Congress outlined in S ection 41718(g)(2). We conclude that the following proposed services merit allocations under the statut e and award slot exemptions to : Alaska Airlines, for two slot exemptions for nonstop service to Portland, Oregon; JetBlue Airways, for two slot exemptions for nonstop service to San Juan, Puerto Rico; Southwest Airlines, for two slot exemptions for nonsto p service to Austin, Texas; and Virgin America, for two slot exemptions for nonstop service to San Francisco, California. Our reasoning to support these decisions is set out below.

Alaska to Portland

We conclude that Alaska merits an award of two exe mptions for service to Portland (PDX). Alaska’s application will enhance options for nonstop travel, have a positive impact on competition, and produce public benefits of higher capacity and service options.

We find that Alaska’s nonstop DCA

- PDX servic e will enhance options for nonstop
travel , because PDX is the fourth largest local O&D 22 market from DCA currently without nonstop service

. 23 Currently, Alaska’s ability to accommodate the DCA

- PDX demand for service is limited, given the carrier’s sustained load factors of 91% on its existing nonstops to Seattle and 88% to Los Angeles

. 24 We further find that Alaska’s nonstop DCA

- PDX service will have a positive impact on the overall level of competition in the markets that will be served by increasing compe tition in the local

market

, which today consists of connecting service from DCA. Alaska’s new service will also increase competition in multiple markets throughout the Pacific Northwest, particularly in conjunction with its Seattle nonstop operations

. As a new entrant/limited incumbent, Alaska has had a highly positive impact on competition between DCA and both Seattle and Los Angeles following its market entries in 2001 and 2004, respectively

. 25 We also find that the nonstop DCA

- PDX service will produce public benefits by Alaska’s use of high capacity aircraft and convenient schedules. Based on the service patterns Alaska established with its existing exemptions, it has attracted the third highest passenger s hare between DCA and PDX and the fourth highest revenue share 26

even without the ability to flow traffic over multiple within perimeter hubs. However,

Alaska’s current ability to enhance the level of competition between DCA and PDX as

22 DOT DB1B data, year ended September 30, 2011.

23 Schedules as of May 1, 2012. The three larger O&D markets without current nonstop service are San Francisco (receiving an award her e for service by Virgin America, and, prospectively, service from United); San Diego (receiving prospective service from US Airways), and San Antonio, TX, for which no application for service has been filed in this docket.

24 DOT T

- 100 onboard passengers, Year 2011.

25 See , Order 2001

- 6

- 20 and Order 2004

- 4

- 1.

26 DOT DB1B data, year ended September 30, 2011.- 19

-

well as increase the amount of competitive network benefits to markets in the Pacific
Northwest is limited, as it has no intervening within

- perimeter hub over which to flow traffic to/from DCA. Operating in conjunction primarily with its Seattle nonstops,

Alaska ’s DCA

- PDX ser vice also will enhance domestic network benefits and increase competition in multiple markets throughout the Pacific Northwest.

We are not persuaded by the comments opposing an award to Alaska for Portland. The primary contention raised in opposition t o this application is that Alaska is not typically categorized as a low

- fare carrier. Although criterion (G) from FAA 2012 provides for
consideration of whether exemptions “produce public benefits, including low fares, higher capacity, and a variety of se rvice options,” the language of this provision does not require us to disqualify from favorable consideration any carrier not classified as “low

fare.” Alaska, with just three roundtrips from DCA

, has produced a positive competitive impact at the airport. Its proposal for Portland will build on its prior operational achievements and produce public benefits by offering the second highest capacity aircraft of all applicants from the launch date. The carrier will also provide a variety of service options

, s uch as using complementary flight times to flow traffic to the Pacific Northwest either via Portland or Seattle, depending on consumer preference. These particular strengths, together with the network benefits offered in the Pacific Northwest, support our decision that the benefits of an award to Alaska for Portland outweigh the benefits that would be achieved under the proposals that we have not selected.

JetBlue to San Juan

We conclude that JetBlue merits an award of two exemptions for service to San Juan. JetBlue’s application will enh ance options for nonstop travel

, have a positive impact on competition and provide domestic network benefits

.

