BEFORE THE

DEPARTMENT OF TRANSPORTATION

OFFICE OF THE SECRETARY

WASHINGTON, D.C.

___________________________________________

 )

Applications of )

 )

AIR CANADA )

ALASKA AIRLINES, INC. )

FRONTIER AIRLINES, INC. )

JETBLUE AIRWAYS CORPORATION )

SOUTHWEST AIRLINES CO. ) Docket No. OST-2012-0029

SUN COUNTRY AIRLINES )

VIRGIN AMERICA INC. )

 )

For exemptions from 14 C.F.R. Part 93, Subparts ) 

K and S, pursuant to 49 U.S.C. § 41718 )

(BEYOND-PERIMETER SLOT EXEMPTIONS) )

________________________________ ___________ )

REPLY OF SOUTHWEST AIRLINES CO.

AND MOTION FOR LEAVE TO FILE

Communication with respect to this 

 document should be addressed to:

Ron Ricks Robert W. Kneisley

 Executive Vice President -- Associate General Counsel

 Chief Legal and Regulatory Officer Leslie C. Abbott

Madeleine Johnson Senior Attorney

 Vice President General Counsel SOUTHWEST AIRLINES CO.

SOUTHWEST AIRLINES CO. 1901 L Street, NW

2702 Love Field Drive Suite 640

Dallas, TX 75235-1611 Washington, DC 20036

 bob.kneisley@wnco.com

 (202) 263-6284

April 9, 2012
1

BEFORE THE

DEPARTMENT OF TRANSPORTATION

OFFICE OF THE SECRETARY

WASHINGTON, D.C.

___________________________________________

 )

Applications of )

 )

AIR CANADA )

ALASKA AIRLINES, INC. )

FRONTIER AIRLINES, INC. )

JETBLUE AIRWAYS CORPORATION )

SOUTHWEST AIRLINES CO. ) Docket No. OST-2012-0029

SUN COUNTRY AIRLINES )

VIRGIN AMERICA INC. )

 )

For exemptions from 14 C.F.R. Part 93, Subparts ) 

K and S, pursuant to 49 U.S.C. § 41718 )

(BEYOND-PERIMETER SLOT EXEMPTIONS) )

________________________________ ___________ )

REPLY OF SOUTHWEST AIRLINES CO.

AND MOTION FOR LEAVE TO FILE

Southwest files this Reply to the Responses of both Frontier and JetBlue, filed 

April 5 and April 6, 2012 respectively.1 Southwest requests leave for the filing of this 

Reply pursuant to Rule 6 of the Department’s Rules of Practice, 14 CFR §302.6. Good 

cause exists because this Reply will correct incorrect and/or misleading statements 

contained in the responses of Frontier and JetBlue, and thereby contribute to a more 

accurate record for the Department’s decision in this proceeding. 

Reply to Frontier: 

In a continuing campaign to divert attention from its own weak proposal – which 

would waste scarce beyond-perimeter exemptions on the tiny DCA-COS market --

 

1 Common names of airlines are used.
2

Frontier attacks Southwest’s DCA-AUS-SAN proposal with irrelevancies and 

misrepresentations. Frontier’s claim that BWI is an effective substitute for DCA is flatly 

contradicted by the Department’s own conclusions based on extensive economic 

analysis of airline competition in the Washington DC region. As a result of that analysis, 

the Department found that “the three DC area airports are not interchangeable,”

2

and “it 

is quite clear that the airports are not economic substitutes.”3 Further, in a comparison 

of experienced yields among the DC area airports, the Department found that:

the average yield in all markets at DCA is 27 cents per mile, versus 

17 cents at Dulles and 14 cents at BWI. If the airports were effective 

economic substitutes for all passengers, we would expect to see a 

greater self-equalization of yields and the yield spreads would not 

differ so significantly.

