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

___________________________________________ _____ ) Application of ) ) SOUTHWEST AIRLINES CO. ) ) Docket DOT
- OST - 2014 - 0222 For an exemption under 49 U.S.C. § 40109 to engage in ) fore ign scheduled air transportation of persons, property ) and mail between Houston Hobby International Airport ) and Cancun, Mexico City , Puerto Vallarta, and ) San Jose del Cabo, Mexico ) )

_________________________________ _______________

COMMENTS OF THE SOUTHWEST AIRLINES PILOTS’ ASSO C I ATION

Communications with respect to this document should be addressed to: Paul Jackson Government Affairs Southwest Airlines Pilots ’ Association 1450 Empire Central Dallas, TX 75247 (800) 969

- 7972 pjackson@swapa.org2 I. INTRODUCTION The Southwest Airlines Pilots’ Association (“SWAPA”) is the exclusive bargaining representative for almost 8,000 Southwest Airlines pilots. SWAPA strongly supports Southwest Airline’s application for exemption to engage in scheduled foreign air transportation between Houston Hobby International Airport and Cancun, Mexico City, Puerto Vallarta, and San Jose del Cabo, Mexico

. SWAPA believes that this
represen ts an opportunity to bring the “Southwest Effect” to several major markets that lack effective low fare competition. The US

– Mexico market is currentl y artificially constrained by the archaic US Mexico Air Transport Agreement

. As such low cost carrier penetration significantly lags the domestic US market 1 . While we applaud the US Department of Transportation and Department of State for recently negotiating a new treaty that will remove virtually all artificial constraints, until that treaty is ratified and in force, this case is abou t how to ensure the public the greatest gains within the context of the existing rules.

I I . SO UTHWEST’S APPLICATION WILL PROVIDE PUBLIC BENEFITS Southwest’s application 2 contains several important pieces of economic information demonstrating the potential value of the public benefits of the service being proposed. Exhibit
#1 2 in the Southwest application shows that on average the four local markets will see a reduction in average fare of $117 or 25%. In Exhibit #2 2 Southwest states that the reduction in

1 For the year ending October 2014, Sabre Global Demand showed only 23% of trans

- border passenger choose a low cost/ultra

- low co st carrier compared to almost 38 % of US domestic passengers. Only 65% of trans

- border passengers could have even chosen a low cost carrier compared to 76 % of US domestic passengers. 2 See Application of Southwest Airlines Co. DOT

- OST

- 2014

-3

fare , combined with the benefits of new nonstop service with 143 seat aircraft, will result in the traffic in the four local markets b eing stimulated by over 270,000 O&D passengers. As noted in Appendix 1, Page 2 2 of the Southwest application the reduction in fare will produce over $24 millio n in benefits for existing consumers and over $9 million in benefits for new customers in the four local markets

. SW APA has examined the study and believes tha t given Southwest’s relative cost structure /yield curve , the limited amount of local market competition (low fare or otherwise) , and new nonstop Southwest service with large aircraft that the four local markets will see benefits in

- line with the Southwest forecast. Additionally, SWAPA concurs with Southwest’s application that conne cting markets beyond Houston will see significant public benefits as a result of new low fare access to the four destinations in Mexico. In fact SWAPA has found that as a result of geographic location, many of these connecting markets lack any low fare ca rrier option today. (Exhibit #1 )
I II . SOUTHWEST HAS AN ESTABLISHED TRACK RECORD OF BRINGING LOW FARE COMPETITION TO MEXICO SWAPA believes that Southwest’s recent track record in Mexico is powerful evidence that demonstrates the extent of public benefits t hat can be expected if Southwest is granted the exemption. Since May 2011, when Southwest closed its transaction with AirTran Airways , Southwest h as added 8 new segments to the Mexic an market

. As of the fall of 2014 all of this service is operated under the Southwest brand. The impact of this additional low fare service has been substantial

. In 6 of the 8 new local markets fares dropped by an average of 19% and passenger traffic increased by an average of 722%. (Exhibit #2 ). In 7 of the 8 local markets , Southwest’s fare was significantly below the average fare of the other competitors (Exhibit #3 ).4

In the one local market that did not see a drop in average fare , Southwest’s fare was in

- line with the average fare in the market prior to entry.
I V . ALLOWING ONE BRAND CARRIER TO USE TWO DESIGNATIONS IS NOT IN PUBLIC INTEREST For all intents and purposes ExpressJet and SkyWest operate as wet

- lease provider s , under capacity purchase agreements, for Unit ed Airlines with no independent identities , o n the routes in question

. Under the current aviation agreement, these partner carriers occupy a scarce designation and block Southwest from providing large

- jet, independent carrier competition. Allowing these dual designations to continue is clearly not the best use of scare

resource s 3 , especially in Mexico City 4 that is also restricted by slot control. On the two routes that Southwest and SWAPA are requesting a reallocation of authority, ExpressJet and SkyW est operate with 50 seat ERJ

- 145 and 70 seat CRJ

- 700 equipment . This equipment is significantly smaller and more costly on a unit basis to operate than the 143 seat 737

- 700 that Southwest proposes to operate on t he two routes in question. Allowing United to fly small capacity regional jets with one of its two designations on the routes in question, especially when it would block competitive entry, would result in fewer customers paying higher fares a nd is clearly not in the public interest.
V . CONCLUSION For the reasons stated above, SWAPA fully supp orts the Southwest application and urges the Department to :

3 Based on SWAPA review of US

– Mexico routes , whose design ations were fully subscribed, slightly over 40% were flown by a capacity purchase agreement provider o perating RJ equipment and a mainline carrier under the same brand. 4 Per Innovata Schedules as of Dec 15 th for January 2015, 39% of all Mexico City departures were operated by regional equipment.5  Withdraw one of the two authorities held by United and its partner carriers for service on the Houston

– MEX and Houston

– SJD segments

 Q uickly grant S outhwest exemption authority and requisite designations to engage in scheduled foreign air transportation betw een Houston and four points in Mexico

. SWAPA also believes that the Department also has the opportunity to set precedent that would eliminate the ability for incumb ent carriers t o continue to exploit the existing Air Transport Agreement provisions

.