We find that JetBlue’s nonst op DCA

- SJU service will enhance options for nonstop travel to a unique region

. The focus of all beyond

- perimeter exemptions thus far has been to markets in the western U.S. Eight western cities 27 have been awarded nonstop service and many more communities have gained single

- connection service to DCA through beyond

- perimeter hubs. JetBlue’s current share of DCA

- SJU is less than five percent, resulting in a sixth place ranking

.

We also find that JetBlue’s nonstop DCA

- SJU service will have a positive impa ct on competition in the markets to be served , based particularly on the carrier’s experience serving DCA. JetBlue recently began operations at DCA 28 via a lease of slots from

American and one pair of allocated slots from FAA , in 2010, and plans to expand its operations in June, utilizing the slots it purchase d from Delta in 2011 . Although its time in DCA has been short and its scope of nonstop services is limited, initial data indicate

27 Denver, Las Vegas, Los Angeles, Phoenix, Salt Lake City, and Seattle currently have nonstop beyond perimeter service. New service will be initiated to San Diego and San Francisco in June and May 2012, respectively.

28 Effective November 2010.- 20

-

that JetBlue , an established low

- fare carrier, has generated positive competitive discipline in the DCA markets it serves, as it has rapidly gained passenger share, while at the same

time record ing average fares below the respective incumbent carriers.

Further, we find JetBlue’s nonstop DCA

- SJU service will provide beyond

- perimeter

domestic network benefits on a roundtrip basis to St. Thomas, a sizeable market from
DCA in which JetBlue would be a new entrant. Overall JetBlue’s service will have a positive impact on the level of competition.

W e are not persuaded by the comments opposing an award to JetBlue for San Juan.
Carriers ’ comments included references to JetBlue’s having the largest presence of all applicants at DCA, that nonstop service to SJU already exists from IAD and BWI, and

that SJU is primarily a leisure destination. Although JetBlue will have the largest DCA operation of all the applicants

, 29 it remains qualified as a limited incumbent. In the last beyond

- perimeter exemption case, we recognized the uniqueness of service to DCA, even when other area airports may have nonstop service to the same beyond

- perimeter

destination. 30 Finally, nothing within the selection criteria directs us to avoid granting exemptions to leisure

- oriented markets, as public benefits may accrue to any segment of the traveling public.

Southwest to Austin

We conclude that Southwest merits an award of two exemptions for service to Austin. Southwest’s application will enhance options for nonstop travel, have a positive impact on competition an d produce public benefits including lower fares

.

Southwest’s nonstop DCA

- AUS service will enhance options for nonstop travel to a
market l ocated just 65 miles beyond DCA’s perimeter that is ranked fifth among cities without nonstop service to DCA

. 31 We also find that Southwest’s nonstop DCA

- AUS service will have a positive impact on competition, because c urrent service from DCA to

AUS is divided primarily between the four non

- limited incumbents (American, Delta, United and US Airways) with each carrier h aving at least a double

- digit share , and, based on Southwest’s past performance, its new service would stimulate traffic

. We further find that Southwest’s nonstop DCA

- AUS service will produce public benefits

, particularly by lowering fares in the market. Austin has the highest average local O&D

fare 32 and yield of all applicant destinations, and Southwest, an established low

- fare carrier, is expected to exert competitive discipline on the fare levels.

We are not persuaded by the comments opposing an award to Southwest. Southwest has a solid history of offering low fares and, given its specific commitments here, we believe its proposal for service to a large and growing market like Austin, where DCA’s f our

29 Effective June 2012.

30 See Order 2004

- 4

- 1 at 20.

31 DOT DB1B data, year ended September 30, 2011.

32 Id.- 21

-

non

- limited incumbents currently control over 90 percent of the local O&D revenue

, 33

merits an award

.

Virgin America to San Francisco

We conclude that Virgin America merits an award of two exemptions for service to

San Francisco. Virgin America’ s application will enhance options for nonstop travel, have a positive impact on competition and produce public benefits including lower fares.

