August 25, 2009

BY EMAIL/MAIL The Honorable Christine A. Varney Assistant Attorney General

Antitrust Division United States Department of Justice 950 Pennsylvania Ave. NW Washington, DC 20530

Re: Competition Concerns re Delta/USAirways Slot Swap

Dear Ms. Varney:

We write on behalf of Spirit Airlines, Inc. (“Spirit”), a Fl orida based Ultra Low Cost Carrier, to raise strong concerns rega rding the negative impact the proposed “slot swap” deal announced by Delta Air Lines and USAirways will have on competition at LaGuardia Airport (“LGA”) and more generally for New York City (“NYC”). If this transaction is permitted to go forward without requiring Delta to divest any of the Federal Aviation Administration (“FAA”) issued Opera ting Authorizations or “slots” at LGA, Delta will operate 50% of the departures a nd control 47% of passenger seats at LGA. Together, Delta, American Airlines and USAirways will control 78% of LGA departures. As discussed further below, given that no new entry is possible, the proposed slot exchange, if allowed to proceed, will lead to higher prices and less competition in multiple markets unless some of the slots ar e reallocated to limited incumbent carriers like Spirit which serve LGA. As the De partment responsible for antitrust issues involving domestic aviation, we would appreciate the opportunity to meet to discuss with you this important opportunity to promote competition at LGA.

Spirit Background and Service at LGA

Spirit is a relatively small scheduled ai rline that currently operates a fleet of 28 Airbus A319/321 aircraft with its primary gateway at Fort Lauderdale International Airport (“FLL”). In March 2007, Spirit becam e the first Ultra Low Cost Carrier (“Ultra LCC”) operating in the U.S. Its business mode l is similar to that developed by the highly successful European carrier, RyanAir, whic h it adapted to the U.S. market. Spirit

initiated à la carte pricing of optional services in the U.S., enabling it to continue lowering fares in competitive markets. Passengers pay extra if, for example, they want to check bags, make advanced se at selection or consume beverages and snacks on board. Based on 2008 data, Spirit’s average system-w ide fares are more than $100 below the industry average adjusted for le ngth of haul. Despite its rela tive small size, Spirit has proven to be a strong competitor to larger ai rlines in domestic and international markets connected through South Florida. Since 2006, Spirit has expanded service throughout the

Caribbean and Central America as well as to Colombia and Peru. It now serves 22

international destinations in Latin Amer ica and the Caribbean and 18 U.S. cities (including in Puerto Rico and U.S. Virgin Islands). Spirit carries approximately sevenThe Honorable Christine A. Varney Delta Air Lines – USAirways Slot Swap August 25, 2009 Page 2 of 8

million passengers a year – many of whom would not be able to travel but for its consistently low fares. It has 33 aircra ft on order for delivery between 2011 and 2015.

Spirit currently holds 22 slot s at LGA which it uses to provide service to Detroit, Myrtle Beach and Fort Lauderdale. Th rough its gateway at Fort Lauderdale LGA passengers can connect to Spirit’s Latin Amer ican network and to other points such as Atlanta, Orlando and Tampa. It provides highly competitive fares and tends to be the price leader in all the ma rkets it serves from LGA.

Spirit began its quest for L GA slots in the early 1990s. Given the High Density Rule imposed by the FAA in 1969, obtaining slot s for new entrants since passage of the Airline Deregulation Act in 1978 has proven extr aordinarily difficult. Indeed, it was only through Congressional intervention in the Wendell H. Ford Aviation Investment and Reform Act for the 21 st Century (AIR-21) in 2000, which required DOT/FAA to issue exemptions to new entrants to ensure they c ould have 20 slots, that Spirit and other new entrants were able to provide even minimal service at LGA. 1 In the almost 10 years since it obtained AIR-21 slots, Spirit has been unable to obtain through purchase or lease the additional 10 pairs of slots necessary to enable it to efficiently utilize a second gate. If Spirit could obtain these additional LGA slot s or operating authori zations, it would be able to provide the traveling public with additional, badly needed competitive options.

