BEFORE THE U.S. DEPARTMENT OF TRANSPORTATION

FEDERAL AVIATION ADMINISTRATION WASHINGTON, D.C.

--------------- --------------- ------------- ----------- In the matter of: ) ) Petition for Waiver of the Terms ) of the Order Limiting Scheduled ) Operations at LaGuardia Airpor t ) Docket No. FAA-2010-0109 )

--------------- --------------- ------------- ----------- MOTION FOR LEAVE AND REPLY COMMENTS OF JETBLUE AIRWAYS CORPORATION
Communications with respect to th is document should be sent to: Robert C. Land Senior Vice President for Government Affairs & Associate General Counsel JetBlue Airways Corporation P.O. Box 1927 Rockville, Maryland 20850 301-279-9727 robert.land@jetblue.com Jonathan B. Hill J. Parker Erkmann Dow Lohnes P LLC 1200 New Hampshire Ave. NW Suite 800 Washington, DC 20036 202-776-2000 jhill@dowlohnes.com perkmann@dowlohnes.com Counsel for JetBlue Airways Corporation James G. Hnat Executive Vice President & General Counsel JetBlue Airways Corporation 118-29 Queens Boulevard Forest Hills, NY 11375 jim.hnat@jetblue.com
September 13, 20111 REPLY COMMENTS OF JETBLUE AIRWAYS CORPORATION JetBlue Airways Corporation (“JetBlue”) here with moves to file these reply comments, which are submitted in response to comments and reply comments made by Southwest Airlines Co. (“Southwest”); to correct ce rtain mischaracterizations in th e comments of the Air Carrier Association of America (“ACAA”); and to res pond to the reply comments submitted by Frontier Airlines, Inc. (“Frontier”). This reply will pr ovide the Federal Aviation Administration (“FAA”) with additional information concer ning the eligibility of carriers to participate in the proposed slot divestiture process. In their respectiv e comments, Southwest, ACAA and Frontier all advocate for eligibility standard s that violate Congress’s direc tive that available slots be allocated to new entrant and limited incumbent air carriers, as Congress has defined those terms. Receipt of this Reply into the record will not delay or prolong this proceeding and will not prejudice any of the parties. 1. The Divestiture Proposal in the July 2011 Proposed Order is Completely Inadequate. JetBlue agrees with all the other air carriers, with the ex ception of US Airways and Delta (the “Parties”), that the number of slots the FAA’s July 2011 Proposed Order 1 would require the Parties to divest (16 slots at DCA and 32 slot s at LGA) is insufficient to ameliorate the anticompetitive effects of the Parties’ transaction. Because the proposed transaction threatens to make the anticompetitive situation at both DCA and LGA worse by solidifying the control that US Airways and Delta have at th ese airports, more slots must be transferred to competitive carriers in order to allow them the opportunity to offer meaningful competitive choice in more than only a handful of markets. There is consensus that the Parties must divest at least 28 slots