We find that Virgin America’s nonstop DCA

- SFO service will enhance options for nonstop travel , because Virgin Ame rica is the only new entrant applicant in this proceeding, and San Francisco is the largest O&D market from DCA without nonstop
service. The local DCA

- SFO market is currently fragmented

, with all four non

- limited incumbents at DCA (American, Delta, United and US Airways) having double

- digit passenger shares via their existing connecting services

.

Commenters asserted that establishing a sustainable presence in such a market will be challenging, especially given the nonstop entry of SFO hub carrier United

. 34 However,
we note that Alaska at Seattle

, and Frontier at Denve r , initially launched and successfully maintained beyond perimeter operations at DCA with only two exemptions each

. Additionally, the size of the DCA

- SFO market can accommodate Virgin Ameri ca’s competitive nonstop service.

Although Virgin America has put forth strong arguments supporting its request for four SFO exemptions, in the context of only eight exemptions being available and given the merits of the other proposals, we believe the overall benefits of a second SFO pair do not exceed the benefits attained through award of the first nonstops to Austin, Portland, or San Juan.

Other Applications

Air Canada to Vancouver

We decided not to select Air Canada ’s proposed nonstop DCA

- YVR proposal because, although it would enhance nonstop travel options, the local O&D market is relatively

small compared to the DCA

- Port land/ Austin / San Francisco / and San Juan markets

. Additionally, due to the seasonal nature of t h e DCA

- YVR market

, we do not find the impact to the overall level of competition from Air Canada’s proposal would be as robust

as that of the selected markets. Air Canada currently provides nonstop service from DCA to two of its hubs, Montreal and Toronto, as well as its nation’s capital of Ottawa

. 35

33 Id.

34 United will commence service on May 14, 2012.

35 Contrary to the assertions made by some commenters, the terms of the U.S.

- Canada Agreement do not preclude an award of beyond

- perimeter slot exemptions under Section 41718(g)(2) to a Canadian carrier.- 22

-

Other applicants commented about the very small size of the local O&D market with one noting further that there had been multiple unsuccessful attempts made by Air Canada and its Star Alliance partner, United, to offer sustained hub

- to

- hub service between Washington Dulles and Vancouver. 36 We find Air Canada’s application substantially less compelling than those for nonstop service to Portland, Austin, San Francisco and

San Juan.

Alaska to San Diego

In its application, Alaska states that its number one priority for slot exemptions is Portland, making San Diego its second choice. Although San Diego is the second largest O&D without nonstop service from DCA and has the second highest average fare of a ll applicant cities

, 37 we find that Alaska’s case for Portland is the stronger of the two

, due primarily to the network benefits associated with Alaska’s Pacific Northwest operations

. While we cannot disagree that there are strong benefits generated from an award to Alaska for San Diego

, 38 they are not as compelling as those for an award to Portland, ( including to Alaska Airlines itself )

, Austin, San Francisco, and San Juan. The services to Portland, Austin and San Juan that we are selecting here represent the first and only nonstop operations between those cities and DCA. Unlike those markets, San Diego, beginning in less than a month, will have nonstop US Airways service to DCA, and
Southwest plans, soon thereafter , to offer single plane DCA service thro ugh Austin

. We recognize that San Francisco’s award does not constitute the first nonstop service in the market, as United is inaugurating its new nonstop service this week. However, as already discussed, San Francisco is a large r O&D market than San Die go , and it will be served by
a low

- fare carrier that w ill also be the only new entrant at DCA.

Frontier to Colorado Springs

We have determined not to select Frontier’s application primarily due to the relatively
small size of the DCA

- COS market. Although Frontier seeks to complement its successful record of operating six beyond

- perimeter exemptions to Denver with a first nonstop to COS and plans to use the largest capacity aircraf t of all applicants , COS is the
smallest domestic O&D market of all the proposals. COS, with 49 passengers per day each way, 39 is only the 19 th largest O&D market from DCA without nonstop service

. Frontier already captures 21 per cent of the local DCA

- COS market via its existing
connections in Denver

.