FAA Treatment of Operat ing Authorizations:

Current Limitations Imposed by FAA Order : Pursuant to orders issued by the FAA, the total scheduled peak-hour operati ons currently at LGA are limited to 71 per hour. These operating authorizations, known as OAs or slots, are owned by the FAA and cannot be sold, but can be traded or leased for any form of compensation. These rules were established by a final Notice of Orde r (“Order”) issued by the FAA on December 27, 2006 and subsequently amended several times. 2 As noted, the Order prohibits permanent buying, selling, and transferring of slots at LGA. Specifically, the Order states that “permanent sales, purchases, or transfer of Operating Authorizations will not be permitted.” See 71 FR 77854, at 77857 (December 27, 2006). The FAA decision to prohibit buying or sellin g of operating authorizations was based on its plan to issue a new final rule to address the long term treatmen t of slots at LGA and its desire not to encourage carriers to think the interim or der was creating long-term rights in these

authorizations once a fi nal rule was issued. Id . at 77857.

1 See , Public Law 106-181, 114 Stat. 61, Section 231 adding a new provision 49 USC §41716(b).

2 See 71 FR 77854, (December 27 , 2006); as amended by 72 FR 63224 , (November 8, 2007) (transfer, minimum usage, and reversion and withdrawal of OAs); 73 FR 48428 (August 19, 2008) (reducing the reservations available for unscheduled operations); 74 FR 845, (January 8, 2009) (extending the expiration date of the December Order until October 24, 2009); and 74 FR 2646, (January 15, 2009) (providing for reducing the peak-hour cap on scheduled operations to 71 through attrition).The Honorable Christine A. Varney Delta Air Lines – USAirways Slot Swap August 25, 2009 Page 3 of 8

In comments on the proposed order, AirTran Airways and the Air Carrier Association of America (“ACAA”) urged the FA A to take steps to foster competition at LGA. AirTran urged the FAA to either create 10 additional slots for each limited incumbent carrier, which included carriers like AirTran and Spirit, or to withdraw slots

from other carriers to create the needed sl ots. The ACAA urged the FAA to withdraw

10% of the authorizations held by all carriers with at least 40 slots and distribute them to limited incumbents operating equipment with at least 110 seats. The FAA stated that these economic and policy issues should be a ddressed in the rulemaking and not in the context of its temporary Order. Id . at 77858.

The FAA Order is scheduled to expire on October 24, 2009. However, by Notice of Order to Show Cause and Request for Information issued on June 17, 2009, the FAA sought comments to extend the Order through October 30, 2010. See 74 FR 28772 (June 17, 2009). In their comments, Delta and USAirways have urged the FAA to “reinstate the buy-sell rule at LGA” by eliminating “r estrictions on buying and leasing” slots on a long term basis. See Docket FAA-2006-25755. The comment submission period ended on July 1, 2009.

Rulemaking for Long Term C ongestion Management at LGA : In August 2006 the FAA began a rulemaking to develop a solu tion to the allocation of the limited landing and take-off rights at LGA. This rulema king was intended to develop the long-term approach to handling congestion at LGA but also sought to a ddress the important issue of fostering competition at the Airport. C ongestion Management Rule for LaGuardia Airport, Notice of Proposed Rulema king (NPRM) Docket FAA-2006-25709, 71 FR 51360 (August 29, 2006). One of the issues of concern for the FAA was the inability of

limited incumbents and new entrants to stim ulate competition at the Airport. In the NPRM the FAA, significantly referencing the requirements of the Airline Deregulation Act Statement of Policy at 49 USC § 40101(a), stated as its priorities:

Keeping available a variety of adequate, economic, efficient and lowpriced air services; placing maximu m reliance on competitive market forces and on actual and potential competition; avoiding airline industry

conditions that would tend to allow at least one air carrier unreasonably to increase prices, expand competitive options, reduce service, or exclude competition in air transportati on; encouraging, developing and maintaining an air transportation sy stem relying on actual and potential competition; encouraging entry into air transportation markets by new and existing air carriers and the continued strengthening of small air carriers to

ensure a more effective a nd competitive airline industry.

