BEFORE THE DEPARTMENT OF TRANSPORTATION WASHINGTON, D.C.

2013/2014 U.S. - Brazil Combination Frequency Allocation Proceeding ) ) ) ) ) ) ) Docket DOT - OST - 2013 - 0072

CONSOLIDATED REPLY OF DELTA AIR LINES, INC. Communications with respect to this document should be addressed to: Glen Hauenstein Executive Vice President, Network Planning & Revenue Management Robert J. Cortelyou Senior Vice President

– Network Planning DELTA AIR LINES, INC. 1030 Delta Boulevard Atlanta, Georgia 30320 Andrea Fischer Newman Senior Vice President

– Government Affairs DELTA AIR LINES, INC. 1212 New York Avenue, N.W. Washington, D.C. 20005 Alexander Van der Bellen Managing Direc tor – Government Affairs

& Associate General Counsel Chris Walker Regional Director

– Government Affairs DELTA AIR LINES, INC. 1212 New York Avenue, N.W. Washington, D.C. 20005 (202) 842 - 4184 sascha.vanderbellen@delta.com

May 14 , 201 3BEFORE THE DEPARTMENT OF TRANSPORTATION WASHINGTON, D.C.

2013/2014 U.S. - Brazil Combination Frequency Allocation Proceeding ) ) ) ) ) ) ) Docket DOT - OST - 2013 - 0072

CONSOLIDATED REPLY OF DELTA AIR LINES, INC. I. Introduction Delta was a strong supporter of th e 2010 negotiations with Brazil which produced the transitional open skies agreement with Brazil. The Department’s successful negotiation creates a bilateral regime that should ultimately lead to fully liberalized market opportunities for all U.S. carriers. In the critical interim period before open skies is ratified and implemented , service and competitive benefits for the traveling public would be maximized by awarding Delta 21 frequencies to increase service from Atlanta and New York, and to maintain service at Detroit. II. Summary of the Argument For the reasons detailed in Delta’s Application Supplement and Answer, we respectfully submit that first priority be given to Delta’s 21 frequency request. Delta’s proposals produce an optimal combination of public benefits:

• A second Delta flight at Atlanta will open a new time channel at the world’s largest airline hub, linking over 150 U.S. cities to Brazil. Atlanta provides the most effective intergateway competition to the East Coast hubs of American at Miami, and US Airways at Charlotte and Philadelphia.Reply of Delta Page 2

• A second Delta flight at New York, will also open a convenient new time channel and improve intragateway competition in the largest U.S. - Brazil O&D market. New York - Sao Pa ulo is dominated by American/TAM , which today out - schedule Delta by three flights to one. JFK is an important No rtheast connecting hub enabling Delta to compete with the other New York incumbents as well as US Airways’ proposal for new service at its immediately adjacent Philadelphia hub. • Preserving Detroit - Sao Paulo service is essential to the public interest. Thi s proven and successful service links Detroit, the State of Michigan , and the industrial Midwest to Brazil, and provides the only effective intergateway competition to United’s service at Chicago. Importantly, Delta will provide much - needed improvement to the U.S. - Brazil competitive market structure. U.S. - Brazil service in general and U.S. - Sao Paulo service in particular is dominated by American which holds 47 of the total 105 U.S. flag unrestricted frequencies . DL - R - 102 . American and US Airways are merging, and TAM’s decision to join the oneworld alliance will lead to even greater concentration of the U.S. - Brazil service in the hands of a single carrier/alliance group. DL - R - 1 11

. Delta h olds 23 Brazil freque ncies. Absent an award in this case, Delta would be left with only 16 following the required transfer of seve n frequencies to US Airways. The benefits of Delta's service proposals, including more balanced and effective competition between U.S. flag carrie rs in the marketplace , can only be achieved by the full grant of 21 frequencies to Delta. At bottom, this is a simple case with a clear public - benefits maximizing solution. Delta should receive the 21 frequencies it has requested, and US Airways should receive the seven remaining frequencies to fund service at Charlotte in 2014. The grant of seven frequencies to US Airways is sufficient to fund both of its proposals, since i t will receive seven frequencies from Delta in the immediately following IATA traffic season. Indeed, given United’s apparent willingness to extend its frequency lease with USReply of Delta Page 3 Airways, it is quite possible that US Airways could begin Philadelphia service sooner if desired. Even before considering the fact of its pending merger with US Airways, American should have no expectation of a further frequency award in this case. L ess than a year ago the Department granted a large frequency request by Amer ican fo r 17 Brazil frequencies. This allowed American to “backfill” frequencies on the Miami - Rio de Janeiro route and move those seven unrestricted frequencies to establish a second daily Sao Paulo flight at JFK. 1 DL - R - 10 9 , 1 1 0. American should not be heard to complain that the Department has been anything but generous concerning American’s Brazil frequency allocations. American has more than ample frequencies and the flexibility to move them at will if it wanted to establish non stop service at Los Angeles or Chicago. With or without the merger, additional network competition created by new Sao Paulo service s at Charlotte, Philadelphia, Atlanta and New York will put competitive pressure on American’s Miami stronghold (where it op erates four daily Sao Paulo flights)

– thus providing American with added incentive to consider new nonstop gateways including Los Angeles and Chicago. For the reasons above, the grant of 21 frequencies to Delta is the best public interest choice irrespec tive of the merger. When that critical fact is added to the evaluation, the case for Delta is overwhelming. In the Instituting Order, the Department called for “[the American/US Airways merger] issue to be developed further on the record as the carriers advance the merits of their proposals.” Order 2013 - 4 - 9 at 6. However, US Airways and American persist in their efforts to dodge the issue, and evade the required public interest review of their merger as it relates to transfer and consolidation of US Airways’ and American’s Brazil frequency holdings into the “new

1 See Notice of Action Taken, Docket OST - 2012 - 0079 (May 24, 2012).Reply of Delta Page 4 American.” As Delta has repeated ly stated, it would not be in the public interest to allow US Airways and American to acquire new unrestricted frequencies here -- which are essential to bring Delta to competitive parity in Brazil -- and then combine those frequencies in a new consolidated entity that will be even more dominant tha n American is today. Rat her than demanding to be “treated as [] standalone carrier[s]” 2 US Airways and American should want the Department to adjudicate the transferability of Brazil frequencies as part of the public interest evaluation of this case. The frequencies at issue are not covered by the pending American/US Airways route transfer application

