BEFORE THE

DEPARTMENT OF TRANSPORTATION

OFFICE OF THE SECRETARY

WASHINGTON, D.C.

____________________________________ ______ _ )

Application of )

)

S OUTHWEST A IRLINES C O

. )

)

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

- OST

- 20 12

- 0029

K and S, pursuant to 49 U.S.C. § 41718(g)(2) )

(BEYOND

- PERIMETER SLOT EXEMPTIONS) )

)

For service between Ronald Reagan )

Washington National Airport (DCA) and )

Austin

- Bergstrom International Airport (AUS ) )

_____________________________________ ______ )

APPLICATION OF

SOUTHWEST AIRLINES CO.

Communication s with respect to this

document should be addressed to:

Ron Ricks Robert W. Kneisley

Executive Vice President

-- Associate General Counsel

C hief Legal and Regulatory Officer Leslie C. Abbott

Madeleine Johnson Senior Attorney

Vice President General Counsel SOUTHWEST AIRLINES CO.

SOUTHWEST AIRLINES CO. 1901 L Street, NW

2702 Love F ield Drive Suite 640

Dallas, TX 75235

- 1611 Washington, DC 20036

bob.kneisley@wnco.com

(202) 263

- 6284

March 12 , 20121 BEFORE THE

DEPARTMENT OF TRANSPORTATION

OFFICE OF THE SECRETARY

WASHINGTON, D.C.

___________________________________________ )

Application of )

)

S OUTHWEST A IRLINES C O

. )

)

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

- OST

- 2012

- 0029

K and S, pursuant to 49 U.S.C. § 41718(g)(2) )

(BEYOND

- PERIMETER SLOT EXEMPTIONS) )

)

For service between Ronald Reagan )

Washington National Airport (DCA) and )

Austin

- Bergstrom International Airport (AUS) )

___________________________________________ )

APPLICATION OF

SOUTHWEST AIRLINES CO.

On February 24 , 2012 , the Department of Transportation issued Order 2012

- 2

- 21

establish ing a beyond

- perimeter slot exemption proceeding pursuant to 49 U.S.C. §

41718(g)(2) in response to the recent passage of the FAA Modernization and Reform Act

of 2012 (“FAA Act”). The Department’s Order invites applications from new entrant and

limited incumbent carriers for eight additional slot exemptions created by the FAA Act

for service between Ronald Reagan Washington National Airport (DCA) and airports

beyond the 1,250 mile DCA perimeter

.

The statutory criteria applicable to these exemptions, as laid out in the FAA Act

and reiterated in the D epartment’s Order , directs the Secretary to distribu te the

additional eight beyond

- perimeter slot exemptions in a manner that will:2

(A) provide air transportation with domestic network benefits beyond the

1,250 mile perimeter;

(B) increase competition in multiple markets;

(C) not reduce travel options for communities served by small hub airports

and medium hub airports within the 1,250 mile perimeter;

(D) not result in meaningfully increased travel delays;

(E) enhance options for nonstop travel to and from the beyond

- perimeter

airports that will be served;

(F) have a positive impact on the overall level of competition in the markets

that will be served; or

(G) produce public benefits, including lower fares, higher capacity, and a

variety of service options.

Consistent with these criteria, Southwest Airlines Co. (“Southwest”) hereby

applies for two of the eight available slot exemptions to initiate first

- time capital

- to

capital nonstop service betwe en DCA and Austin

- Bergstrom International Airport (AUS)

,

with continuing single

- plane service to San Diego (SAN)

. As shown below, Southwest’s

DCA

- AUS

- SAN application meets all of the above decisional criteria and will produce

enormous consumer benefits in the form of fare savings, new service options, and

increased competition in multiple beyond

- perimeter travel markets.3 DETAILS OF SOUTHWEST’S

BEYOND

- PERIMETER SERVICE PROPOSAL

ROUTE: DCA

- AUS

- SAN

SCHEDULE WESTBOUND DCA

- AUS 1740

- 1955

( A ll times local) A US

- SAN 2035

- 2125

SCHEDULE EASTBOUND SAN

- AUS 0720

- 1210

AUS

- DCA 1250

- 1700

START DATE: Within 9 0 days of the Department’s Final Order

AIRCRAFT TYPE: Stage III Boeing 737

- 800 aircraft (1 75 seats) 1

I. Southwest’ s Service Proposal Meets All Statutory Criteria F or

Beyond

- Perimeter Slot Exemptions

Southwest’s DCA

- AUS

- SAN application clearly satisfies all seven decisional

criteria set forth in the FAA Act for the award of beyond

- perimeter slot exemptions. As

specified in the FAA Act as well as Order 2012

- 2

- 12 , the Department must consider the

extent to which the exemptions will :

A. “ P rovide air transportation with domestic network benefits in area s

beyond the perimeter ”

Southwest’s proposed service will link close

- in DCA to numerous beyond

perimeter cities on Southwest’s network. Southwest’s propos al will provide (1) the only

nonstop service to DCA

- AUS travelers, (2) single

- plane service to DCA

- SAN

passengers, and (3) new connecting service options between DCA and markets be yond

AUS

. All of these new services will create significant domestic network benefits in

beyond

- perimeter markets.

1 Southwest may begin DCA

- AUS

- SAN service with B737

- 700 model aircraft having 137 seats, but will convert to

B737

- 800 aircraft with 175 seats by November 2012, in accordance with the delivery schedule for that aircraft.4

B. “ I n crease competition in multiple markets ”

Southwest’s proposal will provide the only DCA nonstop service to Austin, the

capital of Texas, and will compete in multiple markets including United’s service

bet ween AUS and Washington Dulles that produces average fares over 50% higher

than Southwest ’s p rojected average DCA

- AUS fare. Beyond that, Southwest will offer

convenient one

- stop same

- plane service to DCA

- SAN passengers with the shortest

elapsed time among competing one

- stop flights , and at significantly reduced fares

.

Southwest's proposal will also provide immediate connecting service (via AUS) for DCA

D allas Love Field (D AL ) and DCA

- Houston Hobby Airport ( HOU ) passengers, offering

low

- fare competitive alternatives to passengers who prefer the close

- in airports in Dallas

and Houston. In addition

, many other Southwest markets at AUS are likely to gain

convenient connecting service to/from DCA in the future. Southwest’s competition in

these markets will come not only from reduced fares but also by virtue of it s “no

- fees”

policy for checked baggage and r eservations change s , its popular Rapid Rewards

frequent flyer program , and its award

- winning customer service

.

