Order 2012-3-10

UNITED STATES OF AMERICA

DEPARTMENT OF TRANSPORTATION

OFFICE OF THE SECRETARY

WASHINGTON, D.C.

 Issued by the Department of Transportation

 on the 16th day of March, 2012

 

 Served: March 16, 2012

 

 

ORDER TO SHOW CAUSE

Summary

By this order we tentatively award primary exemption authority to AirTran Airways, Inc. 

(AirTran) to provide scheduled foreign air transportation of persons, property, and mail between

Chicago, Illinois, and Cancun, Mexico. 

Background

Under the U.S.-Mexico air services agreement (the Agreement), three carriers may be designated 

to provide scheduled foreign air transportation of persons, property, and mail between Chicago 

and Cancun. Currently, American Airlines, Inc. (American) and United Air Lines, Inc. (United) 

are designated to provide these services and both do so from Chicago’s O’Hare International 

Airport (O’Hare). On November 21, 2011, Brendan Airways, LLC d/b/a USA 3000 Airlines 

(USA 3000), which holds the third designation, advised the Department that it would cease its 

U.S.-Mexico services on January 30, 2012, leaving one designation available for ChicagoCancun service beginning January 31, 2012.1 

In light of USA 3000’s decision to discontinue its Chicago-Cancun services, we received 

competing applications from Frontier Airlines, Inc. (Frontier) and AirTran Airways, Inc. 

(AirTran), seeking exemption authority and a designation for the one available opportunity to 

serve the Chicago-Cancun route. By Order 2012-1-4, we instituted this proceeding in Docket 

DOT-OST-2012-0001, to select one carrier to provide the subject services. 

 1 We note that Aerovias de Mexico, S.A. de C.V. (Aeromexico) was recently granted exemption authority 

for Chicago-Cancun scheduled services and plans to also serve the O’Hare-Cancun route with multiple 

weekly non-stop flights. See Docket DOT-OST-2011-0231.

2012 CHICAGO-CANCUN COMBINATION SERVICE PROCEEDING

DOCKET-DOT-OST-2012-0001
2

Applicant Proposals

Pursuant to Order 2012-1-4, supplements/amendments, answers, and replies have now been filed 

in the 2012 Chicago-Cancun Combination Service Proceeding. The applicant proposals for the 

subject services are briefly summarized in the table below.

Applicant Frequency 

Level/Seasonality

Aircraft Type, Seats Startup Date

Frontier Daily year-round

from O’Hare Airport 

(ORD)

Airbus A-320 (168 seats) onhandAlmost immediately 

after receipt of 

exemption

AirTran Daily year-round from 

Midway Airport 

(MDW)

Boeing 737-700 (137 seats -

12 business class & 125 

coach) on-hand

No later than March 

11, 2012

Applications and Positions of the Parties

Frontier proposes year-round daily service to Cancun from O’Hare, to commence almost 

immediately upon receipt of an award of exemption authority from the Department.2 Frontier 

states that it would provide this service with its 168-seat Airbus A-320 aircraft.

Frontier maintains that it would provide the only low cost intra-gateway competition against the 

incumbent carriers at O’Hare Airport, United and American, and offer greater public benefits 

and market structure benefits than would AirTran under its proposal to provide service from 

Midway International Airport (Midway). Frontier argues that it offers greater capacity than

would AirTran, by providing 22,600 more seats annually.3 Frontier also asserts that Midway is 

not an economic substitute for O’Hare because it does not discipline fares at O’Hare and does

not capture a proportional market share.4 Frontier states that, although Chicago-Cancun is a 

large local leisure market, Frontier’s proposed Cancun flight would connect to 83 behind-O'Hare

destinations (southbound) and 121 beyond-O'Hare destinations (northbound) on an interline 

basis with United and American.5 Frontier further states that it would provide substantially more 

passenger amenities than AirTran by offering 36 seats on each flight with “STRETCH” seating, 

live on-board television at each seat, advanced seat assignments, and on-board meals for 

 2 Frontier stated that it would commence public charters under an arrangement with Apple Vacations on 

or about January 31, 2012, in place of USA 3000, and would be able to convert to scheduled service 

immediately upon receipt of Department and Mexican government approvals. Amendment and 

Supplement to Application of Frontier Airlines, Inc., January 19, 2012 (Frontier Supplement) at 11. We 

have verified that the carrier has in fact begun charter service on this route under contract with Apple 

Vacations.