. 3 DL - R - 107

. If the frequencies were to be awarded here without consideration of the merger, the Department would need to co nduct a de novo review of the frequency allocations in a new comparative sele ction proceeding. Frequency awards are not covered by the route transfer statute, and are not entitled to the same favorable presumptions as certificate authority. See, Order 97 - 11 - 35 (finding that FedEx proposed acquisition of Argentina all - cargo frequencies not covered by route transfer statute, and that frequencies would be subject to comprehensive public interest review in a carrier selection case). US Airways and American can try to delay the public interest of consideration of their merger, but they cannot avoid it. Delta agrees w ith the Department that those issues should be addressed here on the record. To do otherwise would be a waste of DOT resources, crea tes complications for the merger and pending route transfer application , and could delay the implementation of Brazil frequencies if Delta were not selected for its full 21 frequency proposal and follow - on carrier selection case were

2 US Answer at 3; see also AA Answer at 4. 3 See, Exhibits A&B, AA/US Route Transfer Application, Docket DOT - OST - 2013 - 0082.Reply of Delta Page 5 required. 4 In accordance with the Department’s instructions to develop the record, US Airways and American should address the following questions: 1. Are American and US Airways merging? 5 2. Do American and US Airways expect their merger to be completed in the third quarter of 2013? 6 3. Have American and US Airways filed a route transfer application seeking to consolidate all of US Airways’ international route authorities with American’s ? 7 4. Will the combined entity have at least 61 unrestricted Brazil frequencies including the 47 currently held by American, t he 7 to be transferred from Delta to US Airways, and 7 surplus frequencies remaining after satisfaction of Delta’s full request in this case? Given the pending American/US Airways merger and the large frequency cache that will be held by the combined entit y, it is not surprising the merger parties would stress individual gateway attributes over market structure and competition. However, the U.S. - Brazil market is unique due to the large number of frequencies outstanding and the flexibility the Department has granted carriers to freely move frequencies among

4 American and US Airways each cite the Japan Alliances case to stand for the proposition that they should be evaluated separately. (Order 2010 - 10 - 4). This reliance is misplaced. That case was an antitrust immunity proceeding, not a route case. The effect of treating the ATI applicants as separate was to create a more rigorous competition review by assuming United and Continental remained competitors on U.S. - Japan routes until extinguished by ATI. Here, ignoring the fact of the merger would lead to less r igorous competitive review of the merging parties - the opposite of the Department’s conservative approach in the Japan Alliances case. 5 See , http://www.us airways.com/en US/aboutus/pressroom/newamerican.html?cint=update_21132 ; “Judge signs order approving the US Airways - American Airlines merger” http://aviationblog.dallasnews.com/2013/05/judge - signs - order - approving - the - us - airways american - airlines - merger.html/ 6 http://newamericanarriving.com/investors/whats - happening - next/ 7 Docket DOT - OST - 2013 - 0082Reply of Delta Page 6 gateways . 8 These important distinguishing characteristic s of the U.S. - Brazil market and DOT regulatory policy favor the approach suggested by Delta. US Airways has a very strange definition of competitive market structure. According to US Airways , the competitive m arket structure for U.S. - Sao Pau lo will be enhanced if “each and every gateway proposed by US Airways and American” is authorized 9

-- and Delta is granted no frequencies. The basis for US Airways competitive “analysis” is the self serving “figure 1” chart on page five of its A nswer that has no DOT precedent to support it, 10 and is directly contrary to the Department’s stated intent in the instituting order to “consider the effects of the applicants service proposals on the overall 8 “We . . . grant the . . . U.S. carriers designated for combination services in the U.S. - Brazil markets flexibility to use their allocated frequencies in markets wh ere the carriers hold requisite underlying authority.” (Order 2004 - 6 - 25). 9 US Airways Ans wer at 5. 10 US Airways ’ contrived definition of market structure in this proceeding consists entirely of inter - gateway considerations to the exclusion of intra - gateway factors. US Airways position is inconsistent with DOT policy. Depending on the circumstances, the DOT puts the necessary emphasis on either inter - gateway or intra - gateway competition, or both, as the facts warrant in carrier/city selection cases. US Airways r elies on a 27 year old pronouncement of DOT policy but then only reading the part that speaks of the principle of inter - gateway competition and ignores the portion of the document that refers to advancement of intra - gateway competition. Based on its incorrect reading of the policy statement, US Airways would have the Department reject entirely Delta’s need for a greater number of frequencies at the important New York are gateway to Brazil to better compete with incumbent carriers at New York as if intra - gateway factors have never been given any weight by the DOT. An example of the DOT’s emphasis on intra gateway competition is seen in the 2000 U.S. - Brazil All - Cargo Service Case decision. Order 2001 - 3 - 27. In this case the Department aw arded 10 weekly frequencies to Atlas Air Cargo to serve Miami in part because the carrier’s entry into the Miami market would be a competitive counter weight to the incumbent services of FedEx, Polar and UPS that collectively operated 11 weekly Miami - Brazi l cargo flights thereby providing “significant structural benefits”. Gemini proposed to serve Brazil though two gateways (from New York and Miami bu t with less service from Miami) but the DOT found that increased frequency at a major traffic generating ci ty was more attuned to market needs and offered superior benefits. Order 2001 - 3 - 27, p. 8. The same conclusion was reached in the 1999 U.S. - Argentine Combination Service Case , Order 2001 - 1 - 4. In this case, the DOT selected Continental to serve Newark - Bue nos Aires because it would compete with the existing service operated from New York by American and United. By so doing, the DOT rejected United’s application for frequencies to serve a new gateway city (Los Angeles). The DOT has not hesitated to add car rier service options at existing gateway s when warranted even if it means that new gateway service cannot be offered by an applicant.Reply of Delta Page 7 competitive environment . . .” Order 2013 - 4 - 9 at 3 (emphasis added). The “overall” competitive environment is best served by the full grant of Delta’s proposal. If “each and every one” US Airway’s and American’s proposal s were granted here, and Delta received no frequencies , the “new American ” would have 82 unrestricted Brazil frequencies, Delta 16, and United 35. DL - R - 10 4