C. “ N ot reduce travel options at small and medium hub airports within the

perimeter ”

Southwest’s service will be additi ve to its system schedule

, i

. e

. , Southwes t will

not reduce service in any of its four current inside

- perimeter markets in order to provide

the DCA

- AUS

- SAN service. Furthermore, as stated above, DCA service to/from

DAL and HOU

– both medium hub airports within the perimeter

– would be significantly

improved under Southwest’s proposal. Neither of these airport s has nonstop service to

DCA today, and both would gain convenient connecting opportunities to DCA via AUS.5

D. “ N ot result in meaningfully increased travel delays ”

Southwest’s proposed on ce daily DCA

- AUS

- SAN round trip will not increase

delay s at any of the airports involved

. DCA, of course, is a slot controlled airport that

will not be affected by Southwest’s pro posed once

- daily flight, and AUS has no major

operational issues that w ould cause this flight to negatively impact the airport’s on

- time

performance. Nor will single

- plane service between DCA and SAN create any new

travel delays, as Southwest already oper ates connecting service between AUS and

SAN today. It is also worth noting that Southwest is the industry leader in on

- time

performance since DOT record keeping began in 1987.

E. “ E nhance options for nonstop travel to and from beyond

- perimeter

airports ”

Southwest will offer the only nonstop service in the DCA

- AUS market. This

significant new option not only will compete with United’s monopoly service at Dulles

,

but will do so at greatly reduce d fares . Current fares between AUS and DCA are 57 %

higher tha n Southwest’ s average fare for the same distance (Exhibit WN

- 121) , enabling

Southwest to offer sharply lower fares on this currently un

- served beyond

- perimeter

nonstop route.

F. “ H ave a positive impact on the overall level of competition in the beyond

perim eter markets that will be served ”

Southwest’s proposal will have a n extremely positive impact on the overall level

of competition in beyond

- perimeter markets

. In fact, Southwest has calculated that it

will generate approximately 92,000 new passengers (traffic stimulation) in the DCA

- AUS

market

, plus an additional 54, 000 passengers in the DCA

- SAN market , assuming

competing carriers match Southwest’s low fares ( see Exhibit WN

- 124 ). As the only

provider of nonstop DCA

- AUS service

, Southwest will signific antly improve beyond

-6

perimeter air service to and from Washington DC, and will do so at sharply reduced

fare s

.

G. “ P roduce public benefits, including the likelihood that the service to

airports located beyond the perimeter...will result in lower fares, higher

capacity, and a variety of service options ”

Southwest’s proposal will provide 175 seats each way per day as the only

nonstop capacity in the DCA

- AUS market. Southwest’s DCA

- AUS fa res will be 36%

lower than the current average DCA

- AUS fare

. In addition, s ignificant fare reductions

will be offered to one

- stop DCA

- SAN passengers and to all Southwest DCA passengers

connecting at AUS. In total, Southwest’s low fares and new services w ill produce more

than $23 million in fare savings to consumers annually (Exhibit WN

- 120). As explained

in the attached exhibits, t his amount is comprised of $12.4 million in annual fare savings

to local DCA

- AUS passengers ; $8.9 million in f are savings for DCA

- SAN travelers ; and

$1.7 million in fare savings for DCA passengers connecting to DAL and HOU at AUS.

D etailed analys e s support ing the above aspects of Southwest’s a pplication are

provided in the attached exhibits, including a full forecast of newly

- generated traffic and

calculation s of expected consumer benefits

.

II. Austin Is An Ideal Market For Selection In This Case

Southwest Airlines has served Austin since 197 7

. Over the many years of

Southwest’s service, Austin has not only been an important air travel market in its own

right but has also served as a significant gateway to Dallas Love Field (DAL) from

markets outside of Texas. In the June, 2012 schedule Southwest will operate 364

weekly departures and 49,829 seat

- departures to/from 20 AUS nonstop cities (Exhibit

WN

- 108). The DCA

- AUS nonstop route w ill integrate well in Southwest’s system,7

providing one

- stop single

- plane service between DCA and SAN, and connecting service

in AUS

- beyond markets, ten of which are less than 30% circuitous for DCA O&D

passenger s and two of which currently connect to the proposed DCA

- AUS flight (Exhibit

WN

- 206)

.

With approximately 77,000 annual O&D passegers to DCA , AUS is the fourth

largest beyond

- perimeter market without nonstop service today (Exhibit WN

- 104).

Significantly for this case, AUS is the most over

- priced of the t op 10 beyond

- perimeter

markets without nonstop service to DCA today (Exhibit WN

- 105 ). Sou thwest’s low fares

in this market will th erefore produce major consumer savings for travel between Austin

and the Nation’s Capital.

N umerous corporations headquartered in the Washington area have offices

and/or plants in Austin (Exhibit WN

- 109). Moreove r, the federal government has

several major offices and facilities in Austin covering a wide variety of agencies (Exhibit

WN

- 110). There are at least 12 national associations headquartered in Austin (Exhibit

WN

- 111). All of these organizations, in addition to the Texas state government

, have

significant community of interest with the federal government, and generate

considerable business travel to/from Washington, D.C.

The campuses of 12 universities and colleges and 410,000 students are located

w ithin 100 miles of Austin (Exhibit WN

- 112). Students and their families represent a

significant component of leisure travel and generate considerable travel to and from the

Washington DC area . Southwest expects that leisure travel will represent more tha n

50% of its forecast traffic on

- board its DCA

- AUS flights.8

Austin is a robust air travel market that will strongly support nonstop service to

DCA. Notwithstanding the current high DCA

- AUS fares referred to above , this market

has grown 13% over the past year (Exhibit WN

- 107 ) . In fact, AUS has experienced 24

consecutive months of air travel growth (Exhibit WN

- 113), and its unemployment rate

has been significantly below the national average for the past five years (Exhibit WN

114). The local Austin econo my is strong in comparison to national averages

.

III. Despite Being the Nation’s Largest Passenger Airline,

Southwest is Severely Under

- Represented at DCA

Southwest Airlines is the nation’s largest domestic airline in terms of passenger

traffic carried . For YE Q3, 2011 Southwest carried 101.4 million domestic O&D

passengers. Delta was second with 78.9 million, and the other limited incumbents

ranged from 20.4 million (JetBlue) to 5.5 million (Spirit)

. See Exhibit WN

- 115

. Using

four common metrics of size, Southwest ranges from 1.6 to 2.0 times the size of all new

entrants and limited incumbents combined (Exhibit WN

- 11 6 ) , yet operates far fewer

slots

.