1 Notice of Petition for Waiver and Other Re lief, 76 Fed. Reg. 45,313 (July 28, 2011) (the “July 2011 Proposed Order”).2 at DCA and 40 slots at LGA as a condition for is suance of a waiver, as the FAA itself concluded when it first considered the Pa rties’ proposed transaction. See Order, Notice on Petition for Waiver of the Terms of the Order Limiting Sche duled Operations at LaGuardia Airport, 75 Fed. Reg. 26,322 (May 11, 2010) (the “May 2010 Order”). 2. Southwest and Frontier Are Ineligible to Participate in the Slot Divestiture Process. Commentators also agree that the FAA s hould not require Delta and US Airways to auction slots in a single tranch e (of 16 slots) at DCA and two tranches (of 16 slots) at LGA because the proposed process would preclude mu ltiple carriers from acquiring slots at the airports. The sole exception is Southwest, which argues for the a ddition of another large carrier at DCA and LGA. Indeed, Southwest quite bra zenly states that the maximum benefit will be realized if the slots are concentr ated “in the hands of a single str ong competitor at both airports.” Comments of Southwest Airlines Co., Do cket FAA-2010-0109 (filed Aug. 29, 2011), at 9. Southwest essentially argues that the FAA should allow Southwest to buy itself into a position of incumbency at both DCA and LGA, strengthening the all too brief list of air carriers that control the vast majority of the slots. JetBlue respectfully submits that Congress ha s already directed how the slots should be distributed – with a preference to new entran t and limited incumbent air carriers, meaning carriers that hold or operate fewer than 20 slots at each airport. See 49 U.S.C. §§ 41716(b), 41718(b). Under the Congressionally-mandated de finition of “limited incumbent,” Southwest, after giving effect to its alrea dy consummated acquisition of AirT ran Airways (“AirTran”), does not qualify as a “new entrant” or “limited incumb ent” and must be prohibited from participating in the divestiture process. Indeed, Congress’ s definition of a limited incumbent air carrier specifically incorporated the defi nition found in “subpart S of part 93 of title 14, Code of Federal3 Regulations” 49 U.S.C. §41714(h)(5). That por tion of the regulations defines a limited incumbent as “an air carrier or commuter operato r that holds or operate s fewer than [20] air carrier or commuter slots, in any combination, at a particular airport . . . .” 14 C.F.R. § 93.213(a)(5). Moreover, the defini tion makes clear that the slot holdings of ai rlines under common control must be consider ed as a single air carrier: For purposes of this subpart, if an air carrier, commuter operator, or other person has more than a 50-percent ownership or c ontrol of one or more other air carriers, commuter operators, or other persons, they shall be considered to be a single air carrier, commuter operator, or person. In addition, if a single company has more than a 50-percent ownership or control of two or more air carriers and/or commuter operators or any combination thereof, those air carriers and/or commuter operators shall be considered to be a single operator. A single operator may be considered to be both an air carrier and commuter operator for purposes of this subpart. 14 C.F.R. § 93.213(c) (emphasis added). At DC A, Southwest and AirTran hold 24 slots. See July 2011 Proposed Order, 76 Fed. Reg. at 45,31 8. At LGA, they hold 38 slots. See id. at 45,319. For the reasons stated in JetBlue’s August 29, 2011 comments in this proceeding, Southwest is ineligible to participate in any slot divestiture proce ss at these airports. See Comments of JetBlue Airways Corporati on, Docket FAA-2010-0109 (filed Aug. 29, 2011), at 13-22 (hereinafter “J etBlue Comments”). JetBlue, like others, also opposes any deviation from the definition of “limited incumbent” with respect to Frontier. Because Frontier is owned by Republic Airways Holdings, Inc., which holds 113 DCA slots, 2 Frontier does not qualify as a “limited incumbent air carrier” at DCA as Congress has defined that term and is therefore also inel igible to participate in a slot divestiture process.

2 See July 2011 Proposed Order, 76 Fed. Reg. at 45,318; Motion for Leave and Reply Comments of Frontier Airlines, Inc., Do cket FAA-2010-0109 (filed Sept. 9, 2011), at 7 (“Frontier Reply Comments”).4 Frontier has a curious response to JetBlue’s position that th e FAA is compelled by statute to order the divestiture of the relevant slots to new entrant and limited incumbent air carriers, arguing that JetBlue’s legal analysis is “off base” because Congress’s definition of “limited incumbent” applies “only to the allocation of AIR-21 slot exemptions under 49 U.S.C. §§ 41715- 18.” Frontier Reply Comments at 2-3. Likewise Southwest in its Reply Comments also ignores the direct connection between the actions of the FAA in this proceeding and the requirements of
AIR-21. See Reply Comments of Southwest, Docket FAA-2010-0109 (filed Sept. 12, 2011), at 4. But the implementation of Congress’s directive in AIR-21 is the core issue in this proceeding. This proceeding commenced when the Parties petit ioned for a waiver of the conditions in the LaGuardia Interim Order. 3 See Joint Request of Delta & US Airways for a Waiver, Docket FAA-2010-0109 (Aug. 24, 2009), at 1 (requesting “a waiv er from certain re strictions in the LaGuardia Interim Order”). In that order, the Department sought to deal with the congestion caused, in part, by Congress’s direction “in th e Wendell H. Ford Aviation Investment and Reform Act for the 21st Century (AIR-21)” that the DOT “grant exemptions from the” High Density Rule. 71 Fed. Reg. at 77,854. Indeed, in this very proceeding, the FAA explicitly relied upon AIR-21 as a source of its statutory au thority to require slot divestitures: The waiver of the LGA Order on the conditi ons set forth in this Notice carries out the Congressional intent of AIR–21 to a llow for new airline entry, to increase competition, and lower inflated prices at the slot-controlled airports. May 2010 Order, 75 Fed. Reg. at 26,326. Congress’ s directive in AIR-21 cannot simultaneously be, on the one hand, a source of the FAA’s aut hority to act and, on th e other hand, somehow inapplicable to the conditi ons the FAA chooses to impose. 4