. This is the worst possible competitive result. On the other hand, if Delta’s proposal is granted in full, American would still be the dominant carrier, but with a much more competitive distribution of unrestricted frequencies among the U.S. flag carriers : 61 f or American, 37 for Delta, and 35 for United. DL - R - 105. US Airways figure 1 chart and purported justification are also revealing as to the extraordinary lengths US Airways has gone to advocate for American’s application in addition to its own. If US Ai rways and American are “sep a rate competitors” they are certainly not acting like it in this case. Now with 148 pages of briefs and exhibits filed in the docket between them , still not one word of criticism has been leveled by either US Airways or American against the other. All of the critic ism has been directed against Delta

– because Delta is a competitor and US Airway and American do not view each other as such

. Finally, the suggestion by US Airways and America n that Delta should be prejudiced in this proceeding because of the LGA/DCA slot swap transaction is without merit

. Delta worked closely with the Department and US Airways to achieve a transaction that would generate the enormous consumer benefits of a new Delta hub at LaGuardia, and the benefit of providing US Airways (then a new entrant) access to the U.S. - Sao Paulo market. Delta has delivered on the public benefits of its new hub, increasing DL/US LGA capacity 8 perce nt , and driving 13 percent more traffic on these flights. DL - R - 215

. Delta was an active participant in the U.S. - Brazil talks that producedReply of Delta Page 8 the current agreement, and, as the Department knows, securing replacement frequencies for Detroit was among Delta’s highest priorities . The historic open skies agreement achieved by the Department provides ample frequencies to achieve the important public benefits of maintain ing service at Detroit, and add ing competitive service at Atlanta and J F K as Delta has propose d. The public interest equities of the frequency transfer to US Airways are vastly different now in the context of the American/US Airways merger. Favorable action by the Department on Delta’s application is necessary to prevent the new American from attaining unacceptable market power on U.S. - Sao Paulo routes.

I I I. Rebuttal of Other Carrier/Gateway Proposals A. US Airways – Charlotte Between them, US Airways and American are assured of receiving 14 incremental frequencies over the next two years even after full satisfaction of Delta’s request. DL - R - 10 3 , 10 4

. In these circumstances, there does not appear to be a material threat to US Airways ability to continue Charlotte service. As noted, US Airways has already extended its lease with United though Octo ber 2014 (but does not indicate if it sought to extend the lease until the summer 2015 season when it will rec eive seven unrestricted frequencies from Delta). The combined American/US Airways entity will have a minimum of 61 unrestricted Brazil frequencies and it would seem likely that the new American would use at least 7 of those frequencies to maintain service at Charlotte. A second daily Atlanta - Sao Paulo flight will compete with Charlotte and help to offset the loss of eastern U.S. network competition as the result of the consolidation ofReply of Delta Page 9 US Airways and American. 11 DL - R - 202. With just a single daily Sao Paul o flight, the potential of the Atlanta hub is underutilized. The Department can create substantial service and competitive benefits for the traveling public by authorizing an additional Atlanta - Sao Paulo frequency. Delta’s U.S. - Sao Paulo network is at a disadvantage to the four daily Miami - Sao Paulo flights operated by American, which will soon be combined with a fifth daily Charlotte - Sao Paulo flight operated by US Airways. DL - R 201

. New service at Atlanta will help close this competitive gap. Importa ntly, additional frequencies at Atlanta will help to improve competition in the 48 one - stop overlap markets served by both American and US Airways that will lose a competitor as a result of the merger. DL - R - 202

. In terms of comparative metrics, Atlanta is superior to Charlotte both in terms of local market size, and as a connecting hub. Delta provides nonstop service from Atlanta to 150 U.S. cities

– nearly 50 percent more cities than served by US Airways from Ch arlotte. DL - R - 203 . And, the Atlanta flight serves a metropolitan area with a population mor e than double Charlotte ’ s. DL - R - 204

. Atlanta’s location in the Southeastern United States provides convenient, competitive, and non - circuitous Sao Paulo connecti ons. Delta and its regional affiliates provide nonstop service from Atlanta to more than 150 U.S. points, and operate more than 1,000 peak day departures at the hub. DL - R - 206 . The availability of new time of day coverage and increased capacity on this r oute will allow more passengers to take advantage of the Atlanta hub gateway.

11 Contrary to US Airways argument, Delta’s case does not rest on the proposition that its proposal simply increases the flights Delta can operate from its existing Brazil gateways. Permitting Delta to double its service at Atlanta (although still far from gaining parity with American’s Miami service levels) satisfies the DOT policy favoring enhancement inter - gateway compet ition among carriers. American and its code share partner TAM dominate the Miami gateway. Delta’s request for additional frequencies at Atlanta will be a strong competitive spur to the services of American and will be supported by the 150 online communit ies with nonstop Delta service. No other gateway city has a much network feed as Atlanta where Delta conducts the world’s largest hub operation

.Reply of Delta Page 10 DL - R - 208

. Atlanta offers unsurpassed facilities and convenience for U.S. - Brazil passengers. In May, 2012, Delta and Atlanta celebrated the opening of Atlanta's new, state - of - the - art $1.4 billion international terminal. DL - R - 209

. The new Maynard H. Jackson Terminal interfaces with Atlanta’s multi - concourse terminal layout that is designed to facilitate seamless connections to onward flights. DL - R - 210. Detroit is also superior to Charlotte because it provides the only competitive nonstop flight to Sao Paulo for t he entire Midwest region. DL - R - 211. Detroit - Sao Paulo is a successful ly established service linking Detroit and the Midwest industrial base to the business and manufacturing center of Brazil. Delta’s flight benefits U.S. companies doing business abroad and extends the global reach of the U.S. auto industry. From Detroit, Delta and the Delta Connection carriers offer nonstop service to 114 U.S. points. DL - R - 214

. C o ntinuation of Detroit - Sao Paulo service is very important to Delta, Detroit, and the State of Michigan. Unlike American/US Airways which are as sured of receiving 14 frequencies, Delta would be forced to suspend Detroit service if the Department does not grant priority to its request over the competing applications of American and US Airways, which collectively seek all 28 frequencies in this case. As previously discussed, Delta is contractually obligated to transfer seven weekly unrestricted frequencies to US Airways as part of the DOT - approved DCA/LaGuardia slot swap transaction , which would leave Delta with insufficient frequencies to mai ntain service at Detroit. DL - R - 104