In fact, Southwest operates only 2.9% of DCA slots today, all through its AirTran

subsidiary (Exhibit WN

- 11 5 )

. D espite carrying over five times more passengers than

the next largest limited incumbent (JetBlue), Southwest has about a third fewer DCA

slots than JetBlue (25 vs. 34 slots respectively) (Exhibit WN

- 117)

. Lookin g at the matter

another way, Southwest holds by far the smallest share of DCA slots and slot

exemptions among limited incumbents relative to the number of passengers each airline

carrie s

. As Exhibit WN

- 11 8 shows, JetBlue and Republic hold more than seven and

eight times more slots respectively than Southwest in relation to the number of

passengers they carry.9

By any reasonable measure it is clear that Southwest is severely under

represent ed at DCA in relation to its size and importance in the U

. S

. airline industry

. An

award to Southwest of additional slot exemptions in this proceeding would not only fully

satisfy the statutory criteria discussed above

, but advance the public interest by

enabling the nation’s largest airline to expand its tiny pres ence at DCA and provide

more effective low

- fare access to travel markets across the country.

IV. Southwest’s Proposal Will Generate Significant Public Benefits

In Numerous Beyond

- Perimeter Markets

Southwest’s proposal will provide a wide range of public benefits in numerous

beyond

- perimeter air travel markets. Austin has no nonstop service to/from DCA today

.

Southwest will provide the only nonstop flights in the DCA

- AUS market, a far superior

service option than United’s service to IAD as a monopoly carrier.

Not only will Southwest’s service enhance the competitive structure in the DCA

AUS local market, it will also provide excellent passenger choice alternatives in the

Washington DC

- San Diego market by providing single

- plane one

- stop service. In fact,

Southwest’s same

- plane SAN

- AUS

- DCA service will be the quickest flight option

available between SAN and DCA (Exhibit WN

- 207 )

. In addition, Southwest’s proposal

will generate immediate on

- line connecting competition in two signif icant markets

beyond AUS

– DAL and HOU

– and offer potential connecting opportunities for other

beyond

- AUS cities in the future . All markets in which Southwest’s service will be a

competitive force will be impacted positively by the injection of Southwest Airlines’ low

fares as well as its “no fees” policy

– virtually unique in the U.S. industry today

–

whereby Southwest does not charge fees for check ing up to two articles of baggage or

for making changes to passenger reservation s

.10

One of the primary carrier selection criteria articulated by the Department is

which carrier proposal s will “ produce public benefits, including lo wer fares, higher

capacity, and a variety of service options.” 2 With respect to this factor , Southwest

projects significant traffic stimulation and consumer fare savings as a direct

consequence of its low fares and significant service improvements in beyond

- perimeter

markets

.

Southwest engaged the Campbell

- Hill Aviation Group to estimate the public

benefits of its proposed DCA

- AUS

- SAN service , including a fully documented forecast

of new traffic and a calculation of expected fare savings to consumers . As detailed in

the attached exhibits, Campbell

- Hill projects that Southwest’s proposed DCA

- AUS

- SAN

service will generate more than $23 million annually in consumer fare savings ( Exhibit

WN

- 120 ). This total amount is comprised of $12.4 million in the local DCA

- AUS market,

$8.9 million in the DCA

- SAN market, and $1

. 7 million in connecting markets between

DCA and points beyond AUS (Exhibit WN

- 120)

. These projected savings stem primarily

from the fact that current DCA fares to AUS and SAN are much higher than Southwest’s

average fares for markets of the same distance

– 57% higher in DCA

- AUS and 32%

higher in DCA

- SAN . See Exhibits WN

- 121 and WN

- 122

. These savings will benefit

both the existing passengers in these markets (by reducing fares below previous levels)

as well as newly

- generated passengers (by creating previously unexpected savings or

“consumer surplus”). See Exhibits WN

- 205 and

- 209

.

As a consequence of Southwest’s low fares and the fact that it will have the only

nonstop in the DCA

- AUS market, a significant amount of new traffic will be generated.

Campbell

- Hill projects that Southwest’s service will stimulate approximately 146,000

2 DOT Order 2012

- 2

- 21 at p. 3.11

new passengers over the entire DCA

- AUS

- SAN route

. See Exhibit s WN

- 124,

- 204 and

- 208

. This large level of stimulation will occur due to both lower fares and new service

improvements in the DCA

- AUS and DCA

- SAN markets. Southwest will carry many of

these new passengers of course, while competing carriers that lower their fares in

response to Southwest will also carry some of these passengers. As a result, the

markets as a whole will grow significantly, and passengers will benefit both directly by

flying on Southwest’s new flights, and i ndirectly by travelling on competing airlines that

are forced to reduce fares in response to Southwest’s competition.

Details of Southwest’s traffic forecast and fare benefits calculations, including a

full explanation of the methodology and economic mode ls used by Campbell

- Hill , are

set forth in the 200 series of exhibits attached to this Application.

C ONCLUSION

For the reasons stated above, Southwest urge s the Department to grant it two

beyond

- perimeter slo t exemptions to enable it to provide the only nonstop capital

- to

capital service between Austin and Washington National Airport , with single plane

service beyond AUS to San Diego

, as specified in th is Application

.