Annex II, section 2, para 1 of the Agreement allows Canadian carriers to operate in the DCA

- Canada markets subject to “(a) the prevailing perimeter rule” and “(c ) the acquisition by Canadian airlines of necessary slots at [DCA] under the prevailing rules for slot acquisition and minimum slot use applicable to United States airlines.” The Agreement provides that Canadian carriers are to be subject to the same peri meter and slot rules as US carriers.

36 See, Consolidated Answer of Southwest Airlines Co.,March 27, 2012, Exhibit WN

- R

- 701A.

37 DOT DB1B data, year ended September 30, 2011.

38 US Airways will commence nonstop service effective June 8, 2012.

39 DOT DB1B data, year ended September 30, 2011.- 23

-

Frontier claims that its DCA

- COS nonstop would provide extensive network benefits beyond the perimeter in the form of single connections to Seattle, Los Angeles, Portland,

and Phoenix. 40 All of these servi ces from its designated “focus city” are scheduled to

start after this O rder is issued, and none of these points, as scheduled, will connect to Frontier’s proposed service between COS and DCA. San Diego, which Frontier proposes

to serve on a one

- stop basi s over COS, is already served by Frontier on a single

connection basis to DCA over Denver at the same time of day in both directions as proposed via COS. Additionally, Frontier says that i t would offer an attractive low

- fare
service alternative to its beyond points, 41 but it already does so via its Denver hub

.

JetBlue to Austin

JetBlue requested that its application for service to Austin be granted only if its San Juan application is granted first. We agree that Austin merits an award of slot exem ptions, but we find that the range and scale of benefits resulting from an award to Southwest, particularly in the areas of aircraft capacity and beyond markets, to be superior. Regarding aircraft capacity, a s we described above, Southwest will commence s ervice using Boeing 737

- 700 aircraft with 137 seats and, in November 2012, upgrade to B 737

- 800 aircraft with 175 seats , whereas JetBlue proposes use of 100

- seat Embraer E190

aircraft

.

Sun Country to Las Vegas

We have decided not to select Sun Country ’s application for nonstop DCA

- LAS service primarily because

, as discussed , LAS already receives nonstop service to DCA via slot exemptions

. We note, however, that the DCA

- LAS market generates the largest local
demand from DCA of all the applicant destinations , and Sun Country’s proposed schedule would complement the existing schedule offered by US Airways, by provid ing
attractive departure and arrival times for convention and conference attendees in both
LAS and DCA . Nonetheless, we find that with out any beyond Las Vegas connecting opportunities

, Sun Country’s proposed benefits are less compelling when compared to the scale of benefits offered by the service proposals for Portland, Austin, San Francisco, and

San Juan

.

40 See Frontier Application at 14.

41 Id . at 13.- 24

-

CONDITIONS

Start

- up

We will require that the awardees inaugurate full service by no later than September 8

, 2012. If, for any reason, an awardee is not able to use the slot exemptions awarded, we request that it notify the Department as soon as possible, but

not later than 1 0 days after the date of service of this O rder

.



### Assignment of Slot Times

As stated in Order 2012

- 2

- 21, Section 414 (b) of FAA 2012 allows the Department to assign two additional slot exemptions per one hour period (for a total of five), an increase from the three per hour authorized in Vision 100. There are 15 hourly periods beginning at 7:00 a.m. and ending at 9:59 p.m., and all slot exemptions must

fit into those 75 slot times. A pplicants were advised of these slot

- time constraints. The Department noted that it anticipate d multiple requests for the sa me slot periods, and therefore, all requests for slot exemption times may not be accommodate d

. In

app lying for specific times , the Department indicated to applicants that if they were awarded slot exemptions, speci fic justification of their requests may be required and

that these slot

- time constraints may cause some proposals not to be viable. In

coordin ation with FAA’s Slot Administration Office, we shall assign slot times corresponding with the authority granted in these proceedings, and in accordance with the requirements of FAA 2012, in a notice subsequent to our decision.