3 Frontier Supplement at 4.

4 Frontier Supplement at 5.

5 Answer of Frontier Airlines, Inc., January 26, 2012 (Frontier Answer) at 4.
3

purchase – all options that AirTran does not currently provide, or will not provide when it fully 

integrates with Southwest Airlines Co. (Southwest). 6 

AirTran responds that 88% of Frontier’s capacity will be contracted and marketed by Apple 

Vacations, and that only the remaining 12%, or 14,784 annual seats, would be available for sale 

to the public by Frontier.7 AirTran argues that awarding it the exemption authority for 

scheduled combination service from Midway would not preclude Frontier from providing its 

capacity as a charter operator for Apple Vacations, and would provide for more competition in 

the Chicago-Cancun market, since both carriers could offer service.8 Frontier argues in response 

that scheduled and charter service are not the same, and that it should not be “penalized” for 

initiating its O’Hare-Cancun charter service.9

AirTran proposes year-round daily service to Cancun from Midway, beginning no later than 

March 11, 2012. AirTran states that it would provide this service with its 137-seat Boeing 737-

700 aircraft.

AirTran maintains that introducing nonstop Chicago-Cancun scheduled combination service

from Midway, with the support of Southwest’s large presence at Midway, would generate far 

greater public benefits than would adding a third scheduled U.S. carrier in the Chicago-Cancun 

market from O’Hare and would create a geographical diversity of service that would benefit the 

region.10 AirTran argues that it would offer a new, convenient and reliable low cost travel option 

to the traveling public at Midway and that, as a wholly-owned subsidiary of Southwest, it and 

Southwest together offer nonstop service to 57 destinations from Midway with 21 convenient 

connections to its proposed Chicago-Cancun flights.11 AirTran asserts that service at Midway 

competes vigorously with service at O’Hare arguing that history shows that when Southwest has 

entered new markets from Midway, fares have decreased and traffic has increased at both 

Midway and O’Hare.12 Because Frontier will largely perform charter service at O’Hare, AirTran 

argues that an award to Frontier needlessly blocks AirTran, and Midway, from the ChicagoCancun market. AirTran notes that with only 12% of aircraft capacity for sale to the public in 

light of Frontier’s charter arrangement with Apple Vacations, Frontier’s scheduled service would 

have no meaningful impact on competition.13

AirTran also states that it is the carrier best situated to maintain service given its large presence 

in Chicago and in light of Frontier’s U.S.-Mexico service history. AirTran states that Frontier 

has provided continuous service on only 3 of the 26 U.S.-Mexico routes that it has attempted and 

 6 Frontier Answer at 6-7. We note that AirTran is currently in the process of merging with Southwest 

(See Order 2011-11-17). AirTran and Southwest have received a single FAA operating certificate and 

state that they expect full connectivity later in the year. 

7 Answer of AirTran Airways, Inc., January 26, 2012 (AirTran Answer) at 3.

8 AirTran Answer at 6.

9 Frontier Answer at 16.

10 Supplement to Application of AirTran Airways, Inc., January 19, 2012 (AirTran Supplement) at 5. 

11 AirTran Supplement at 3-4.

12 AirTran Supplement at 7.

13 AirTran argues that USA 3000, which provided charter service for Apple Vacations until January 31, 

had historically not sold scheduled seats to the public despite holding scheduled authority in this market. 

AirTran Answer at 2-3.
4

those 3 were from Frontier’s hub in Denver, where it had the support of online connecting traffic. 

AirTran questions Frontier’s ability to successfully compete against the established network 

service of United and American at O’Hare with little behind-gateway support, a minimal 

presence at O’Hare, and with little name recognition in Chicago.14 

Frontier argues that AirTran and Southwest currently have no connecting flights between their 

respective networks, and that it is uncertain when AirTran and Southwest would be fully 

integrated. Moreover, should the Department give credence to AirTran’s cited connections,

Frontier asserts that twelve of those cities already have superior nonstop service to Cancun and 

one will lose nonstop service to Midway in June.15 AirTran calls this alleged lack of connectivity 

misguided, and states that Southwest acquired AirTran precisely for the purpose of integrating 

AirTran’s services into Southwest’s system.16 AirTran further argues that it understated its 

potential Southwest connecting traffic at Midway and that Southwest routinely carries 

connecting passengers via Midway on routes that have nonstop alternatives.17

Tentative Decision

When we instituted this proceeding, we stated that our primary objective would be to maximize 

the public benefits that will result from award of the authority. In this regard, we stated that we 

would consider which applicant would be most likely to offer and maintain the best service for 

the travelling and shipping public. We stated that we would also consider the effect of the 

applicants’ service proposals on the overall competitive environment, including the market 

structure and level of competition in the U.S.-Mexico market, as well as on any other market 

shown to be relevant. In addition, we stated that we would consider other factors historically 

used for carrier selection where they are relevant.18

We have carefully examined the applicants’ proposals and the responsive pleadings in this matter 

and have tentatively decided that the public interest is best served by selecting AirTran for 

primary exemption authority to provide scheduled foreign air transportation of persons, property, 

and mail in the Chicago-Cancun market.19 20 We tentatively determine that AirTran’s service 

proposal would provide greater public benefits in terms of scheduled capacity and enhanced 

competition in the Chicago-Cancun market, and that a selection of AirTran would result in 

certain market structure benefits that would not be available with a selection of Frontier.