The FAA NPRM proposed an average mini mum aircraft size and withdrawing and reallocating 10% of the capacity of the airport annually to stimulate competition and new

entry.The Honorable Christine A. Varney Delta Air Lines – USAirways Slot Swap August 25, 2009 Page 4 of 8

In the Supplemental Notice of Proposed Rulemaking (SNPRM) 73 FR 20846, 20852 (April 17, 2008) the FAA noted:

Congress has directed the Departme nt [of Transportation] to place “maximum reliance on competitive market forces and on actual and potential competition” (49 U.S.C. 4 0101(a)(6)). This maximum reliance means the FAA is obliged not to simply walk away from an airport once it has imposed caps, but rather to take step s to ensure that there are, in fact, competitive market forces and actual and potential competition. Competition at an airport benefits the flying public by providing price competition and expanded service. The ability of carriers to initiate or expand service at the airport is hinde red, in large part by the imposition of the cap. Accordingly, the FAA believes it must strike a balance between (1) promoting competition and permitting access to new entrants and (2) recognizing historical inve stments in the airports and the need to provide continuity. It is not the role of the Government either to dictate particular

business models or to constrain a ma rket and provide no means for others

to enter that limited market.

On October 10, 2008, the FAA issued a final rule on Congestion Management for

LGA. See 73 FR 60574 (October 10, 2008). Under the rule the FAA determined it would withdraw five percent of the slots and retire them. An additional 10 percent would

be reallocated via a blind auction over a fi ve-year period, representing approximately 112 operating authorizations – enough for 66 roundt rips. The remaining 85 percent of the slots would be grandfathered to their current operator. Th e rule was challenged in the Court of Appeals for the Dist rict of Columbia by the Ai r Transport Association and others, who opposed the use of an auction, or the withdrawal of slots or both. On December 8, 2008 the Court entered a stay preventing implementation of the rule. Subsequently, on May 14, 2009 the FAA annou nced it was withdrawing the rule. See 74 FR 22718 (May 14, 2009).

At this point the FAA has not indicat ed how it will proceed other than to

announce that it will not institute an au ction procedure to reallocate operating authorizations. Accordingly, as has been the case for 40 years, it remains virtually impossible for limited incumbents and new entrants to obtain slots at LGA. No change in this situation is likely to occur in any reas onable time frame to ensure new competition at the Airport.

The USAirways-Delta Transaction Will Fu rther Constrain LGA Competition Unless

Slots are Made Available to New Entrants

The Department of Transportation as well as the Department of Justice have long recognized that LGA is not interchangeable with other New York airports and thatThe Honorable Christine A. Varney Delta Air Lines – USAirways Slot Swap August 25, 2009 Page 5 of 8

competition at LGA is badly constrained. In 1997 the GAO testified before the Senate Commerce, Science and Tr ansportation Committee:

We have found little progress has been achieved in lowering the barriers to entry since we first reported them in 1990. Slot controls continue to block entry at key airports in the East a nd upper Midwest. We recommend that DOT take action to promote competition in regions that have not experienced lower fares as a result of airline deregul ation by creating a pool of available slots by periodically withdrawing some grandfathered slots from the major incumbents and re distributing them in a fashion that increases competition.

GAO Official John H. Anderson, Jr., Testim ony before the Senate Commerce, Science and Transportation Committee, Oct ober 28, 1997 (GAO/OT-RCED-98-32, p.2

In its Notice of Alternative Policy Options for Managing Capacity at LaGuardia Airport and Proposed Extension of the Lottery Allocation, Docket FAA-2001-9854, 66 FR 31731, 31732 (June 12, 2001) the FAA noted:

Each airport [operated by the Port Authority of New York and New Jersey] plays a different role, targeted for differe nt users and designed to accommodate different types of operati ons. LGA, just seven miles from

midtown Manhattan is the close-in ai rport offering frequent, short-haul service to meet the needs of the business community.

