BEFORE THE DEPARTMENT OF TRANSPORTATION

WASHINGTON, D.C.

------------------------------------------------------------------------ Application of : : SOUTHWEST AIRLINES CO. : : Docket DOT

- OST

- 2014

- 0222 for an exemption pursuant to 49 U.S.C. § 40109 : to engage in foreign scheduled air transportation : of persons, property and mail between Houston : Hobby International Airport and Cancun, Mexico City, : Pu erto Vallarta, and San Jose del Cabo, Mexico :

------------------------------------------------------------------------ CONSOLIDATED SUR REPLY OF UNITED AIRLINES, INC. AND S KYWEST AIRLINES, INC. AND

MOTION FOR LEAVE TO FILE Communications with respect to this document should be sent to: Steve Morrissey Vice President

- Regulatory & Policy UNITED AIRLINES, INC. 1225 New York Avenue, NW Suite 1100

– DCAIZ Washington, DC 20005 (202) 521

- 4373 steve.morrissey@united.com Daniel A. Weiss Managing Director

- International Affairs and Regulatory UNITED AIRLINES, INC. 233 South Wacker Drive 10th Floor

– HDQIZ Chicago, IL 60606 (872) 825

- 6828 dan.weiss@uni ted.com

January 1 0 , 201 5 Thomas Newton Bolling Vice President and Deputy General Counsel Abby L. Bried Associate General Counsel

- Regulatory, Alliances & International James Conneely Counsel

- Regulatory UNITED AIRLINES, INC. 233 South Wacker Drive 11th Floor

– HDQLD Chicago, IL 60606 (872) 825

- 8068 (872) 825

- 7415 (872) 825

- 8311 thomas.bolling@united.com abby.bried@united.com james.conneely@united.com Gerald F. Murphy Steven J. Seiden CROWELL & MORING LLP 1001 Pennsylvania Avenue, NW Washington, DC 20004 (202) 624

- 2500 gmurphy@crowell.com sseiden@crowell.com Counsel for United Airlines, Inc. and SkyWest Airlines, Inc.BEFORE THE DEPARTMENT OF TRANSPORTATION

WASHINGTON, D.C.

------------------------------------------------------------------------ Application of : : SOUTHWEST AIRLINES CO. : : Docket DOT

- OST

- 2014

- 0222 f or an exemption pursuant to 49 U.S.C. § 40109 : to engage in foreign 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 :

------------------------------------------------------- -----------------

CONSOLIDATED SUR REPLY OF UNITED AIRLINES, INC. AND SKYWEST AIRLINES, INC. AND

MOTION FOR LEAVE TO FILE

I. INTRODUCTION. Unlike Southwest, 1 United, SkyWest and the City of Houston (“Houston”) are focused on a solution that will allow all carriers to serve the Houston

- Mexico City/San Jose del Cabo markets without delay

– and without disrupting existing services and harming consumers. 2 Southwest, in its Reply : (i) continues to ignore well

- established DOT precedent requ i ring carrier selection proceedings ; (ii ) argues against the Department using extra

- bilateral authority to grant Southwest’s A pplication while not disputing that doing so would allow all carriers to serve the markets in q uestion ; and (iii ) fails to provide concrete assurances that Southwest will actually be

1 Common names are used for airlines. 2 United and SkyWest move, pursuant to R ule 6(c) of the Department’s Rules of Practice, for leave to file an otherwise unauthorized document. Good cause exists to allow this Surreply because it will clarify the position of United and SkyWest in light of information offered by Southwest and Hous ton in their R eplies and provide a more complete record on which the Department will rend er a decision on Southwest’s Application

.Consolidated Sur r eply of United and SkyWest

Page 2 of 8

able to commence its proposed servic es on October 15, 2015 . Nevertheless, the fact remains that granting extra

- bilateral authority to Southwest is the only alternative that will truly benefit all carriers, consumers and communities on both sides of the border, and is in the public interest.
II. SOUTHWEST CANNOT ESCAPE DEPARTMENT PRECEDENT OR DUE PROCESS THAT REQUIRES A CARRIER SELECTION PROCEEDING The Department cannot simply withdraw and reallocate United’s and/ or SkyWest’s designations without instituting a carrier selection proceeding. And there is clear and ample Department precedent to support that fact. See, e.g. , Order 2014

- 12

- 9 (Tokyo Hane da slot allocations); Order 2007

- 11

- 23 (U.S.