### ENVIRONMENTAL ISSUES

Alth ough 49 U.S.C. Section 41718(e) specifically exempts our action here from

review under the National Environmental Policy Act

, 42 we remain sensitive to the

environmental impact of increased operations at DCA. Consistent with the statute,

we will require that all operations authorized by this O rder be conducted with Stage 3

aircraft.

Also, under 49 U.S.C. § 47117(e), the Department will give DCA priority in making
grants for airport noise compatibility planning and programs.

ADMINISTRATIVE TERMS

Under the provisions of 49 U.S.C. Section 41714(j), awardees may not sell, trade, transfer, or convey the operating authorities granted by the subject exemptions

, except through an air carrier merger or acquisition.

42 Section 41718 ( e) states, "Neither the request for, nor the granting of an exemption, under this

section shall be considered for purposes of any Federal law a major Federal action significantly affecting the quality of the human environment."- 25

-

Further, granting of these exemptions in no way is to be construed as allowing a carrier to operate services that it could not otherwise operate. Each awardee must still meet all the requirements of the Department and FAA

, including but not limited to

, use

- or

- lose provisions, and all other statutes and regulations governing air transportation.

This O rder is issued under authority delegated in 49 C.F.R. Section 1

. 56 ( a ).

ACCORDINGLY,

1. The Department grants slot exemptions from 14 C.F.R. Part 93, Subparts K and S, to Alaska Airlines, Inc. (two slot exemptions to serve Portland International Airport ) ; JetBlue Airways Corporation (two slot exemptions to serve Luis Mu ñ oz Mar í n International Airport) ; Southwest Airlines Co. (two slot exemptions to serv e Austin

Bergstrom International Airport); and Virgin America Inc. (two slot exemptions to serve San Francisco International Airport);

2. The Department directs Alaska Airlines, Inc., JetBlue Airways Corporation

, Southwest Airlines Co. , and Virgin America Inc.

, to file in Docket OST

- 20 12

- 0029 no

later than ten business days after the service date of this Order their proposed flight schedules and effective date for operations authorized by this Order. Further, Alaska Airlines, Inc., JetBlue Airways Corporation

, Southwest Airlines Co. , and Virgin

America Inc.

, must commence their proposed service by no later than September 8

, 2012 . The slot exemptions granted must be conducted with single

- aisle Stage 3 aircraft, may not be used for operations between the hours of 10:00 p.m. and

7:00 a.m., and may not increase the number of operations at Ronald Reagan Washington National Airport in any one

- hour period during the hours of 7:00 a.m. and 9:59 p.m. by

more than five operations. These carriers are advised to exercise maximum flexibility in proposed operating times to ensure compliance with these limits;

3. In coordination with the FAA Slot Administration Office, the Department will make the final assignment of operating times for these beyond

- perimeter slot exemptions in a separate notice, as soon as possible. The Department directs the awardees to contact the

FAA Slot Administration Office regarding their proposed schedule s associated with the slot exemptions. FAA will assign slot exemption numbers, eff ective dates, and operating times consistent with statutory limitations;

4. The Department prohibits Alaska Airlines, Inc., JetBlue Airways Corporation

, Southwest Airlines Co. , and Virgin America Inc.

, from selling, trading, transferring, or conveying the operating authorities granted by the subject exemptions, except through an air carrier merger or acquisition;

5. The Department grants all motions to file otherwise unauthorized documents and denies motions to strike such documents;- 26

-

6. Except as otherwise granted, we deny all other applications for exemptions from

14 C.F.R. Part 93, Subparts K and S, filed in this docket;

7. The authorities granted under these exemptions are subject to all of the other requirements delineated in 14 C.F .R. Part 93, Subparts K and S, including, but not limited to, the reporting provisions and use

- or

- lose requirements;

8. This docket will remain open until further order of the Department; and

9. We will serve this O rder on all interested parties including MWAA and the FAA Slot

Administration Office.

By:

SUSAN L. KURLAND Assistant Secretary for Aviation

and International Affairs

(SEAL)

An electronic version of this document will be made available on the World Wide Web at: http://www.regulations.gov/