Respectfully submitted

,

__________________________ Robert W. Kneis l e y

March 12 , 2012C ERTIFICATE OF SERVIC E

I hereby certify that on March 12 , 2012 , a copy of the foregoing was served via e

mail on the following persons:

msinick@ssd.com (Alaska Airlines)

carl.nelson@aa.com (American Airlines)

sascha.vanderbellen@delta.com (Delta Air Lines)

jeff.morgan@delta.com (Delta Air Lines)

robert.cohn@hoganlovells.com (Frontier Airlines)

patrick.rizzi@hoganlovells.com (Frontier Airlines

jhill@dowlohnes.com (JetBlue Airways)

perkmann@dowlohnes.com (JetBlue Airways)

dkirstein@yklaw.com (Spirit Airlines)

jyoung@yklaw.com (Spirit Airlines)

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

dan.weiss@united.com (United Air Lines)

howard_kass@usairways. com (US Airways)

benjamin.slocum@usairways.com ( US Airways)

pmurphy@lopmurphy.com (USA3000)

barbara.russell@virginamerica.com (Virgin America)

john.varley@virginamerica.com (Virgin America)

susan.kurland@ dot.gov

todd.homan@dot.gov

brian.ctr.meehan@faa.gov

Jim Smith

Director of Aviation

Austin

- Bergstrom International Airport

jimsmith@ci.austin.tx.us

John E. Potter

President and Chief Executive Officer

Metropolitan Washington Airports Authority

john.potter@mwaa.com

info@airlineinfo.com

__________________________ Leslie C. Abbott

## Southwest’s Proposal Satisfies All

of the Carrier Selection Criteria Docket OST

- 2012

- 0029

Exhibit WN

- 100



### Satisfied by

Carrier Selection Criterion 1 

### Southwest Proposal

A. Provide air transportation with domestic network benefits beyond the 1250

mile perimeter; YES

B. Increase competition in multiple markets; YES

C. Not reduce travel options for communities served by small hub airports and

medium hub airports within the 1250 mile perimeter; YES

D. Not result in meaningfully increased travel delays; YES

E. Enhance options for nonstop travel to and from the beyond

- perimeter

airports that will be served; YES

F. Have a positive impact on the overall level of competition in the markets that

will be served as a result of the exemptions; YES

G. Produce public benefits, including lower fares, higher capacity, and a variety

of service options. YES

1/ DOT Order 2012

- 2

- 21, page 3.

# Southwest Airlines Service Proposal

## Southwest’s DCA

- AUS Proposal with

Single

- Plane Service to SAN Docket OST

- 2012

- 0029

Exhibit WN

- 101

Note: Southwest’s current DCA routes include routes served by its wholly owned subsidiary AirTran Airways.

Source : OAG Schedules for the week of June 11 th through the 17 th , 2012 The DCA

- OKC route is 1,158 nonstop

miles and is inside the DCA perimeter

WN Current DCA Routes

WN Proposed DCA Route

WN Current AUS Route DCA

- AUS is 1,315 miles

and is outside the perimeter

## Southwest’s DCA

- AUS

- SAN B737

- 800 Nonstop Service Proposal

1700

1250

1210

0720 Washington

(DCA)

Austin

(AUS)

San Diego

(SAN) 1740

1955

2035

2125 Daily Daily

Note: All Times Local. Freq / Wk Docket OST

- 2012

- 0029

Exhibit WN

- 102

## Southwest’s System Route Map Docket OST

- 2012

- 0029

Exhibit WN

- 103

Source : OAG Schedules for the week of June 11 th through the 17 th , 2012

Weekly Departures 27,690

Weekly Seat

- Departures 3,737,079

Airports Served 103

# Austin is One of the Largest



# Beyond

- Perimeter Markets Without

Nonstop DCA Service, and Suffers



# from Extremely High Fares

## AUS is the Fourth Largest DCA

- Beyond Perimeter

Market Without Nonstop Service

Top DCA O&D Markets

By Fared Passengers Docket OST

- 2012

- 0029

Exhibit WN

- 104

Source: US DOT O&D Survey YE Q3 2011, via Diio, LLC.

## DCA

– AUS is the Most Overpriced of the

Top 10 Beyond Perimeter DCA Markets Without Nonstop Service

Percentage Market

Yield Above DCA

Market Yield Curve Docket OST

- 2012

- 0029

Exhibit WN

- 105

Page 1 of 2

1/ Regression curve shown in Exhibit WN

- 105 page 2.

Source : US DOT O&D Survey YE Q3 2011, via Diio, LLC. Current

DCA Yield 20.1¢ 15.8¢ 11.3¢ 11.3¢ 11.4¢ 12.3¢ 10.6 ¢ 16.3¢ 9.5¢ 13.9¢

Market Yield

Curve Yield 1 18.0¢ 14.8¢ 10.7¢ 10.8¢ 11.1¢ 12.7¢ 11.1¢ 17 .3¢ 10.5¢ 15.6¢

## DCA

– AUS is the Most Overpriced of the



# Top 10 Beyond Perimeter DCA Markets Without Nonstop Service

Nonstop Miles YE Q3 2011

Market Yield

1/ Curve derived from all DCA beyond perimeter markets with 50 or more fared passenger per day each way. Only the top 10 mark ets without nonstop service are shown.

Note: Fared passengers only. Excludes all taxes and government charges. Includes estimated checked baggage and rebooking/change fees.

Source: U.S. DOT, O&D Survey and Schedule data, YE Q3 2011, via Diio, LLC. Yield Curve for DCA Beyond

Perimeter Markets 1 Top 10 DCA Beyond Perimeter

Market Without Nonstop Service AUS

SAT ABQ

SJU

TUS SAN

SNA PDX SMF

SJC Docket OST

- 2012

- 0029

Exhibit WN

- 105

Page 2 of 2Source: U.S. DOT Origin & Destination Survey, via Diio, LLC. Note : Includes fared passengers only. Docket OST

- 2012

- 0029

Exhibit WN

- 107



## The DCA

- AUS Local Market Grew by 13% in the Past Year

DCA

- AUS O&D Passengers

12

- Month Moving Total Average Annual Growth

1

- Year: 13.2%

2

- year: 3.8%

## Southwest Operates 52 Departures per Day

At AUS to 20 Important Markets Docket OST

- 2012

- 0029

Exhibit WN

- 108

Source : OAG Schedules for the week of June 11 th through the 17 th , 2012

Weekly Departures 364

Weekly Seat

- Departures 49,829

Airports Served 20 Current WN Routes

Proposed WN Route

# AUS Growth and Business

Linkages to Washington DC

## Austin Companies With DC

- Area Headquarters

Company Name Industry

AAI Corp. IT & software related services

Akin Gump Strauss Hauer & Feld Law firm

Arkane Studios Austin Computer Games

Austin Title Co. Title company

BAE Systems Defense & aerospace equipment mfg.

Borland Software Corp. IT & software related services

Capital One Banking

CFAN Aerospace equipment mfg.

CSC Financial Services Group IT & software related services

DLA Piper Law firm, IP law specialty

GXS B2B e

- commerce services

Harris Connect Directory publisher

Intific IT & software related services

Maxim Healthcare Services Healthcare

Maximus Social services program administrator

Moore & Associates Real estate, commercial

Morning Glory Division of Carpenter Co. Household furnishings mfg.