Respectfully submitted,

_________________________________ Paul Jackson1 - COMMENTS OF THE SOUTHWEST AIRLINES PILOTS’ ASSOCIATION 

# Exhibit #1 – Beyond Market Competitive Exposure to Low Cost/Ultra
- Low Cost Carriers

Source: Sabre Global Demand Year Ending October 2014. Low cost/ultra

- low cost carrier defined as Interjet , Vivaaerobus , Volaris , Southwest(including AirTran), jetBlue , Frontier, Spirit, Sun Country, and Virgin America.

95.6%

75.0%

65.6%

49.0% 73.3%

22.0% 18.2% 16.7% 33.1% 28.4%

15.0%

5.1%

0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% 90.0% 100.0%

CUN MEX PVR SJD % of Passengers Exposed to Low Cost/Ultra-Low Cost Carrier % of Beyond Markets with Exposure to Low Cost/Ultra-Low Cost Carrier % of Passengers Choosing Low/Ultra-Low Cost Cost Carrier2 - COMMENTS OF THE SOUTHWEST AIRLINES PILOTS’ ASSOCIATION 

# Exhibit #2 – Impact of Additional Post
- Merger Southwest Service on Local Markets

85.3% 70.3% 66.1%

14.7% 2.8% (0.9%)
(42.7%) (22.7%) (3.5%) (7.6%) (16.5%) (18.5%) 13.0% 7.3%

(50%) 0% 50% 100% 150% 200%

(50%) 0% 50% 100% 150% 200%

SNA-MEX SNA-SJD SAT-CUN AUS-CUN SAT-MEX DEN-SJD DEN-CUN CHI-CUN Change in Pax Change in Fare 2759.7%

1335.3%

300% 350% 400% 450% 500%

1000% 1500% 2000% 2500% 3000% All markets on this chart were added by Southwest Airlines, using AirTran equipment, after the acquisition. In almost every example significant reduction in fares and stimulation of local demand has occurred when the year of data prior to Southwest entry is compared to the first year post entry. Even in cases where the overall fare has increased the average net fare offered by Southwest at or below the fare offered prior to entry.

Source: Sabre Global Demand3 - COMMENTS OF THE SOUTHWEST AIRLINES PILOTS’ ASSOCIATION 

# Exhibit #3 – Impact of Additional Post
- Merger Southwest Service on Local Markets, Fare Comparison

103,903

68,552

24,593 21,004 119,124

12,363 4,883
(3,027)

($102) ($48) ($7) ($16) ($30) ($54) $32 $16

($96) ($50) ($17) ($28)

($78) ($109) ($1) $0

($120.00) ($70.00) ($20.00) $30.00 $80.00 $130.00 $180.00 $230.00 $280.00

(60,000) (40,000) (20,000) 0 20,000 40,000 60,000 80,000 100,000 120,000 140,000

SNA-MEX SNA-SJD SAT-CUN AUS-CUN SAT-MEX DEN-SJD DEN-CUN CHI-CUN Change in Fare Change in Passengers

Change in Pax Change in Fare Southwest Fare vs. Original Market Fare All markets on this chart were added by Southwest Airlines, using AirTran equipment, after the acquisition. In almost every example significant reduction in fares and stimulation of local demand has occurred when the year of data prior to Southwest entry is compared to the first year post entry. Even in cases where the overall fare has increased the average net fare offered by Southwest at or below the fare offered prior to entry.

Source: Sabre Global DemandCERTIFICATE OF SERVI CE I hereby certify that on December 23 , 2014, a copy of the foregoing was served via e

mail on the following persons: msinick@ssd.com (Alaska Airlines) howard.kass@aa.com (American Airlines) robert.wirick@aa.com (American Airlines) sascha.vanderbellen@delta.com (Delta Air Lines) chris.walker@delta.com (Delta Air Lines) matwood@cozen.com (Frontier Airlines) stephen.lachter@cozen.com (Frontier Airlines) robert.land@jetblue.com (j etBlue Airways) jhill@cooley.com (j etBlue Airways) perkmann@cooley.com (j etBlue Airways) robert.cohn@hoganlovells.com (Republic Airways) patrick.rizzi@hoganlovells.com (Republic Airways) dkirstein@yklaw.com (Spirit Airlines) jyoung@yklaw.com (Spirit Airlines) bob.kneisley@wnco.com (Southwest Airlines) leslie.abbott@wnco.com (Sout hwest Airlines) thomas.ting@suncountry.com (Sun Country Airlines) dan.weiss@united.com (United Airlines) steve.morrissey@united.com (United Airlines) gmurphy@crowell.com (United Airlines) sseiden@crowell.com (United Airlines) john.varley@virginamerica.com (Virgin America) susan.kurland@dot.gov brian.hedberg@dot.gov brett.kruger@dot.gov reese.davidson@dot.gov todd.homan@dot.gov peter.irvine@dot.gov cristinasa@state.gov info@airlineinfo.com / John Pepper /

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