 14 AirTran Supplement at 8-9.

15 Frontier Answer at 3-4.

16 AirTran Answer at 6.

17 Reply of AirTran Airways, Inc., January 31, 2012 (AirTran Reply) at 4-5.

18 Order 2012-1-4 at 2.

19 Based on officially noticeable data, we tentatively conclude that AirTran is qualified to provide the 

services proposed. AirTran has been found fit to provide foreign scheduled air transportation of persons, 

property, and mail (see Order 2010-12-24, which issued blanket route integration certificate authority), 

and holds exemption authority to provide scheduled combination services in various U.S.-Mexico citypair markets. No information has come to our attention that would lead us to question the qualification of 

AirTran to conduct the proposed operations at issue here.

20 We tentatively find that our action here would not constitute a “major regulatory action” under the 

Energy Policy and Conservation Act of 1975, as defined by section 313.4(a)(1) of the Department’s 

regulations. 
5

Specifically, we tentatively find that, while Frontier’s proposal relies on larger aircraft than that 

proposed by AirTran, AirTran’s proposal would inject more capacity into the market for scheduled 

service given that much of Frontier’s capacity will be used to fulfill its contract with Apple Vacations to 

provide the charter services previously performed by USA 3000 on the route.21 The record 

demonstrates that only a portion of Frontier’s capacity would be available for sale as scheduled service

and Frontier has not demonstrated otherwise. 

We have considered Frontier’s argument that it should not be “penalized” for its Chicago-Cancun 

charter service;22 however, we do not agree that we can or should overlook the fact that, in essence, only 

a portion of Frontier’s service proposal would require the scheduled authority at issue here. The 

Agreement does not limit the number of U.S. carriers that may provide charters in the U.S.-Mexico 

market; only three carriers, however, may provide scheduled service in the Chicago-Cancun market. 

Therefore, we tentatively find that the interests of the traveling public would be diminished if we were to 

forgo the opportunity to put a carrier into the market whose capacity would be devoted entirely to 

offering scheduled service, especially when it would be in addition to the charter service that Frontier 

has already begun and can continue to provide. We have also considered the potential benefits that 

might be derived from Frontier’s proposed interline connections which would be sold as scheduled 

service if Frontier were selected, but we tentatively find that any potential traffic would represent a very 

small portion of Frontier’s overall capacity and would not outweigh the benefits of AirTran’s larger 

scheduled service capacity.

We tentatively conclude that selection of AirTran’s proposal would also provide important ChicagoCancun service and market structure benefits that would not be available if we were to choose Frontier.

AirTran would restore nonstop Chicago-Cancun service from Midway and a structurally advantageous 

Chicago-Cancun alternative that the public previously enjoyed. As a result of our last carrier selection 

proceeding involving the Chicago-Cancun market, the public enjoyed the service and market structure

benefits of having two legacy carriers competing at O’Hare, with a lower cost carrier serving from

Midway.23 We tentatively conclude that restoring those benefits through our selection of AirTran would 

provide the greatest service and travel options for the public and, therefore, best maximize the public 

benefits in this highly restrictive and sought-after market. 

Finally, while AirTran places much emphasis on the benefits that might be anticipated from its merger 

with Southwest, our tentative decision is based on AirTran’s service proposal as it will be implemented 

in the near-term and not on any alleged future benefits that may be derived through integration with 

Southwest’s operations. Even without the benefit of Southwest’s network, we tentatively find that the 

proposed capacity, service, and market-structure benefits of AirTran’s proposal outweigh the Frontier

proposal.

Based on all of the above, we tentatively find that the services proposed by AirTran will provide the 

most benefits to the traveling and shipping public, and will maximize use of the bilateral rights available 

to U.S. carriers in the Chicago-Cancun market.