Netspend Credit card processing & marketing services

Optimization Alternatives IT & software related services

Owens & Minor Medical & surgical supplies distribution center

Reznik Group Business & accounting consultant services

SAIC IT & software related services, govt contractor

Sheshunoff Information Services Financial data & publishing

Sodexho Facilities management services

Teksystems IT Staffing

TidalTV Video advertising

URS Federal Services Defense & NASA contractor

XO Communications Data center with web hosting services

Zenoss IT & software related services

Source: Austin Chamber of Commerce. 

## AUS Companies with DC

- Area Headquarters Docket OST

- 2012

- 0029

Exhibit WN

- 109

Source: ABIA

## A Selection of Austin

– Washington DC Links

The Austin Information Technology Center, which began as a data center for the

Department of Veterans Affairs, now provides IT services to federal agencies

including Department of Justice, General Accountability Office, National Archives,

NASA, General Services Administration and the Federal Highway Administration

DC and Austin both fare well in quality of life and business rankings, suggesting

similarity in attributes



## “Next Hot Youth Magnet Cities” (DC #1, Austin #5) (WSJ)

“10 Best Cities For the Next Decade” (Austin #1, DC #3) (Kiplinger)

“The Next Boom Town” (Austin #1, DC #6) (Forbes)

“America’s Smartest Cities (DC #1, Austin #6)

"Cities on the Edge" (Austin #5, DC #7) ( Spearling's )

One of the IRS’s five regional service centers is in Austin

The DC chapter of the University of Texas

- Austin alumni association is the 2 nd



## largest outside Texas (after the California state chapter)



## Select AUS

– Washington Travel Links Docket OST

- 2012

- 0029

Exhibit WN

- 110

Source: ABIA

## National Associations Headquartered in Austin

1

5 

## Association Name

American Academy of Nurse Practitioners

Association of Certified Fraud Examiners

Automotive Parts & Services Association

Clean Technology & Sustainable Industries Organization

Delta Kappa Gamma Society International

Hospitality, Financial and Technology Professionals

National Alliance for Insurance Education & Research



## National Center for Educational Accountability

Silicon Integration Initiative

Social Media Business Council



## United States Business Council for Sustainable Development

Wi

- Fi Alliance

Source: Austin Chamber of Commerce.



## National Associations Headquartered in Austin Docket OST

- 2012

- 0029

Exhibit WN

- 111

Source: ABIA

## A Selection of Austin

– Washington DC Links

There Are Over 410,000 Students Within 100 Miles of Austin Docket OST

- 2012

- 0029

Exhibit WN

- 112

Source: Austin Chamber of Commerce. 

## Four

- Year Institutions

The University of Texas, Austin 51,195



## Texas State University, San Marcos 32,572

St. Edward’s University, Austin 5,454

University of Mary Hardin

- Baylor, Belton 2,956

Concordia University, Austin 2,573

Southwestern University, Georgetown 1,373



## Texas Lutheran University, Seguin 1,340

Huston

- Tillotson College, Austin 901

Community Colleges

Austin Community College, Austin 44,100

Central Texas College, Killeen 26,055



## Temple College, Temple & Taylor 5,966

Austin Region Total* 181,152

TOTAL WITHIN 100 MILES 410,725

## 2010 2011 

# 24 Consecutive Months of Growth

% Change in YOY Enplanement Traffic

Source : ABIA 

## AUS Has Experienced 24 Consecutive Months of Enplanement Growth Docket OST

- 2012

- 0029

Exhibit WN

- 113

Source: ABIA. % Change YOY

## Austin Continues to Outperform the

U.S . Unemployment Rate

2% 3% 4% 5% 6% 

# 7% 8% 9% 

# 10% 11%

2007 2008 2009 2010 2011 

# Austin

Source: Texas Workforce Commission. 

# United States

Austin’s Unemployment Rate Has Been

Consistently Below the U.S. Average Docket OST

- 2012

- 0029

Exhibit WN

- 114



### December

2011

Source: ABIA

# Southwest, the Nation’s Largest Domestic

Carrier, is Severely Under

- Represented at DCA

## Despite Carrying More Domestic O&D Passengers than

Any Other Carrier Southwest Has Only 2.9% of DCA Slots

Source: FAA Slot Reports, Current and Future, dated 2

- 13

- 2012 and OAG schedules June 2012. Legacy/Foreign Flag Carriers Low Cost Carriers DCA Slots



### Total Slots = 853

Percent of

Airport Total 53.9% 12.8% 11.4% 8.9% 2.1% 0.7% 4.0% 2.9% 2.3% 0.7% 0.2%

Total

Domestic O&D

Passengers

(Millions) 41.6 78.9 46.2 64.2 N/A 15.1 20.4 101.4 10.7 5.5 1.1 Docket OST

- 2012

- 0029

Exhibit WN

- 115

## Southwest Is Nearly Twice The Size of All Other

New Entrants and Limited Incumbents Combined

Ratio of Southwest to

All Other New/Limited

Incumbents Combined Docket OST

- 2012

- 0029

Exhibit WN

- 116

Source: US DOT O&D Survey, YE Q3 2011, via Diio, LLC; OAG schedules, YE Q3 2011 , and

FAA Slot Reports, Current and Future, dated 2

- 13

- 2012 and OAG schedules June 2012

.

## Southwest Carries Five Time More Passengers Than

the Next Largest Limited Incumbent

Annual Domestic

O&D Passengers

(Millions)

Source: US DOT O&D Survey YE Q3 2011, via Diio, LLC. Docket OST

- 2012

- 0029

Exhibit WN

- 117

## Southwest’s Share of DCA Slots is

Disproportionately Small Among Limited Incumbents

DCA Slots per

100,000 Domestic

O&D Passengers Docket OST

- 2012

- 0029

Exhibit WN

- 118

Source: US DOT O&D Survey, YE Q3 2011, via Diio, LLC; and

FAA Slot Reports, Current and Future, dated 2

- 13

- 2012 and OAG schedules June 2012

.