. It is very important that Delta receive an allocation of frequencies to offset the required t ransfer to US Airways, which is now American’s merger partner, not a stand - alone new entrant to Brazil as it was at the time of the slot swap. While Delta would obviously have preferred not to transfer any of its unrestricted Brazil frequencies to US Airways, this was a necessary part of the consideration neededReply of Delta Page 11 to close the LGA/DCA transaction and to achieve the enormous benefits of establishing a new Delta hub at LaGuardia. American’s attack on the slot swap transaction is specious. AA Supp at 5. The Department recognized the enormous consumer benefits that would be created by the establishment of a new Delta hub at LaGuardia, and the benefit of granting US Airways access to an important international market. Delta has delivered on the public benefits of its new hub, increasing DL/US LGA capacity 8 percent , and driving 13 percent more traffic on these flights

. DL - R - 215

. The fact is that circumstance s have now change d dramatically by virtue of the American/US Airways merger. Favorable action by the Department on Delta’s application is necessary to prevent the new American from attaining unacceptable market power on U.S. - Sao Paulo routes. B. US Airways – Philadelphia US Airways requests 14 frequencies from the Department : 7 to fund Charlotte Sao Paulo and 7 to fund Philadelphia - Sao Paulo. Yet, US Airways inexplicably ignores the seven frequencies it will receive from Delta

– which can be used to fund its Philadelphia proposal. DL - R - 103 , 10 4

. US Airways should not receive two sets of frequencies in this case, and be allowed to warehouse the 7 frequencies it will receive from Delta for some unspecified future use. At most US Airways requires an award of seven frequencies, which will enable it to continue service at Charlotte and launch new service at Philadelphia following the transfer of the Delta freque ncies. US Airways’ Philadelphia gateway is immediately adjacent to Delta’s proposed New York gateway. But, New York - Sao Paulo is the largest U.S. - Brazil market with nearly 340,000 annual O& D passengers

– far larger than any competing gateway at issue in this proceeding. DL - R - 301 . New York is nearly 50 times larger than Philadelphia or Charlotte, 3.5 times larger than Los Angeles, and 6.5 times larger thanReply of Delta Page 12 Chicago . Id. Given the importanc e of the New York market, a second daily flight at Delta’s large and well established New York hub is likely to produce greater benefits than speculative proposals for smaller O&D gateways than have never been able to sustain U.S. flag scheduled service to Sao Paulo. Delta’s second daily New York (JFK) - Sao Paulo flight will compete with the merged US Airways/American entity, and the fact that US Airways will likely have the resources to fund Philad elphia service in the region makes an additional Delta f light all the more important. American already operates two daily New York - Sao Paulo flights, and an additional flight is offered by its partner, TAM, giving oneworld a 3:1 schedule advantage over Delta. DL - R - 302 . An award of seven additional frequenc ies to Delta will open a new time channel and help close the competitive gap with American and the oneworld alliance at JFK. DL - R - 303

. In addition to serving the largest local market in this case, Delta’s JFK hub will provide significant connecting benefits with online service to 48 U.S. points. DL - R - 304. Whether passengers are originating in New York or connecting from other cities, their experience will be enhanced by Delta’s new Terminal 4 facility opening in May 2013. DL - R - 306, 307 . This $1.4 billion i nvestment features the largest SkyClub in Delta’s system, and will allow international arrivals to be concentrated in the new facility. C. American – Los Angeles With 47 unrestricted Brazil frequencies at its disposal , American should not receive any additional frequencies in this proceeding and the expense of new competitive service by Delta. L ess than a year ago the Department granted a large frequency request by American for 17 Brazil frequencies, which allowed Ame rican to “backfill” frequencies on the Miami - Rio de Janeiro route and move those sevenReply of Delta Page 13 unrestricted frequencies to establish a second daily Sao Paulo flight at JFK. 12 DL - R 109 , 1 1 0. E ven without an award in this case, the Department has been very generous to American with regard to Brazil authority. The Department has provided American with unlimited “ flexibility to use [its] allocated frequencies in markets where [American] hold[s] requisite underlying authority.” (Order 2004 - 6 - 25 ). Thus, while American has the flexibility to serve the Los Angeles - Sao Paulo market today, it prefers to operate quadruple daily Sao Paulo flights at Miami, and double daily service at New York

. DL - R 401. By granting Delta’s proposals in this case and establishing more effective intergateway competition versus American at Miami, and intragateway competition at New York, American will have added incentive to explore new gateway alternatives, such as Los Angeles and Chicago. The fact that American does not chose to operate nonstop service at Sao Paulo is not surprising given that Los Ang e les has not been able to sustain U.S. flag scheduled service to Sao Paulo. Two prior attempts to serve the market failed afte r less than eight months. DL - R - 402. While Los Angeles does have nonstop service by Korean Air, this is due in large part to the fact that Seoul - Sao Pau lo is too far to fly nonstop, and Korean’s load factors on the LAX - GRU segment average less than 70 percent. Id. It is unlikely that Americ an’s flight would be viable, and that American would seek to pocket the frequencies and move them to new gateway using the unrestricted flexibility that is standard for Brazil awards. American has excellent schedule coverage in the LAX - GRU market with at least six different service options via its D FW and Miami gateways. DL - R - 403

. Because of its west coast location, Los Angeles provides little in the way of connecting benefits because all points east of Phoenix require unacceptable backhaul. DL - R - 404. In

12 See Notice of Action Taken, Docket OST - 2012 - 0079 (May 24, 2012).Reply of Delta Page 14 addition, American provides nonstop - to - nonstop connections via DFW to 37 of 43 western U.S. cities it serves from Los Angeles. DL - R - 405

. American’s suggestion that Delta is “underutilizing” its Brazil frequencies is without merit. Delta operates a full pattern of three daily services

– the maximum number daily services that can be operated with its existing allocation of 23 frequencies

. If American thinks that an irregular service pattern of just two weekly flights is useful in a m ajor business market such as Sao Paulo, it is free to move one or two Miami frequencies and see how it fares at Los Angeles. American also criticizes Delta for operating B767 aircraft. However, as the Department knows , Delta previously sought approval fr om the Brazilian authorities to operate larger aircraft and was denied. The frequencies available here provide Delta the important opportunity to grow its footprint at the restricted Sao Paulo airport, and Delta will continue to evaluate upgauge opportuni ties as market conditions and infrastructure allow. American’s dominance in the U.S. - Brazil marketplace is formidable in its own right, and is even more concerning when the effect s of the US Airways merger and oneworld alliance are considered. Together, these carriers will control 64 percent of U.S. - Sao Paulo capacity. DL - R - 1 11

. American holds antitrust immunity with LAN, 13 and LAN has now completed its take - over of TAM, the largest airline in Brazil. 14 TAM has announ ced that it will be part of oneworld, and given American’s immunized relationship with LAN, those ties are likely to be especially close. The award of 21 frequencies to Delta in this case will help to offset the growing dominance of oneworld in Brazil and Latin America.