3 71 Fed. Reg. 77,584 (Dec. 27, 2006). 4 Frontier’s argument that JetBlue’s position is “an attempt to gain a parochial advantage” is amusing at best. See Frontier Reply Comments at 6. JetBlue is insisting that the FAA act within5 3. ACAA’s Comments Reflect th e Voice of Southwest. JetBlue respectfully submits that the comments of the Air Carrier Association of America (“ACAA”) must be considered criti cally. The ACAA is a trade asso ciation with only a single air carrier member, AirTran, which has been acquired by Southwest. 5 While the ACAA makes a number of valid points, with which JetBlue fully agrees, those points si mply reflect the same views articulated by its sole me mber airline, AirTran and thus Southwest, in its voluminous comments and attached expert repor t. JetBlue agrees that the proposed transaction “creates a rare opportunity for the FAA to expand the enor mous benefits of low fare service to two airports.” Comments of the ACAA, Docket FAA-2010-0109 (filed Aug. 29, 2011), at 7. JetBlue also supports the ACAA’s conclusion that the dive stiture should be at le ast 28 DCA slots and at least 40 LGA slots. JetBlue, however, takes issue with AirTran’ s (and therefore Southwes t’s) contention that air carriers holding up to 5 percent of the slots at LGA or DCA should be eligible to participate in the divestiture process. See id. at 8. Indeed, prior to Sout hwest’s acquisition of AirTran , both the ACAA and AirTran repeatedly advocated for th e distribution of slots to new entrants and limited incumbents, precisely as Congress defined the term, holdi ng or operating fewer than 20 slots. See Comments of the ACAA Rega rding Operating Limitations at New York LaGuardia Airport, Docket FAA-2006-25755 (filed Oct. 19, 2006), at 3 (“Limited incumbents are only

the bounds of its statutory authority to implem ent pro-competitive policies consistent with Congress’s direction, while Frontier is advoca ting for two exemptions, one from Congress’s definition of a “limited incumbent air carrier” and one from the FAA’s proposed “no subsidiaries” rule so that it can be favored in a forthcoming slot divestiture process. Id. at 5-7. Moreover, all of the submissions in this or any other proceeding are made to further the interest of the commenting party.