 21 Application of Frontier Airlines, Inc. for an Exemption, November 21, 2011 at 2.

22 Frontier Answer at 15.

23 See Order 2006-4-22, Chicago-Cancun Combination Proceeding.
6

Backup Authority

When we instituted this proceeding, we stated that we would consider, based on the material in the 

record, whether it is in the public interest to award backup exemption authority. Because the ChicagoCancun designation opportunity is a valuable and important right, we tentatively find that it is in the 

public interest to have a backup carrier in place should AirTran not institute service or if its authority in 

the market becomes dormant during the first year of operations. In this regard, we have tentatively 

decided to award Frontier backup exemption authority that can be exercised if AirTran abandons the 

Chicago-Cancun city pair market.24 25

Terms, Conditions, and Limitations

If our tentative decision is made final, we propose to issue to AirTran two-year exemption authority for 

scheduled foreign combination service in the Chicago-Cancun market. In addition, we will issue to

Frontier contingent exemption authority of one-year’s effectiveness for backup scheduled foreign 

combination service in the Chicago-Cancun market. Consistent with our policy regarding U.S.-Mexico 

authorizations, we will issue the subject primary and backup U.S.-Mexico authority on a city-pair basis, 

imposing the standard 90-day dormancy condition and dormancy notice requirements for U.S.-Mexico 

authority set forth in condition 7 of Appendix A of Order 88-10-2. We will also impose a startup 

condition for the primary award. In this regard, AirTran states that its proposed services could begin by 

March 11, 2012.26 To allow sufficient time for AirTran to inaugurate service, we have tentatively 

decided to require institution of AirTran’s service within 90 days after the service date of a final order in 

this proceeding, consistent with our standard startup condition for U.S.-Mexico services.

ACCORDINGLY,

1. We tentatively select AirTran Airways, Inc., for primary authority and propose to issue it 

exemption authority, subject to conditions, to provide scheduled foreign air transportation of 

persons, property, and mail between Chicago, Illinois, and Cancun, Mexico;

2. We tentatively select Frontier Airlines, Inc., for backup authority and propose to issue it 

backup exemption authority, subject to conditions, to provide scheduled foreign air 

transportation of persons, property, and mail between Chicago, Illinois, and Cancun, Mexico;

3. We direct any interested parties having objections to our tentative decision set forth in this 

order and in ordering paragraphs 1 and 2, above, to file their objections in the above-captioned 

docket, with the Department’s Docket Section, U.S. Department of Transportation, Docket 

 24 Based on officially noticeable data, we tentatively conclude that Frontier is qualified to provide the 

services proposed. Frontier has been found fit to provide foreign scheduled air transportation of persons, 

property, and mail (see Order 2011-6-12, which issued Frontier certificate authority for various U.S.-

Mexico city-pair markets), and holds exemption authority to provide scheduled combination services in 

various other U.S.-Mexico city-pair markets. No information has come to our attention that would lead 

us to question the qualification of Frontier to conduct the proposed operations at issue here.

25 Should Frontier’s back-up authority be activated, we tentatively find that such action would not 

constitute a “major regulatory action” under the Energy Policy and Conservation Act of 1975.

26 AirTran Supplement at 2.
7

Operations, M-30, West Building Ground Floor, Room W12-140, 1200 New Jersey Avenue, 

S.E., Washington, D.C., 20590, no later than ten (10) calendar days from the date of service of 

this order; answers thereto shall be filed no later than seven (7) calendar days thereafter; 27

4. If timely and properly supported objections are filed, we will afford full consideration to the 

matters or issues raised by the objections before we take further action;28

5. To the extent not granted, we deny all other requests in Docket DOT-OST-2012-0001; 

6. We will serve this order on Frontier Airlines, Inc.; AirTran Airways, Inc.; The Southwest 

Airlines Pilots’ Association; the U.S. Department of State (Office of Aviation Negotiations); the 

Federal Aviation Administration; and the Ambassador of Mexico in Washington, D.C.

By:

SUSAN L. KURLAND

Assistant Secretary for Aviation

and International Affairs

(SEAL)

An electronic version of this document is available on the World Wide Web at

http://www.regulations.gov

 27 The original filing should be on 81⁄2" x 11" white paper using dark ink (not green) and be unbound 

without tabs, which will expedite use of our docket imaging system. In the alternative, parties are 

encouraged to use the electronic submission capability available through the Dockets FDMS Internet site 

(http://www.regulations.gov) by following the instructions on the web site. Additionally, service by 

facsimile or electronic mail is authorized. Parties should include their fax numbers and email addresses 

on their submissions and should indicate the method(s) of service used on their certificates of service. 

28 Because we are providing for the filing of objections to our tentative decision, we will not entertain 

petitions for reconsideration of this order.