13 Order 2005 - 10 - 8. 14 http://www.economist.com/blogs/gulliver/2012/06/south - american - airlinesReply of Delta Page 15 D. American – Chicago As with Los Angeles, American has sufficient frequencies and the flexibility to serve Chicago - Sao Paulo today if it was in American’s commercial interest to do so. DL R - 401. American should not receive a further award for Chicago service at Delta’s expense. American proposes to add a second nonstop Sao Paulo flight at Chicago (a route already served by United) whereas Delta seeks frequencies to maintain Detroit’s only nonstop flight

– which is also the only competing gateway in t he entire Midwest region. DL - R - 501

. As noted above, Delta’s Detroit - Sao Paulo flight is an important service linking Detroit and the Midwest industrial base to the business and manufacturing center of Brazil. Detroit is a superior connecting hub. From Detroit, Delta and the Delta Connection carriers offer nonstop service to 114 U.S. points. DL - R - 502 . By contrast, American serves 101 points from Chicago. DL - R - 504. And, Delta’s state - of - the - art McNamara terminal was designed with simplicity and ease of passenger transfers in mind, featuring an elevated monorail, moving sidewalks and integrated customs facility

– a welcome relief to American’s dated facilities at Chicago. DL - R - 505, 506.Reply of Delta Page 16 V . Conclusion Delta’s request for frequencies to increase and maintain Sao Paulo service at Atlanta, New York, and Detroit will create important benefits for the traveling public and enhance competition on U.S. - Brazil routes. Delta respectfully submits that the Department’s objective to maximize public benefits would be best served by the grant of 21 frequencies to Delta necessary to implement its full service proposal. Respectfully submitted,

_________________________________ Alexander Van der B ellen Managing Director, Government Affairs

& Associate General Counsel DELTA AIR LINES, INC.CERTIFICATE OF SERVICE A copy of the foregoing Appli cation has been served this 14th day of May , 201 3 , upon the following persons via email: Francis.Heil@aa.com Robert.Wirick@aa.com howard.kass@usairways.com benjamin.slocum@usairways.com dan.weiss@united.com thomas.bolling@united.com paul.gretch@dot.gov esta.rosenberg@dot.gov brian.hedberg@dot.gov brett.kruger@dot.gov urskr@state.gov joe.cambron@wcaa.us brubinst@panynj.gov louis.miller@atlanta - airport.com info@airlineinfo.com

# Delta Reply Exhibits

Section I: Competitive Overview the of U.S. - Brazil Marketplace Section II: US Airways – Charlotte Section III: US Airways – Philadelphia Section IV: American – Los Angeles Section V: American – Chicago

# Section I: Competitive Overview the of U.S. - Brazil Marketplace

# The “New American” Will Dominate U.S. - Sao Paulo Service with a Minimum of 61 Frequencies from 5 Gateways

• Distribution of frequencies assuming 7 awarded to U.S. Airways together with 7 transferred from Delta Docket DOT - OST - 2013 - 0072 Exhibit DL - R - 101



## DFW (7) MIA (26) CLT (7) PHL (7) JFK (14)

# An Award of 21 Frequencies to Delta is Required to Improve the Competitive Market Structure

• American currently dominates Brazil, with nearly half of the U.S. total of unrestricted Sao Paulo frequencies.



## 47

7 23 35



# AA US DL UA US - Brazil Unrestricted Weekly Frequencies by Airline

*

MIA 26x JFK 14x DFW 7x EWR 7x IAD 7x IAH 7x ORD 7x *7x leased to US ATL 7x JFK 7x DTW 7x Docket DOT - OST - 2013 - 0072 Exhibit DL - R - 102



## CLT 7x* leased from UA

Note: 2 DL Unrestricted Frequencies Support Atlanta - Rio de Janeiro

# Delta’s Proposal Improves the Competitive Market Structure Docket DOT - OST - 2013 - 0072 Exhibit DL - R - 103



### 23 7 47

DL US AA

16 7 47

DL US AA

37 14 47

DL US AA 37 7 54

DL US AA 

## DL frequencies to US to backfill leased UA

DL awarded 21 frequencies, US or AA receive 7

37 61

DL AA/US 

## AA/US merge, increase frequency advantage 37 61

DL AA/US 

## Current allocation of unrestricted frequencies

DOT DOT

# American and US Airways Proposals Exacerbate Competitive Imbalance Docket DOT - OST - 2013 - 0072 Exhibit DL - R - 104



### 23 7 47

DL US AA

16 7 47

DL US AA

16 21 61

DL US AA 

## DL frequencies to US to backfill leased UA

DL awarded no frequencies, US and AA receive 14 each AA/US merge, increase frequency advantage 16 82

DL AA/US 

## Current allocation of unrestricted frequencies

DOT

# An Award of 21 Frequencies to Delta Will Create the Optimal Competitive Distribution of Frequencies

• AA will remain the largest U.S. carrier to Brazil, but with two credible challengers of equal strength



## 61 37 35



# AA/US DL UA U.S. - Brazil Unrestricted Frequency Distribution if Delta’s Proposal is Granted

MIA 26x JFK 14x CLT 7x DFW 7x LAX/ORD/PHL7x EWR 7x IAD 7x IAH 7x ORD 7x ??? 7x ATL 14x JFK 14x DTW 7x Docket DOT - OST - 2013 - 0072 Exhibit DL - R - 105

Note: 2 DL Unrestricted Frequencies Support Atlanta - Rio de Janeiro

# American Airlines and US Airways are Merging Docket DOT - OST - 2013 - 0072 Exhibit DL - R - 106



# “The combination is expected to be completed in the third quarter of 2013”

- newamericanarriving.com/ faq



# American and US Airways expect to merge before any of the U.S. - Brazil frequencies at issue become effective.

# Brazil Frequencies at Issue Are Not Covered by American Airlines/US Airways Route Transfer Application Docket DOT - OST - 2013 - 0072 Exhibit DL - R - 107



## • Would require a de novo carrier selection case 

## American/US Airways Route Transfer Application Exhibit A, p 4 American/US Airways Route Transfer Application Exhibit B, pp 2 - 3

# American Airlines and US Airways are Merging

• American and US Airways tout the strength of their combined Latin American network Docket DOT - OST - 2013 - 0072 Exhibit DL - R - 108

Source: American/US Airways Route Transfer Application at 17.