5 Air Carrier Association of America, ACAA Airline Members (available at: http://www.acaa1.com/airline_members.asp).6 allowed twenty (20) total slots (ten roundtrips) from which to ope rate their flights.”); Response of the ACAA Regarding Operating Limitations at New York LaGuardia Airport, Docket FAA2006-25755 (filed Oct. 30, 2006), at 3 (“ Legacy carriers currently have up to twenty times more slots than limited incumbents at LGA . . . . who are only allowed twenty (20) total slots.”); Application of AirTran Airways, Inc. for Exemptions from 14 C.F.R. Part 93, Subparts K and S, pursuant to 49 U.S.C. § 41718(b), Special Rule s for Ronald Reagan Washington National Airport (within-perimeter sl ot exemptions), Docket OS T-2000-7182 (filed Nov. 5, 2003), at 8 (“[A] limited incumbent air carrier is defined as an air carrier or commuter operator that holds or operates . . . fewer than 20 slots and slot exemptions at DCA. AirTran is a limited incumbent.”); Amendment to the Application of AirTran Airway s, Inc., in the matter of the Wendell H. Ford Aviation Investment and Reform Act for the 21st Century for Exemptions from 14 C.F.R. Part 93, under 49 U.S.C. § 41716(b), Docket OS T-00-7176 (filed Aug. 16, 2001), at 3 (“AirTran Airways met the statutory criteria as a new entr ant/limited incumbent air carrier because it held less than twenty slots at LGA prior to obtaini ng AIR-21 exemption slots.”). As JetBlue has asserted, the FAA is constrai ned in establishing new prefer ences and thresholds for the distribution of slots. See JetBlue Comments at 18-22. 4. ACAA’s Comments Concerning Je tBlue Were Ill-Considered. JetBlue also must take issue with the ve iled accusations in the ACAA’s comments that, because of Lufthansa’s minority ownership stake in JetBlue and its comm ercial agreement with American Airlines, the Department should consid er not allowing JetBlue to participate in the divestiture process. The ACAA’s comments are based on mischaracteriza tions and allegations that are demonstrably false. The ACAA wrongly states that as part of JetBlue’s commercial agreement with Americ an, “various JetBlue DCA flights would connect to American’s flights at7 JFK to multiple international destinations. . . .” Comments of the ACAA at 10 (emphasis added). But JetBlue does not fly from DCA to JFK. Instead, JetBlue has a pro-competitive interline agreement with American whereby a cu stomer can purchase a ticket with connections from some JetBlue domestic flights to some Am erican Airlines intern ational flights at both Boston (“BOS”) and JFK airports. The connecti ons are permitted as part of an interline agreement, an industry standard form of partne rship. (Delta, United, US Airways, American and Lufthansa themselves all have similar interlin e agreements with multiple carriers that allow similar connections to be ticketed.) JetBlue and American do not have a codeshare agreement in any market. 6 Any insinuation that JetBlue would not compete vigorously with newly-acquired slots is demonstrably false. In the July 2011 Proposed Order, the FAA itself cited JetBlue’s entry on the DCA-BOS route as the paramount exampl e of the consumer benefits that result from low cost carrier entry: JetBlue’s entry enhanced competition and significantly reduced fares. Its presence continues to have a disciplining effect on fares: our check of availableone-month advance purchase economy fares showed JetBlue charging $69 oneway, with US Airways, Delta, and United all matching. 76 Fed. Reg. at 45327 (footnote omitted). Given th ese errors, JetBlue believes that ACAA’s comments (and therefore Southwest’s comments) c oncerning JetBlue’s eligibility should be disregarded. Conclusion In this proceeding, the FAA has an unpreceden ted opportunity to address the competitive imbalance found at two of the nations most import ant airports. In determ ining the conditions, if

6 ACAA also wrongly claims that Lufthansa’s owne rship interest in JetBlue is 19 percent. As disclosed in JetBlue most recent proxy statemen t, Lufthansa’s ownership percentage is now less than 16 percent. See JetBlue Airways Corporation, Sche dule 14A (filed Apr. 14, 2011), at 19- 20.any, under which Delta and US Airways should be allowed to proceed with a consolidation 

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their hold on these two airports, the FAA should at a minimum require the caniers to divest at
least as many slots as were originally contemplated by the FAA in the May 2010 Order. The minimal change in circumstarìces, as described by the Parties, does not remotely support the significant reheat from the FAA's conclusion in the May 2010 Order to the one in the July 201 1 Proposed Order.
The FAA should conduct any divestiture process in a man¡er consiìtent with Congress's
clear direction to favor new entrants and limited incumbents, meaning caniers holding fewer
than 20 slots at an airport. The FAA-approved procedure must comply with the statutory requirements, not gerrymandered to accommodate the interests ofnon-qualified air carriers such

as Frontier and Southwest. Lastly, the divestiture should be conducted in a manner such that

more than one carrier can successfully bid for slots at DCA and LGA.

September 13,2011 ly submitted,

J. Parker Erkmann Dow Lohnes PLLC 1200 New Hampshire Ave., NV/ Suite 800 'Washington, DC20036 (202) 776-2000 (202) 776-4725 (fax) jhill@dowlohnes.com perkmann@dowlohnes.com Counsel for JetBlue Airvays Corporation



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