- Colombia frequencies); and Notice of Action Taken dated Feb. 13, 2004 in Docket DOT

- OST

- 2003

- 16444 (Phoenix

- Puerto Vallarta/San Jose del Cabo designations)

. Ironically, Southwest cites two Department decisions examining factors in carrier selection proceedings in an attempt to demonstrate that a carrier selection proceeding is not required here

. See Southwest Answer at 5. This is non sensical and does nothing to advance Southwest’s position

. Southwest is free to argue the relative merits of its proposed services versus those already being provide d by United and/or SkyWest in a carrier selection proceeding, 3 but the Department may not forego holding such a proceeding

– and due process

– just be cause Southwest deems it an unnecessary formality. Southwest also conveniently conflates its own words with those of the Department when referring to the decision granting SkyWest exemption and designation authority for the Houston

- Mexico City /San Jose de l Cabo route s . See id

. ( internal citations omitted ).

3 While United and SkyWest reser ve their rebuttal to the economic study Southwest cites in support of its Application for a proper carrier selection proceeding, if necessary, they point out that the study appears to have been done before Spirit entered the Houston

- San Jose del Cabo market. Southwest Reply at 3 ( citing Southwest Application at 4

- 5 and Exhibits 1

- 7). According ly, the study cannot accurately portray the purported effects of Southwest’s proposed service s .Consolidated Sur r eply of United and SkyWest

Page 3 of 8
Southwest’s proposed course of action would affect tens of thousands of passengers and is not something the Department can or should accomplish by fiat. A pproximately half of United’s Houston

- Mexico City passengers flew on United in one direction and its United Express partner in the other direction in 2014, with that figure increasing to nearly two

- thirds in the Houston

- San Jose del Cabo market. Yet South west would have the Depart ment act as if SkyWest is not an airline that holds its own designations and United could simply conjure up its

own regional jet aircraft and the crews to operate them at will : “United is and will continue to be able to provide a n unlimited number of daily flights, using any gauge of aircraft, with the one designation it will retain on each route.” Southwest Answer at 3 ( emphasis in original ). As the nation’s largest regional airline

– having nearly 11,000 employees, nearly 400 aircraft, and carrying approximately 27 million passengers each year

– SkyWest resents Southwest’s implication that it’s a non

- entity. It is SkyWest that operates the important regional jet services that consumers have come to rely on as a competitive and flexible alternative in the Houston

Mexico City/San Jose del Cabo markets

– competition that Southwest clearly wants to eliminate

. Southwest may not like it, but due process dictates that the Department consider the significant attributes that SkyWest’s service brings to these markets in its own right in the context of a carrier selection proceeding. As United has made clear, however, a carrier selection proceeding is a distant second

best option that will un duly harm consumers. It makes little sense for the Department to hold such an unnecessary and costly proceeding when there is a viable alternative that will allow Southwest to serve these markets alongside United, SkyWest , and Spirit , and better s atisfy the public interest. Arguing otherwise demonstr ates callous disregard for the customers, coworkers and communities that would be impacted by needlessly withdrawing the designations held by United and/or SkyWest.Consolidated Sur r eply of United and SkyWest

Page 4 of 8

III. GRANTING EXTRA

- BILATERAL AUTHORITY TO SOUTHWEST WOULD PRESERVE LONGSTANDING UNITED AND UNITED EXPRESS SERVICES AND IS IN THE PUBLIC INTEREST The Department should grant extra

- bilateral authority 4 to Southwest to maximize competition and preserve longstanding United and United Express service offerings for consumers. Southwest’ s anticipate d startup date for its Houston

- Mexico City/San Jose del Cabo services is just two and one

- half months before the new U.S.

- Mexico air transport agreement that will remove the designation limits in transborder markets is scheduled to go into effect. By
cont rast, United and its United Express partners have together been providing unparalleled network connecting opportunities , fare and booking class options, and flexible time

- of

- day coverage in the Houston

- Mexico City/San Jose del Cabo markets for well over a decade

. See Orders 2000

- 5

- 31 and 1992

- 5

- 20 (United); and Notice of Designation dated Oct. 7, 2004 ( undocketed ) and Dep ’ t. Action dated May 7, 2003 (undocketed) (United Express). Southwest may be a new entrant, but it is also a Johnny

- come - lately. See, e.g., Southwest Answer at n. 6 (bemoaning the fact that Spirit was fir st to the remaining Houston

- San Jose del Cabo designation in September 2014). United and SkyWest welcome the competition that Southwest will bring, and make this point simply to illustr ate that longstanding United and/or United Express services shouldn’t be disrupted to accommodate Southwest for a period of what may be less than 11
weeks.