# American was Awarded 17 Brazil Frequencies Just Last Year – 7 of Which It Used to Fund New Service on the Restricted JFK - Sao Paulo Route Docket DOT - OST - 2013 - 0072 Exhibit DL -R- 109

App l i ca t i on of BEFORE THE DEPARTMENT OF TRANSPORTATION WASHINGTON , D . C .

AMERICAN AIRL I NES , I NC . for allocation of 17 weekly combination f r eq u en c ie s f o r add i t i onal U . S .- B r azil service i n 2012 DOT

- OST

- 2012

-

APPLICATION OF AMERICAN AIRLINES , INC. FOR ALLOCATION OF 17 WEEKLY COMBINATION FREQUENCIES FOR ADDITIONAL U . S . - BRAZIL SERVICE IN 2012 Americ a n A i r l i nes , I n c . he r eby a pp l ies f o r a l l o ca t i o n o f 17 U . S . - Brazil week l y combinati o n frequencies in order t o operate t h e following additional U . S.

- Brazil service on a year round ba s is . MIAMI-RIO DE JANEIRO {GIG ) "BACKFILL" (7) We present l y ope r a t e daily n o n s top serv i ce be t ween Miami and Ri o de J aneiro {AA 905/904) . T h e frequencies now assig n ed to these GIG flights are useable to serve any point in Brazil , includi n g Sao Paulo (GRU) . Effective October 1 , 2012 , America n w i l l be g i n a second da i l y n o ns t op fli g ht from New Y o r k (JFK) t o Sao P aul o by transfer r i ng t h e GRU

- eligible f requenc i es f ro m the MIA

- GIG ro u te to the JFK

- GRU route .

# DELTA

# American was Able to Increase New York - Sao Paulo Service by Using DOT’s Award of New Frequencies to “Backfill” Miami - Rio de Janeiro Docket DOT - OST - 2013 - 0072 Exhibit DL - R - 110



### 26

7 7 7

MIA - GRU MIA - GIG JFK - GRU DFW - GRU 

## AA Unrestricted Frequencies May 2012

DOT 26 14 14 7

MIA - GRU MIA - GIG JFK - GRU DFW - GRU 

## Select AA Frequencies Following “Backfill” • American was allowed to move frequencies that became eligible for Sao Paulo flying from their Miami - Rio de Janeiro flight to New York (JFK) - Sao Paulo

– DOT then immediately granted American new Rio de Janeiro frequencies to backfill those transferred to JFK - GRU, and additional MIA - Brazil frequencies as well

New Restricted Frequencies



## Note: 11 Frequencies currently used for non - Sao Paulo service are eligible for future use at Sao Paulo once infrastructure constraints are addressed.

# An Award of 21 Frequencies to Delta is Required to Improve Competitive Balance

American 34%

US Airways 4% Tam, future

oneworld 26% Delta 14% United

19% Other 3% U.S. - Sao Paulo Capacity Share by Airline Docket DOT - OST - 2013 - 0072 Exhibit DL - R - 111

Source : August 2013 OAG 

### oneworld 64% Star 19% Skyteam 17% U.S. - Sao Paulo Capacity Share by Alliance 

## American and US Airways offer 277%

more Sao Paulo capacity than Delta oneworld will control 64% of U.S. - Sao Paulo capacity

# Gol Enhances Delta’s Brazil Network

• Delta codeshares on Gol to 19 Points beyond Sao Paulo Docket DOT - OST - 2013 - 0072 Exhibit DL - R - 112

Source : August 2013 OAG

# Section II: US Airways – Charlotte

# Delta Needs Additional Frequencies at Atlanta to Better Compete with the 5 Daily Flights of AA/US from Their Eastern Network Hubs

• A single daily Atlanta flight puts Delta’s network at a competitive disadvantage to the five daily flights offered by AA/US from Miami and Charlotte.

Source : August 2013 OAG Docket DOT - OST - 2013 - 0072 Exhibit DL - R - 201

5

1

AA/US DL 

## Daily Flights to GRU from Southeastern U.S. Gateways

US Hub DL Hub AA Hub



### 500%

# Additional Atlanta Frequencies Will Help to Alleviate the Loss of One - Stop Connecting Competition from AA/US Merger 48 Cities Will Lose A Competitive Alternative

Source : August 2013 schedules, Diio Mi Docket DOT - OST - 2013 - 0072 Exhibit DL -R- 202

Note: Cities served from ATL by DL, and US/AA from MIA and CLT

# DELTA

Air po rt AA / US O ne- S top Ov erlap A i r po rt AA / US One- S t o p O v erlap Air po rt AAIU S O n e - S t op Ov erlap A i rp o rt AAI U S O ne-St op O verla p Air p ort AA / US O ne- S top O v er l a p 

### AB E DAY JAX X PB I SRQ AGS DCA X JFK X P O X STL X A

L

B DEN X LAS X PGV STT X ATL X DF W X LA X X PHF S T X A

U

S DS M L EX PHL X SYR AV L DTW X LGA X PH X X TLH X AVP E W

N LI T P I T X TPA X BDL X EWR X L Y

H PNS X T R

I BHM X EY W M C

I PV D T UL BNA X FA Y MCO X P W

M TY S BOS X F LL M D

T RDU X VPS B

T

R F L

O MEM X RIC X X N

A B

U

F GNV X M G

M ROA B

W

I X GP T MH T ROC CA E GSO X M I A X RS W CA K GSP M K

E SAN X C

H

A HHH M L

B SA T C H O H P N M OB SAV CHS X H SV MS P X SBY C

LE X H T

S MSY X SDF X CLT X l AD X M YR SEA X CMH X I A

H X OA J SFO X CR W I LM O M

A SJU X CVG X I ND X ORO X S L C D

AB J A

N ORF X S M F

# Delta’s Proposed Atlanta Gateway Offers Broadest Access for U.S. Cities Docket DOT - OST - 2013 - 0072 Exhibit DL - R - 203



## 150 108 85

ATL CLT PHL 

## Non - stop Destinations from Proposed Hubs

Source : August 2013 OAG US Proposal DL Proposal

# Delta’s Proposed Sao Paulo Gateways Offer Greater Access for More U.S. Customers Docket DOT - OST - 2013 - 0072 Exhibit DL - R - 204