# Consumer Benefits of

Southwest’s DCA

- AUS

- SAN ProposalNote: First Normalized Year

1/ From WN

- 202

2/ From WN

- 205, WN

- 209, WN

- 210, WN

- 211. 97,989 Fared Passengers 1

Carried by Southwest

$23.1

million Annual Consumer Fare Savings 2

(Millions) 

# Summary of Consumer Benefits of

Southwest’s DCA

- AUS

- SAN Proposal Docket OST

- 2012

- 0029

Exhibit WN

- 119

DCA

- AUS

DCA

- SAN

DCA

- Cx Beyond AUSDocket OST

- 2012

- 0029

Exhibit WN

- 120



## Southwest’s DCA

- AUS

- SAN Proposal Will Generate

Over $23 Million Annually In Total Consumer Fare Savings

$17.0

Million

$6.1

Million Total

Consumer Fare

Savings (Millions) 

## $23.1

Million

Note: First Normalized Year.

Source: Sum of Exhibits WN

- 205, WN

- 209 and WN

- 210. DCA

- AUS

DCA

- SAN

DCA

- Cnx Beyond AUS

## Current DCA

- AUS Fares Are 57% Higher than

Southwest’s Average Fare Levels

+57%

1/ Fared passengers only. Excludes all taxes and government charges. Includes estimated checked baggage and rebooking/change fee s

. 2/ Based on Southwest Yield Curve (Appendix 6)

Source : US DOT O&D Survey YE Q3 2011; US DOT Form 41, via Diio, LLC. Average Fare 1 

### DCA

- AUS Docket OST

- 2012

- 0029

Exhibit WN

- 121

2

## Current DCA

- SAN Fares are 32% Higher than

Southwest’s Average Fare Levels

+32%

1/ Fared passengers only. Excludes all taxes and government charges. Includes estimated checked baggage and rebooking/change fee s

. 2/ Based on Southwest Yield Curve (Appendix 6)

Source : US DOT O&D Survey YE Q3 2011; US DOT Form 41, via Diio, LLC. 

### DCA

- SAN Average Fare 1 Docket OST

- 2012

- 0029

Exhibit WN

- 122

2

## Current DCA Fares in Southwest’s AUS Connecting

Markets Are 63% Higher than Southwest’s Average Fare Levels

+63%

1/ Includes Dallas and Houston. See Exhibit WN

- 206.

2/ Fared passengers only. Excludes all taxes and government charges. Includes estimated checked baggage and rebooking/change fee s

. 3/ Based on Southwest Yield Curve (Appendix 6)

Source : US DOT O&D Survey YE Q3 2011; US DOT Form 41, via Diio, LLC and WN

- 206 and Appendix 5. 

### DCA

- Beyond AUS

Connecting Markets 1 Average Fare 2 Docket OST

- 2012

- 0029

Exhibit WN

- 123

3Note: First Normalized Year. / Source : Exhibits WN

- 204 and WN

- 208 Docket OST

- 2012

- 0029

Exhibit WN

- 124



## Southwest’s Low Fares And DCA

- AUS Nonstop Service

Will Generate 146,082 New Passengers In the Single

- Plane Markets

91,806

54,276 Fared O&D

Passengers 

## 146,082

As a result of Southwest’s new nonstop service between DCA and AUS, and first single

- plane (one

- stop) service between

DCA and SAN via AUS, Southwest will stimulate the markets and generate new passengers. This stimulation occurs due to

lower fares and improved service. Assuming competitors respond by lowering their fares, some of the newly generated

passengers will be carried by Southwest and others will be carried by competing carriers who lower their fares in response

to Southwest. Southwest’s own traffic will be composed of some newly generated passengers (people who would not have

traveled at all but for the lower fares and/or improved service), and some passengers diverted from other carriers.Docket OST

- 20 12

- 0029

Exhibit WN

- 2 00

Page 1 of 7



## Narrative Introduction t o the Southwest Airlines

Traffic And Consumer Fare Savings Forecast

Introduction

One of the primary carrier selection criteria articulated by Congress is which carriers will . . . “ produce public

benefits, including lower fares, higher capacity, and a variety of service options .” 1 Southwest projects significant

competitive benefits, traffic stimulation, and consumer fare savings as a direct consequence of its low fares and service

proposal . These benefits will accrue to passengers in the (1) local DCA

- AUS nonstop market, (2) DCA

- SAN one

- stop

(single

- plane) market , and (3) DCA

- beyond AUS to points other than SAN

. 2

In order to support the estimates of consumer savings and traffic stimulation occasioned by Southwest’s low fares

in the new markets at issue, detailed forecasts have been prepared by Campbell

- Hill Aviation Group using several of its

economic and analytica l models. This narrative discusses the forecast methodology and summarizes the results

. Exhibit

WN

- 201 shows Southwest’s proposed DCA

- AUS route that is 1, 315 nonstop miles and is outside the perimeter. The data

on this chart summarize the impact of Southwest on traffic stimulation

, as well as the number of local O&D passengers it

expects to carry. Exhibit WN

- 20 6 presents the complete DCA

- AUS

- SAN routing including the 10 beyond AUS segme nts

that would be less than 30% circuitous to/from DCA. As mentioned above, Southwest has estimated benefits only for the

1 DOT Order 2012

- 2

- 21, page 3

.

2 For purposes of this forecast Southwest has limited its traffic participation in connecting markets to DCA

- DAL and DCA

- HOU. In reality there will

be connecting passengers over other AUS segments, particularly those where the DCA trip circuity is relatively modest. AUS connecting markets

with less than 30% circuity include DCA

- ELP, HRL, LAS, LAX, LBB, OAK, PHX and SJC . The current schedules do not provide convenient

connections in these eight markets. Over time, however, schedules change and it is likely that new connecting markets will e volve and Southwest

will carry DCA passengers to/from DCA in additional AUS con necting markets.Docket OST

- 20 12

- 0029

Exhibit WN

- 2 00

Page 2 of 7

two markets (DAL and HOU) that currently connect to the proposed schedule

. The base year O&D traffic is also shown for

each of the th ree relevant traffic components.

Campbell

- Hill’s forecast follows the DOT tradition of estimating traffic and fare savings in the first normalized year.

This is the 12 month period following six months of introductory marketing and operational activity . For purposes of this

case Campbell

- Hill assumed a July, 2012 start

- up of operations and so the first normalized year would be CY 2013. The

base year for historical traffic is YE Q3, 2011.