4 United commends the creative suggestion of Houston and the Southwest Airlines Pilots’ Association (“SWAPA”) that the Department should “ persuade the Mexican Government to withdraw its [informal] historic interpretation of the existing bilateral that a mainline carrier and its regional partner must each hold a designation even where all services are operated under the name of the mainline carrier.” Houston Ans wer at 3; see also SWAPA Answer at 3

- 4. Although the Mexican Government might characterize such action as extra

- bilateral in any event, United and SkyWest support any alternative that will preserve their existing services and allow all competitors to serv e the markets at issue.Consolidated Sur r eply of United and SkyWest

Page 5 of 8

And Houston agrees. “Houston has expressed its strong support for authority to be made
available t o all carriers that wish to provide services. For the benefit of consumers and the public interest, the City also strongly supports n ew market entry, low

- fare servic es and maximizing competition, while wishing not to disrupt or lose existing services .” Ho uston Reply at 2. Further, Houston supports the grant of extra

- bilateral rights where necessary to enable all carriers to provide the services they wish in all Houston

- Mexico markets without delay...[and]...hopes that the Department will explore with Mexico a ll options available to secure additional rights needed, including extra

- bilateral authority.” Id . at 3. This strong sentiment is also shared by the Chairman of the Subcommittee on Trade of the House Ways a nd Means Committee : “ I t is not in the best interest of Houston or the traveling public to withdraw long

- held rights granted to United or its United Express partners, and which benefit U.S. consumers who use IAH as an airport to access Mexico, for a period of only 2.5 months.” Letter from Congressm an Kevin Brady (TX

- 8) to Anthony Foxx, Sec’y, U.S. Dept. of Transp. (Dec. 29, 2014) (Exhibit A to the United and SkyWest Answer). Southwest does not dispute that a grant of extra

- bilateral authority would allow all carriers wishing to serve the Houston

- Me xico City/San Jose del Cabo markets to do so. See Southwest Reply at 6

- 7. Moreover, the Department has demonstrated its willingness to use
extra

- bilateral aut hority no less than fifteen times in recent years to the benefit of both U.S. and Mexican carrie rs , including specifically to allow them to take early advant age of codeshare opportunities that would become available under the 1999 U.S.

- Mexico aviation agreement

. See United and SkyWest Answer at 5

- 6 ( citations omitted ) . Southwest offers nothing more than self

serving speculation by suggesting that the Mexican G overnment would be unwilling to entertain using extra

- bilateral authority in these unique circumstances or that the new U.S.

- Mexico air transport agreement may n ot go into effect on January 1, 2016. See Southwest Answer at 6

- 7.Consolidated Sur r eply of United and SkyWest

Page 6 of 8

But t he very recent history of the Department granting extra

- bilateral authority to two Mexican carriers for 12 transborder routes ( see United and SkyWest Answer at 5

- 6 ( citations omitted )) and a freshly

- signed air transport agreement intended to “expand opportunities for passenger...carriers to provide service between the United States and Mexico, and strengthen economic ties between the two countries” (Press Release, U.S. Dep’t

. of Transp., United States, Mexico Reach Modernized Aviation Agreement (Nov. 21, 2014) at 1) stand in stark contrast to Southwest’s unfounded assertions. Against this backdrop, United and SkyWest submit there could be no better opportunity for the Departm ent to see k extra

- bilateral authority to benefit U.S. carriers. The Department would also be hard pressed to explain to the hundreds of communities that have connecting service via United’s hub at Houston’s George Bush Intercontinental Airport why the ext ra - bilateral authority that has been readily granted to Mexican carriers was not available to assist U.S. carriers in these circumstances.
IV

. SOUTHWEST MUST DEMONSTRATE THAT HOBBY WILL BE READY FOR INTERNATIONAL OPERATIONS IF IT MEANS DISRUPTING EXISTING UNITED AND/OR SKYWEST SERVICES Southwest conspicuously fails to provide any confirmation that that construction on the new international terminal and Federal Inspection Facility (“FIS”) at Houston’s William P. Hobby Airport (“HOU”) will be completed, and that the FIS can be staffed with Customs and Border Protection (“CBP”) Officers, by October 15, 2015. The lack of such confirmation leads United and SkyWest to believe that there is no viable plan in place. If plans are indeed confirmed, Southwest would not dance around the issue as it does. The Department cannot possibly move forward with stripping away designations from United or SkyWest without definitive confirmation as to when HOU will be ready for international operations