## 5,457

2,296



# 0 2,000 4,000 6,000

ATL CLT 

## Population from Proposed Hub’s Metropolitan Areas (Thousands)

Source : 2012 Census Estimate 

## 18,897

5,965 

# 0 5,000 10,000 15,000 20,000

JFK PHL 

## Population from Proposed Hub’s Metropolitan Areas (Thousands)

US Proposal DL Proposal

# Atlanta Offers More Potential U.S. City Connections Than Charlotte and Miami Combined

• Atlanta offers 38 more unique U.S. destinations than Charlotte and Miami Combined

150 112 108

50

ATL Combined CLT & MIA CLT MIA 

## U.S. City Connections from Southeastern Hubs

AA/US Hub DL Hub

Source : August 2013 OAG Docket DOT - OST - 2013 - 0072 Exhibit DL - R - 205

# Atlanta is an Ideal East Coast Gateway to Sao Paulo Delta Provides Nonstop Service to 150 U.S. Points

Source : August 2013 schedules, Diio Mi 

# To GRU To HNL Docket DOT - OST - 2013 - 0072 Exhibit DL - R - 206

To ANC

# Atlanta is Delta’s Largest Hub and a Major Long - Haul International Gateway

• Atlanta is a major South American gateway

• Delta has a leading international presence in Atlanta and currently serves nine non - stop destinations in South America, two in Africa, one in Asia, and sixteen in Europe Docket DOT - OST - 2013 - 0072 Exhibit DL - R - 207

# Atlanta Needs a Second Frequency to Offer Competitive Time Channel Coverage to Miami

Source : August 2013 OAG Docket DOT - OST - 2013 - 0072 Exhibit DL -R- 208

ATL 1030 1100 1130 1 200 1830 1 900 1 930 2000 2030 2100 2130 2200 2230 2300 2330 2

4 00 Southbo und Departures Summer 2013

Proposed DL - 767

DL

- 767 CLT/M I A 1030 1100 1130 1 200 1830 1 900 1 930 2000 2030 2 1 00 2 1 30 Southboun d De p artu r es Summer 2013

AA

- 777

AA -777

2200 AA

- 777 & U S

- 767 2230 2300 2330 2400 AA -777 ATL 0800 0830 0900 1030 1100 1130 1200 2100 2130 2200 2230 2300 2330 2

4 00 Northbound Departures Summer 2013

DL

- 767

Proposed DL - 767

# DELTA

CLT/M I A 0800 0830 0900 1 030 11 00 1130 1200 2100 2130 2200 2230 2300 2330 2

4 00 Northbou n d Departures Summer2013 

### u s - 767

AA -777

AA

- 777 AA

- 777 AA- 777

# Atlanta Offers Unsurpassed Convenience for U.S. - Brazil Connection Passengers Docket DOT - OST - 2013 - 0072 Exhibit DL - R - 209



## • In May 2012, Delta and Atlanta opened the state - of - the - art Maynard H. Jackson Jr. International Terminal, a new $1.4 billion terminal project.

# Atlanta Offers Unsurpassed Convenience for U.S. - Brazil Connection Passengers Docket DOT - OST - 2013 - 0072 Exhibit DL - R - 210



## • DL offers exceptional convenience for connecting passengers at Hartsfield Jackson Atlanta International Airport. International arrivals and departures are gated in Concourses E and F and are easily accessed via airport tram.

### EWR EWR

LAX LAX ORD ORD

MIA MIA MCO MCO ATL ATL CLT CLT

IAH IAH DFW JFK JFK IAD IAD 

# Delta’s Detroit - Sao Paulo Service Gives the Underserved Midwest Region A Second U.S. Gateway to Brazil

DTW

Existing Brazil Gateway Docket DOT - OST - 2013 - 0072 Exhibit DL - R - 211Docket DOT - OST - 2013 - 0072 Exhibit DL - R - 212



### 20,347

6,271



# DTW CLT Local GRU Bookings

DL Proposal 

# Detroit is a Important Gateway At Risk of Losing Service

Source : MIDT YE Mar 2013 US Proposal 

## • Detroit is more than three times larger than Charlotte, which US Airways claims is at risk of loss of service as a result of the merger.Docket DOT - OST - 2013 - 0072 Exhibit DL - R - 213 

# Michigan Industry Relies on DTW International Service Major Michigan Companies: General Motors Stryker Ford Motor Autoliv Chrysler Group Visteon Dow Chemical Masco Whirlpool Borg Warner TRW Automotive Holdings CMS Energy Lear Auto - Owners Insurance Ally Financial Kelly Services Kellogg Con - way Penske Automotive Group Meritor DTE Energy

# DTW is Delta’s Primary Midwestern Hub Delta Provides Nonstop Service to 114 U.S. Points

Source : August 2013 schedules, Diio Mi Docket DOT - OST - 2013 - 0072 Exhibit DL -R- 214



# To GRU

# DELTA

# The DOT - Approved DCA/LGA Slot Swap Produced Enormous Consumer Benefits Docket DOT - OST - 2013 - 0072 Exhibit DL - R - 215

8% 13%

Seat Chg Pax Chg 

## LGA Capacity vs. Demand Slot transaction created immediate value to traveling public

• DL/US seats in LGA increased 8% and passenger demand increased almost twice that amount at 13%

• LGA industry traffic increased by more than 2,000 daily passengers YoY which is over 750,000 annually

Source: Seat Change

– OAG guide for peak week August 2012 v August 2011 to USA DOT 3Q 2012 v. 3Q 2011 for passenger change (U.S. only)

# Section III: US Airways – Philadelphia

# New York is the Largest and Most Important U.S. Market to Sao Paulo Docket DOT - OST - 2013 - 0072 Exhibit DL - R - 301



### 338,196

97,309 51,281 7,288 6,271 

# NYC LAX ORD PHL CLT 0 100000 200000 300000 400000 U.S. - GRU Local Bookings

DL Proposal

Source : MIDT YE Mar 2013 

## • New York dwarfs the competing gateway proposals in terms of local market size

AA Proposal US Proposal

# American and Its oneworld Partner, TAM, Out - schedule Delta 3 Flight to 1 in the Critical New York - Sao Paulo Market

• An additional JFK frequency will help to achieve parity with American, but Delta will still trail the combined American/TAM (JJ) oneworld offering.