Total fare savings in the DCA

- SAN local market are forecast t o be $ 13

. 1 million (Exhibit WN

- 20 5 ). In addition

,

consumer fare savings in the DCA

- SAN and DCA

- connecting beyond AUS markets will be $ 8.9 million and $1. 7 million

respectively (Exhibits WN

- 20 9 and WN

- 2 10 ). The total fare savings due to Southwest’s proposal is $ 23.7 million (Exhibit

WN

- 2 11 ). This is the same amount of savings that is shown in Exhibits WN

- 1 19 and WN

- 12 0

.

Total forecast consumer savings that will result from Southwest’s DCA

- AUS

- SAN service may be summarized as

follows:

Market Co nsumer Savings

– First Normalized Year

(Millions)

DCA

- AUS $ 12.4

DCA

- SAN 8.9

DCA

- Connections beyond AUS 3 1. 7

Total $ 23.1

Note: Total does not add due to rounding.

Source: Exhibits WN

- 20 5 , WN

- 20 9 and WN

- 2 10

.

3 The two connecting markets , AUS

- DAL and AUS

- HOU

.Docket OST

- 20 12

- 0029

Exhibit WN

- 2 00

Page 3 of 7

The DCA

- AUS Local Market

Exhibit WN

- 202 presents the local traffic forecasts (Lines 1 through 10 ). Campbell

- Hill estimated traffic stimulation

assuming all market participants reduce their fare to Southwest’s level. For YE Q3, 2011 the DCA

- AUS local average fare

was $ 265 . The expected average fare to be earned by Southwest is $16 9 (Exhibit WN

- 12 1 ) 4

.

When the fare values are input to the Campbell

- Hill price elasticity model , and using an elasticity coefficient of

- 1.2

(Appendix 1), the forecast year base traffic 5 of 83,735 DCA

- AUS annual O&D passengers will increase by 72.4 %. Using

Campbell

- Hill’s QSI model 6 to estimate the additional service stimulation resulting from Southwest’s daily nonstop in the

DCA

- AUS market

, traffic is projected to increase by a further 21.6 %. The combined stimulation is 109.6 %. When the

base forecast ( Exhibit WN

- 202, L in e 2) is increase d by 109.6 % the resultant market forecast for the first normalized year

4 For YE Q3, 2011 Southwest’s average fare earned in the BWI

- AUS local market was $214 . BWI is a major focus city for Southwest and seats

available to the local BWI market are limited due to the significant capacity allocated to passengers connecting at BWI. This has the effect of

raising the weighted average fare earned for the local BWI segment. In the case of the DCA

- AUS market, the share of seats available for the local

market will be greater and it is expected that a larger share of the market will be leisure at DCA than at BWI . The leisure market books further in

advance and pays l ower fares than the business market. Finally, as a small DCA participant and a relative newcomer, Campbell

- Hill expects

Southwest to be more price aggressive in order to create patronage and capture loyalty as it builds a more significant DCA presence ove r the long

run. All factors considered, Southwest’s weighted average fare in the DCA markets will resemble its system average for compa rable distances

(see Appendix 8 ), rather than the BWI

- AUS average fare.

5 CY 2013 after growth of 3.8% is applied to the base year ended Q3, 2011 passengers

.

6 The Campbell

- Hill QSI model for estimating service stimulation includes all relevant schedule and capacity characteristics of competing fl ights,

including on

- line connecting options.Docket OST

- 20 12

- 0029

Exhibit WN

- 2 00

Page 4 of 7

is 175,541 passengers (Exhibit WN

- 202 , Line 6 ). Southwest’s share based on the QSI model will be 40.6 %, or 71,269

local DCA

- AUS passengers for its nonstop flight (Exhi bit WN

- 202, Line 8).

Southwest has demonstrated to the Department in many previous proceedings 7 the significant traffic stimulation

generated by its low fares. In fact, the DOT has publically characterized this phenomenon as the “Southwest Effect.” In

this case the additional traffic stimulated as a consequence of Southwest’s low fares and new ser vice at DCA is 91,806

passengers in the local DCA

- AUS market and 54,276 passengers in the DCA

- SAN market. 8 Southwest’s traffic forecast

conservatively claims no stimulation in the connecting markets beyond AUS , but in reality there would be some. The

tra ffic projected to be carried by Southwest has two primary sources: (a) Southwest will carry a significant number of the

newly generated passengers, and (b) it will divert some traffic from other carriers offering an inferior service.

Campbell

- Hill’s price stimulation model estimates the change in traffic as a result of the change in average fare.

For the DCA

- AUS local market the current average fare is $ 265 and the expected Southwest average fare, derived from

its system yield curve, 9 is $16 9 (Exhibi t WN

- 1 2 1 ). All fares shown in Southwest’s exhibits exclude taxes and government

charges, but they include the estimated average amount of checked baggage and reservation re

- booking/cancellation

fees per passenger. 10

7 See for example the pend ing 2012 Chicago

- Cancun Combination Service Proceeding , Docket OST

- 2012

- 0001.

8 Exhibits WN

- 20 4 and 20 8

.

9 Appendix 8

.

10 Estimated by analysis of carrier revenues reported in DOT Form 41 filings.Docket OST

- 20 12

- 0029

Exhibit WN

- 2 00

Page 5 of 7

The Campbell

- Hill model is presented in Appendix 1. It incorporates a price elasticity coefficient of

- 1.2 which is

consistent with prior FAA findings (Appendix 1, page 3). The model assumes that competitors will reduce their fares to

match the Southwest level ($16 9 per DCA

- AUS passenger). The estimated fare savings to existing passengers in the

market is determined by multiplying the difference in average fare 11 by the YE Q3, 2011 actual passenger volume. This

amounts to $ 8.0 million (Exhibit WN

- 205 and Appendix 1 ).

The next step is to estimate the monetary value of Southwest’s low fares to the newly generated passengers. They

are consumers who would not have made the trip at all except for the availability of Southwest’s fare, or the matching fare

by one of Southwest’s competitors. Fo r this purpose Campbell

- Hill employs a consumer surplus model as it has been

utilized by the FAA. 12 This benefit amounts to $ 4.4 million for the newly generated passengers (Exhibit WN

- 20 5 ). Adding

together the two components of consumer fare savings produces a projected value of $ 12.4 million in the DCA

- AUS local

market (Exhibit WN

- 20 5 ).