4

 

It is hard to imagine a more clear statement of the issue which Frontier continues to 

argue. In fact, the Department specifically distinguished the only case that Frontier 

cites (Order 2006-6-17, June 12, 2006, concerning an award of DCA slot exemptions for 

Sarasota/Bradenton). The Department explained that its decision in that case was 

based on several factors and that “in no way was the Department...stating or implying 

that service between DCA, IAD, and BWI was interchangeable.”5 

In addition, there is the fact that the recent DOT/FAA-mandated divestiture of 16 

DCA slots (for 8 roundtrip flights) produced record bids from limited incumbent carriers

that obviously place an extremely high value on access to DCA. Southwest itself bid 

$32 million for the 8 available slot pairs, yet was topped by JetBlue’s extraordinary $40 

million bid – an average of $5 million per roundtrip. If BWI were an acceptable 

 

2 Grant of Petition with Conditions, 70 Fed. Reg. 26322, May 11, 2010, at 26332/2.

3

Id. at 26332/3

4

Id. at 26333/1

5

Id. at 26332/3 (fn. 70).
3

substitute, as Frontier’s theory postulates, carriers certainly would not be willing to pay 

tens of millions of dollars for the right to operate a few flights at DCA. 

Frontier’s attack on Southwest’s projected fares is equally baseless. Southwest 

specifically explained in its March 12 Application the relationship between its projected 

DCA-AUS fare and its current BWI-AUS fare:

BWI is a major focus city for Southwest and seats available to the local 

BWI market are limited due to the significant capacity allocated to 

passengers connecting at BWI. This has the effect of raising the weighted 

average fare earned for the local BWI segment. In the case of the DCAAUS market, the share of seats available for the local market will be 

greater and it is expected that a larger share of the market will be leisure 

at DCA than at BWI. The leisure market books further in advance and 

pays lower fares than the business market. Finally, as a small DCA 

participant and a relative newcomer, Campbell-Hill expects Southwest to 

be more price aggressive in order to create patronage and capture loyalty 

as it builds a more significant DCA presence over the long run. All factors 

considered, Southwest’s weighted average fare in the DCA markets will 

resemble its system average for comparable distances (see Appendix 8), 

rather than the BWI-AUS average fare.6

Neither Frontier nor any other applicant has responded to this explanation in any 

meaningful way. The point is that the main driver in Southwest’s pricing strategy is 

distance – not the number of competitors, or the identity of competitors. Consistent with 

that strategy, Southwest’s projected fares in this case are based on its yield curve, i.e., 

the empirical relationship between Southwest’s actual system-wide yields to market 

distance (see Southwest’s March 12 Application, Appendix 6). Accordingly, 

Southwest’s proposal in this case is to establish DCA-AUS and DCA-SAN fares to 

target weighted average results of $169 and $196 respectively. This is for fared 

passengers only and before ticket taxes, PFC’s and other government imposed 

 

6

Exhibit WN-200 at p. 3, fn. 4.
4

charges. 7 This is the Company’s plan and expectation, consistent with its historic 

pricing philosophy, and Frontier has given no legitimate basis to challenge it.

8

 

Reply to JetBlue:

JetBlue continues to confuse the record by misrepresenting (or perhaps 

misunderstanding) basic facts about Southwest’s service proposal. First, JetBlue’s 

claims that Southwest’s forecast load factors will exceed 100% are based on the glaring 

mistake of relating one-way passengers, on the one hand, to round-trip seats on the 

other. Southwest will operate a 175-seat B737-800, for 365 days a year. This will 

produce 127,750 one-way seats9. All of Southwest’s passenger numbers are one-way 

and they are so designated in its exhibits. So, any load factor computation must use 

127,750 seats as the denominator of a fraction where the number of O&D passengers is 

the numerator. JetBlue, on the other hand, computes implausible load factors for 

Southwest because it uses 63,875 round trip seats10 as the denominator. Southwest 

has forecast a load factor of 85% over the critical sector (DCA-AUS), which is entirely 

reasonable (Exhibit WN-202). 

Second, JetBlue ignores the fact that Southwest clearly stated that it “estimated 

traffic stimulation assuming all market participants reduce their fares to Southwest’s 

level” (Exhibit WN-200, at page 3, emphasis added). If other carriers reduce their fares

in response to Southwest’s entry -- an entirely reasonable assumption -- Southwest 

expects they will capture some of the stimulated traffic. Exhibit WN-124 states this 

 

7

Exhibits WN-121 and WN-122. 