Source : August 2013 OAG Docket DOT - OST - 2013 - 0072 Exhibit DL - R - 302



## 3

1



# AA & JJ DL Daily JFK - Sao Paulo Flights

AA JJ 

## 1,838

492



# AA & JJ DL Daily JFK - Sao Paulo Seats

AA JJ

# Delta Needs a Second JFK Frequency to Offer Competitive Time Channel Coverage

Source : August 2013 OAG Docket DOT - OST - 2013 - 0072 Exhibit DL -R- 303

DL 1030 1100 1130 2030 2100 2130 2200 2230 2300 Southbound Departures Summer 2013

P

r opos e d DL - 767

DL - 764 AA &JJ 1030 1100 1130 2030 2100 2130 2200 2230 2300 Southbound Departu r es Summer 2013 AA

- 777

JJ - 773 AA

- 77W DL 0700 0730 0800 2030 2100 2130 2200 2230 2300 2330 Northbound Departures Summer 2013

DL - 767

Proposed DL - 767

# DELTA

AA&JJ 0700 0730 0800 2030 2100 2130 2200 2230 2300 2330 Northbound Departures Summer2013

AA

- 77W

AA -777

J J

- 773

# Delta’s Domestic JFK Routes Provide Key Access to International Destinations Delta Provides Nonstop Service to 48 U.S. Points

Source : August 2013 schedules, Diio Mi Docket DOT - OST - 2013 - 0072 Exhibit DL -R- 304



# To GRU

# DELTA 

# •**SEA ----------** **---- --** **------------------** P DX

S F O

S J U

# JFK is Delta’s Premier International Gateway Delta Provides Nonstop Service to 44 International Points

Source : August 2013 schedules, Diio Mi Docket DOT - OST - 2013 - 0072 Exhibit DL -R- 305

# DELTA

# JFK’s New Terminal 4 Will Offer NYC - Brazil Passengers A Premier Airport Experience Docket DOT - OST - 2013 - 0072 Exhibit DL - R - 306



## • In May 2013, Delta and New York will open the new Terminal 4, a $1.4 billion terminal project that will allow for easier transit with additional baggage claims, as well as customs and border - security facilities.

# JFK’s New Terminal 4 Will Offer NYC - Brazil Passengers A Premier Airport Experience Docket DOT - OST - 2013 - 0072 Exhibit DL - R - 307



## • International arrivals will be concentrated in the new Terminal 4.

# Section IV: American – Los Angeles

# American is Able to Fly LAX - GRU Today Docket DOT - OST - 2013 - 0072 Exhibit DL - R - 401



### 26

14

7

0 

# MIA JFK DFW LAX AA Frequencies by Gateway • Despite holding 47 unrestricted frequencies, with no U.S. gateway limitations, AA spurns LAX - GRU in favor of quadruple daily service at MIA and double daily service at JFK



# ?

# Los Angeles Has Not Sustained Direct Daily Sao Paulo Service

• Only Korean Air Lines operates this route currently

– 3x weekly

– Historical Load Factor < 70% • Delta and United have both operated the route before, each attempt lasted less than 8 months

– DL August 2009 - February 2010

– UA October 1992 - April 1993 Docket DOT - OST - 2013 - 0072 Exhibit DL - R - 402



# 1990 2000 2010 DL UA AA LAX - GRU Scheduled Service History by U.S. Flag Carriers

# American’s Los Angeles Customers Can Conveniently Connect Via DFW & MIA Docket DOT - OST - 2013 - 0072 Exhibit DL - R - 403



## LAX - GRU via DFW via MIA 

# Distance 6,346 6,414

Circuity 3.1% 4.2%

# LAX - GRU Would Only Benefit a few West Coast Connections Docket DOT - OST - 2013 - 0072 Exhibit DL - R - 404



## More convenient via LAX

More convenient via DFW or MIA

# American’s Los Angeles Customers Can Conveniently Connect Via DFW & MIA Docket DOT - OST - 2013 - 0072 Exhibit DL - R - 405



## • Of the 43 cities AA serves from LAX, only 6 are not already connected to DFW

Source : August 2013 OAG

# American’s Los Angeles Customers Can Conveniently Connect Via DFW & MIA Docket DOT - OST - 2013 - 0072 Exhibit DL - R - 406



## • Of the 43 cities AA serves from LAX, only 6 are not already connected to DFW

Source : August 2013 OAG 

### 37

6 

# Already Connected New Conneciton via LAX AA LAX Cities Already Connected to GRU via DFW

# Section V: American – Chicago

### EWR EWR

LAX LAX ORD ORD

MIA MIA MCO MCO ATL ATL CLT CLT

IAH IAH DFW JFK JFK IAD IAD 

# Delta’s Detroit - Sao Paulo Service Gives the Underserved Midwest Region A Second U.S. Gateway to Brazil

DTW

Existing Brazil Gateway Docket DOT - OST - 2013 - 0072 Exhibit DL - R - 501

# DTW is Delta’s Primary Midwestern Hub Delta Provides Nonstop Service to 114 U.S. Points

Source : August 2013 schedules, Diio Mi Docket DOT - OST - 2013 - 0072 Exhibit DL -R- 502



# To GRU

# DELTA

# DTW is Delta’s Midwest International Gateway Delta Provides Nonstop Service to 16 International Points

Source : August 2013 schedules, Diio Mi Docket DOT - OST - 2013 - 0072 Exhibit DL -R- 503

# DELTA

G R U

# Detroit Offers More Potential U.S. City Connections Than AA at O’Hare

• Detroit offers 13 more unique U.S. destinations than O’Hare

114 101

DTW ORD 

## U.S. City Connections from Midwestern Hubs

AA Hub DL Hub

Source : August 2013 OAG Docket DOT - OST - 2013 - 0072 Exhibit DL - R - 504

# Passengers Throughout the U.S. Can Conveniently Travel via Detroit Docket DOT - OST - 2013 - 0072 Exhibit DL - R - 505



## • The McNamara Terminal was designed with simplicity and ease of passenger transfer in mind.

# Passengers Throughout the U.S. Can Conveniently Travel via Detroit Docket DOT - OST - 2013 - 0072 Exhibit DL - R - 506



## • DL offers exceptional convenience for connecting passengers with the McNamara Terminal at Detroit Metropolitan Wayne County Airport.