In comments submitted in response to this FAA Notice filed June 20, 2002, the Justice Department stated at p.5:

The high demand for LGA slots indicat es that many airlines consider service to this airport to be a valuab le part of the service they offer to travelers (fn. 6). For many passengers traveling to New York markets, other airports in the metropolitan area (Newark, JFK) are a substitute for LGA. It appears however, that same passengers, including many high yield business passengers, have a strong preference for LGA and the airlines therefore place a high valu e on the ability to serve LGA.)

The Justice Department went on to discuss the fact that new entrants “find it difficult to acquire sufficient slots to establish a viable serv ice pattern in a city pair,” and further that:

incumbents with market power in city pairs the new carrier might like to enter will always have an incentive to outbid an equally efficient entrant for any slot offered (fn. omitted) Ind eed, an incumbent with market power may well be able to outbid a more efficient entrant, simply becauseThe Honorable Christine A. Varney Delta Air Lines – USAirways Slot Swap August 25, 2009 Page 6 of 8

maintaining market power is more profitable than entering a competitive

market.

In its submission, the Department sp ecifically supported reallocating some percentage of LGA slots to promote needed competition and favored a blind auction, the approach chosen by the FAA.

Currently, legacy airlines control 86% of the Op erating Authorizations (frequencies) at LGA. Of these, approxima tely 78% are controlled by three airlines – Delta/NW (26%), USAirways (34%) and Ameri can (18%). Following the proposed slot swap, these same three carriers will continue to dominate LGA. However, Delta’s market share will go up to 50% and US will drop to 9%. United currently controls five percent of the flights at LGA. The four firm concentration ratio as measured by the Herfindahl-Hirschman Index (HHI) will increa se from an already high 2177 to 2930 - an increase of almost 900 points. As stated in the Horizontal Merger Guidelines at 1.51(c):

Where the post-merger HHI exceeds 1800, it will be presumed that mergers producing an increase in the HHI of more than 100 points are likely to create or enhance market pow er or facilitate its exercise. The presumption may be overcome by a showing that factors set forth in

Sections 25 of the Guidelines make it unlikely that the merger will create or enhance market power or facilitate its exercise, in light of market

concentration and market shares.

While the overall New York market is somewhat less constrained, if the DL/US slot swap goes forward without requiring DL to surrender any sl ots, Continental and Delta will together control 54 percent of all New York freque ncies. The HHI four firm concentration ratio for New York City, following the swap, would go from 1237 to 1731

As discussed above, other than the AI R-21 mandated slots, there has been virtually no new entry at LGA since the High Density Rule was initially imposed in 1969. When coupled with the capacity cap of 71 sc heduled operations per hour imposed by the FAA, along with no blind auction or lottery to reallocate authoriza tions in a way that could generate sufficient slots for new entrants to mount reasonable new service, there is an insurmountable barrier to entry. 3 Accordingly, unless Delta is required to surrender

3 While Newark and JFK may be alternative airports for some passengers who would prefer to use LGA, there are no operating authorizations av ailable at these airports either. Mo reover, as reflected in the recent small slot swap between Continental and AirTran, where AirTran abandoned service to Newark to obtain more slots at LGA, it is difficult for smaller airlines to operate out of more than one New York airport. Spirit simply would not have the resources to divi de its service between LGA and another New York airport.The Honorable Christine A. Varney Delta Air Lines – USAirways Slot Swap August 25, 2009 Page 7 of 8

slots to low fare carriers lik e Spirit, the obvious byproduct of the DL/US slot exchange, will be higher prices for passengers at LGA. 4

While Delta claims that consumers will be nefit through the use of larger aircraft as it replaces US on various rout es to small and mid-size citie s, Delta will be reducing frequencies and raising prices. The exchange of slots will eliminate direct competition between Delta and USAirways from L GA to Charleston, SC; Columbus, OH; Indianapolis, IN; Raleigh, NC and Savannah, GA. Importantly, Spirit which has a very small presence at LGA, fully expects DL w ill further increase service in the LGA-Ft Lauderdale market, where it recently has gone fr om four to six daily frequencies. DL is also likely to expand in both the DTW-L GA market, which as a result of the DL/NW merger is now a hub-to-hub market for DL , and in the MYR market. Given the unavailability of operating author izations at LGA, it is impossible for Spirit to mount a competitive response to DL’s expansion.