. But Southwest somehow deems this significant concern “outside the scope of this proceeding

. ” S ee Southwest Reply at 7. While Southwest and Houston may arguably be able to assert thatConsolidated Sur r eply of United and SkyWest

Page 7 of 8
“[c]onstruction of the new FIS facility is on schedule for a 2015 open ing” (Houston Reply at 2; see also Southwest Reply at 8), they do not, and cannot, make any commitment on CBP staffing and resources, particularly when the agency has yet to be funded past February 27, 2015. See Consolidated and Further Continuing Appropriations Act, 2015, Pub. L. No. 113

- 235.
As Southwest well knows , granting Southwest’s application without extra

- bilateral authority would also mean that United and/or SkyWest services would be needlessly sacrificed even if Southwest were unable to commence operations before the new U.S.

- Mexico air transport agreement goes into effect on January 1, 2016. See, e.g. , Notice of Action Taken dated Sep. 3, 2014 in Dockets DOT

- OST

- 2014

- 0129 and DOT

- OST

- 2014

- 0130 (requiring a 90

- day dormancy startup condition). The public interest cannot abide such a result. Southwest would also apparently have the Department withdraw United ’s and/or SkyWest ’s designations and force them to stop marketing, ticket sales and associated services immediately , regardless of HOU’s readiness for internati onal service or Southwest’s actual ability to commence operations

. But even assuming arguendo that the Department were to grant Southwest’s application without

extra

- bilateral authority, that would not be the case. Granting Southwest the underlying exemption authority to begin marketing and sales in the Houston

- Mexico City/San Jose del Cabo markets would have no effect on United’s and SkyWest’s designations or exemption authorities through October 15, 2015, regardless of the Department’s ultimate dec ision on Southwest’s application. See, e.g ., Notice of Action Taken in Dockets DOT

- OST

- 2014

- 0129 and DOT

- OST

2014

- 0130 at 2 (noting United could begin marketing and selling SkyWest

- operated Houston

Mexico City services five months before SkyWest’s designa tion allowing operations would become effective ).Consolidated Sur r eply of United and SkyWest

Page 8 of 8

V. CONCLUSION For the foregoing reasons, United urges the Department to grant Southwest extra

- bilateral authority for Southwest to commence its proposed Houston

- Mexico City/San Jose del Cabo operations and preserve existing United mainline and SkyWest (d/b/a United Expr ess) regional jet services to the benefit of United’s customers, coworkers and communities. Doing so is clearly in the public interest, as it is the only viable alternative that would enhance competition on the se impo rtant U.S.

- Mexico routes, provide a ne t gain in consumer benefits, and further the intent of the new U.S.

- Mexico air transport agreement. Respectfully submitted, CROWELL & MORING LLP

____________________________ Gerald F. Murphy Steven J. Seiden gmurphy@crowell.com sseiden@crowell.com Counsel for United Airlines, Inc. and SkyWest Airlines , Inc.
January 1 0 , 201 5CERTIFICATE OF SERVICE

I certify that I have this date served the foregoing document on the following persons in accordance with the Department’s Rules of Practice.
robert.wirick@aa.com howard.kass@aa.com nssparks@fedex.com gbleopard@fedex.com kevin.montgomery@polaraircargo.com rpommer@atlasair.com rsilverberg@sgbdc.com jjohnson@sgbdc.com msinick@ssd.com stephen.lachter@cozen.com robert.land@jetblue.com jhill@cooley.com perkmann@cooley.com dkirstein@yklaw.com jyoung@yklaw.com bob.kneisley@wnco.com leslie.abbott@wnco.com pjackson@swapa.org matwood@cozen.com anita.mosner@hklaw.com jennifer.nowak@hklaw.com sascha.vanderbellen@delta.com chris.walker@delta.com robert.cohn@hoganlovells.com patrick.rizzi@hoganlovells.com thomas.ting@suncountry.com john.varley@virginamerica.com rbtrinder@zsrlaw.com paul.gretch@dot.gov brett.kruger@dot.gov susan.kurland@dot.gov brian.hedberg@dot.gov reese.davidson@dot.gov todd.homan@dot.gov peter.irvine@dot.gov cristinasa@state.gov info@airlineinfo.com

__________________________________ Steven J. Seiden January 1 0 , 2015