8

Frontier’s argument regarding fare stimulation in the LIT-PHX market (Response at 7) is equally 

baseless. Southwest did vacate that market for less than a year in 2008-2009, but average fares in the 

market remained almost unchanged during that time. Therefore, as Southwest stated in its April 3 Limited 

Response, the correct point for measuring fare stimulation due to Southwest’s entry is when Southwest 

originally entered that market in March 1994. 

9

175 seats x 365 days x 2 directions (DCA to AUS/SAN and SAN/AUS to DCA).

10 127,750 2. This is the total capacity that JetBlue erroneously claims Southwest will operate.
5

explicitly in a highlighted box: “Assuming competitors respond by lowering their fares, 

some of the newly generated passengers will be carried by Southwest and others will 

be carried by competing carriers who lower their fares in response to Southwest” 

(emphasis added). Southwest never suggested it would carry all of the new traffic 

generated by its initiation of low-fare service at DCA. This is the essence of “the 

Southwest effect” -- that competing carriers are forced to lower their fares in response to 

Southwest’s competition, and as a result all airlines in the market carry more traffic. 

JetBlue’s hypothetical load factor calculations are based on the fallacious assumptions 

that Southwest will carry 100% of the market stimulation with 50% of its scheduled 

seats and should be disregarded in its entirety. Stripping away these errors, the 

advantages of Southwest’s proposal for DCA-AUS over JetBlue’s become absolutely 

clear, including a significantly larger aircraft, a much larger AUS presence, and lower 

fares. 

In a final attempt to discredit Southwest’s traffic forecast, JetBlue has cherrypicked two markets that prove nothing (Response at 2, fn. 1). In the case of EWRChicago, market fares declined by just 6% according to JetBlue, so naturally little price 

stimulation would be expected. In the DCA-AUS market, on the other hand, Southwest 

will provide the only nonstop service (unlike JetBlue’s EWR-CHI scenario) and it 

expects to reduce fares by 36%, which will easily support Southwest’s forecast price 

stimulation of 72% (Exhibits WN-121 and WN-202).11 JetBlue’s second market choice

of LGA-Chicago is even less relevant, as the average market fare increased by 12%. 

Even so the traffic increased by 16%. One can only imagine the increase in traffic if 

 

11 Southwest’s forecast of total DCA-AUS traffic stimulation is 110%, comprised of price stimulation of 

72% and service stimulation of 22% (these factors are multiplicative, not additive). Id.
6

fares had declined by 36% as Southwest expects for DCA-AUS. In sum, JetBlue’s 

analysis of Southwest’s market stimulation is completely misinformed and should be 

disregarded in its entirety. 

CONCLUSION

For the reasons given above and in its prior pleadings, Southwest urges the 

Department to grant it two beyond-perimeter DCA slot exemptions to provide nonstop 

service between DCA and AUS, with single-plane beyond service to SAN. 

Respectfully submitted,

__________________________

Robert W. Kneisely 

April 9, 2012
7

CERTIFICATE OF SERVICE

I hereby certify that on April 9, 2012, a copy of the foregoing was served via email on the following persons:

anita.mosner@hklaw.com (Air Canada)

megan.lawrence@alaskaair.com (Alaska Airlines)

Marshall.Sinick@squiresanders.com (Alaska Airlines)

Edward.Saucer@squiresanders.com (Alaska Airlines

robert.cohn@hoganlovells.com (Frontier Airlines)

patrick.rizzi@hoganlovells.com (Frontier Airlines

robert.land@jetblue.com (JetBlue Airways)

jhill@dowlohnes.com (JetBlue Airways)

perkmann@dowlohnes.com (JetBlue Airways)

John.Fredericksen@suncountry.com (Sun Country Airlines)

barbara.russell@virginamerica.com (Virgin America)

john.varley@virginamerica.com (Virgin America) 

jegillick@zsrlaw.com (Virgin America)

susan.kurland@dot.gov

todd.homan@dot.gov

brian.ctr.meehan@faa.gov

Jim Smith

Director of Aviation

Austin-Bergstrom International Airport

jimsmith@ci.austin.tx.us

John E. Potter

President and Chief Executive Officer 

Metropolitan Washington Airports Authority

john.potter@mwaa.com

info@airlineinfo.com

__________________________

Dorothy C. Sauvinet