Recommended Divestiture to Preserve Competition

Spirit urges the Department to require Delta to surrender 40 pairs of operating

authorizations which would still leave it with 85 new pairs of slots at LGA. These 40 pairs of authorizations would be controll ed by the FAA which would hold a lottery to allocate them. The FAA successfully used a lottery to allocate AIR-21 exemption slots when the number created by DOT exceed ed the capacity of the airport. See 67 FR 65826 (October 28, 2002). No carrier could initially receive more than 10 pairs. Any

unallocated slots would be dist ributed in a second round. After the second round if any slots were not allocated, they could be re turned to Delta. The carriers receiving the operating authorizations could sw ap them with other LGA carri ers to adjust flight times,

but could not otherwise lease or transfer them to other carriers. If a carrier did not meet the use-or-lose requirements those slots coul d be reallocated by th e FAA using a blind

auction or other al location procedure.

Eligible carriers would be t hose that fly to LGA with la rge aircraft of at least 110 seats but currently are limited to 18 or fewer pairs of slots and do not also serve Newark or JFK. This would ensure that these ope rating authorizations would go to low fare carriers that can provide a competitive stimulus specifically at LGA. Since the legacy

incumbent carriers received hundr eds of slots for free, there is no policy reason why the

limited incumbents should have to now initia lly bid for these operating authorizations.

Conclusion

4 While Spirit is not discussing the situation at Ronald Reagan National Airport (DCA), the same result is likely at that airport. Indeed, USAirways CEO Doug Parker predicte d that the exchange of slots and bolstering of USAirways position at DCA would “i mprove profitability by more than $75 million annually.” US Airways Pr ess Release Aug. 12, 2009.The Honorable Christine A. Varney Delta Air Lines – USAirways Slot Swap August 25, 2009 Page 8 of 8

As discussed above, the proposed asset transfers between Delta and USAirways exacerbate a serious competitive issue at La Guardia Airport. This airport has been capacity constrained for 40 years. Throughout this time LGA has been virtually the exclusive domain of the legacy carriers. The slot swap is not intended to enhance competition but rather to bolster DL at LGA and USAirways at DCA.

Absent decisive action by the Department to discipline the DL/US slot exchange, it is apparent there will be no new mechanism to enable carriers like Spirit to obtain

sufficient slots to add an eff ective level of competitive new service. With 125 new pairs of operating authorizations, DL will be able to add flights in markets where Spirit and other low-fare carriers now operate and potenti ally stifle this competition. Accordingly, we believe the Department should require DL to relinquish 40 pairs of operating authorizations as discussed above, for re allocation by the FAA to limited incumbents.

We look forward to the opportunity to m eet with you to discuss this important issue affecting one of the most important airports in the c ountry and the p ublic it serves.

Respectfully submitted,

Joanne W. Young

David M. Kirstein Counsel for Spirit Airlines

cc: Donna N. Kooperstein, Esq. Chief, Transportation, Energy & Agriculture, Antitrust Divison Nancy D. LoBue Acting Assistant Administrator for Aviation Policy, FAA David Grizzle, Esq Chief Counsel, FAA The Honorable Susan L. Kurland, Esq. Assistant Secretary, Aviation a nd International Affairs, DOT Susan McDermott, Esq. Deputy Assistant Secretary, Aviati on and International Affairs, DOT

The Honorable Robert S. Rivkin General Counsel, DOT