Campbell

- Hill recognizes that all competitors may not match Southwest’s fare precisely. Some carriers may

charge more than Southwest, and for certain segments of the market some carriers may charge less than Southwest. On

average, however, the operative assumption about fare

- matching is reasonable. If competitors do not reduce fares to the

same level of Southwest, then Southwest will achieve a higher market share than Campbell

- Hill has forecast using only its

QSI analysis. Either way it is reasonable to conclude that Southwest will achieve its traffic and load factor, as forecast i n

Exhibit WN

- 202.

11 $2 65 minus $16 9

, or $ 96 per passenger (Exhibit W N

- 1 2 1 ).

12 See Appendix 1, page 4.Docket OST

- 20 12

- 0029

Exhibit WN

- 2 00

Page 6 of 7

The DCA

– Beyond AUS Markets

To estimate the number of passengers Southwest will generate for markets beyond AUS Campbell

- Hill examined

other comparable market scenarios in the Southwest system. Campbell

- Hill utilized Southwest’s traffic experience in the

comparable ORF

- SAN market to estimate Southwest’s expected share of DCA

- SAN traffic for its proposed one

- stop

service (Exhibit WN

- 203 and Appendix 3 ). Similarly, Southwest’s experience in the PHL

- HOU and beyond markets was

used by Campbell

- Hill to estimate the Southwest passengers i n the two AUS connecting markets incorporated in the

forecast (Appendix 2 ).

The unconstrained DCA

- SAN forecast is 15,942 passengers (Exhibit WN

- 202, Line 9 ). This is based on the

relationship between Southwest’s one

- stop and nonstop ORF

- SAN passengers (Exhibit WN

- 203). The unconstrained

forecast of Southwest passengers connecting at AUS to two beyond markets is 26,370 based on Southwest’s connecting

experience in the PHL

- HOU market (Exhibit WN

- 202, line 10 and Appendix 2 ).

Adding the three unconstrained forecast market components together produces a fared passenger forecast of

113,581 , or 123,350 passengers including zero

- fare passengers. 13 This produces a lo ad factor of 99 %. 14 Campbell

- Hill

constrained Southwest’s traffic to a load factor of 85%

, or 106, 416 on

- board passengers, which equates to 97,989 fared

passengers (Exhibit WN

- 202).

13 Campbell

- Hill estimates that system

- wide, Southwest’s zero fare passengers are 8.6% of fared passengers.

14 After making allowance for a 98% completion factor.Docket OST

- 20 12

- 0029

Exhibit WN

- 2 00

Page 7 of 7

The final constrained forecasts for the first normalized year are:

Annual O&D

Passengers 15

DCA

- AUS 71,269

DCA

- S AN 10,067

DCA

- Cx beyond AUS 16,653

TOTAL 16 97,989

Exhibit WN

- 20 9 utilizes the same Campbell

- Hill methodology to estimate consumer savings that will accrue to

existing and newly generated passengers in the DCA

- SAN market. The total is $ 8.9 million in the first normalized year. 17

Exhibit WN

- 2 10 show s the projection of annual consumer fare savings for the AUS connecting passengers

Southwest expects to carry in two markets (Exhibit WN

- 206) . To be conservative Campbell

- Hill has made no assumption

of fare

- matching or traffic stimulation in these connecting markets. Conseq uently, the projection of consumer savings is

limited to only the savings obtained by the passengers who travel on Southwest. This will amount of $1. 7 million in the

first normalized year (Exhibit WN

- 2 10 ).

15 From Exhibit WN

- 202, Line 17

.

16 This is the total traffic on

- board the DCA

- AUS segment.

17 See also Appendix 4

.Southwest’sTraffic and ConsumerFare Savings ForecastAfter Stimulating the Market with Its Low Fares and Nonstop ServiceSouthwest Will Carry 71,269 Local DCA-AUS PassengersDocket OST-2012-0029Exhibit WN-201SouthwestWillCarry71,269LocalDCAAUSPassengersLiDCA-AUSM ktAnnualPassengers1 CY 2013 O&D2 Market After Stimulation3 Newly Generated (stimulation)4 WN Local O&D83,735175,54191,80671 269LineMarketPassengers123DCADCA4WNLocalO&D71,2691,315 Nonstop MilesAUSAUSNote: First Normalized Year.1/ Assumes historical annual growth rate of3.8% applied to YE Q3 2011 passengers of 76,995.2/ Line 2 – Line 13/ Southwest’s share of the total market after stimulation.Source: Exhibit WN-202Southwest Airlines’ DCA-AUS Passenger Forecast(First Normalized Year)Docket OST-2012-0029Exhibit WN-202Source/Basis1 Base O&D passengers: DCA-AUS 76,995 YE Q3 2011 from O&D Survey via Diio, LLC.2 Growth to CY 2013 83,735 2-Year Compound Annual Growth Rate for AUS Fared Passengers= 3.8% (Exhibit WN-107).3 Fare Stimulation 72.4% See Appendix 1.4 Service Stimulation 21.6% From Campbell-Hill Aviation Group QSI Model.5 Total Stimulation 109.6% (1+Line 3) x (1+Line 4) -1.6 Passengers After Stimulation 175,541 Line 2 x Line 5.7 Southwest Share 40.6% From Campbell-Hill Aviation Group QSI Model.8 Adjusted Southwest Local Passengers: DCA-AUS 71,269 Line 6 x Line 79 Estimated Unconstrained DCA-SAN One-StopSouthwest Passengers 15,942 See Exhibit 203.10 Unconstrained Other BeyondAUS Southwest Passengers 26,370Calculated Based on WN'S PHL-HOU Connecting toLocal Ratio = 37% (See Appendix 2, Line 6).11 Total One-Stop SAN and Connecting Passengers Beyond AUS 42,312Line 9 + Line 10.12 Subtotal Southwest Fared Passengers- Unconstrained 113,581 Line 8 + Line 11.13 Adjusted Passengers Including Non Fared 123,350 Calculated at 108.6% of fared passengers derived from WN system-wide O&D traffic for YE Q3 2011.14 Total Seats125,195 175 seats x 365 days x 2 directions x 98% completion factor.15 Unconstrained Load Factor 99% (Line 13 / Line 14) x 100%.16 Constrained Total Onboard Passengers (DCA-AUS) 106,416 Constrained to anannual average load factor of 85%.Constrained Forecast17 Total DCA-AUS Onboard Fared 97,989 Line 16/ 108.6%17a. Fared DCA-AUS Local Passengers 71,269 From Line 817b. Fared DCA-SAN One-Stop Passengers 10,067(Line 17 – Line 17a) x (Line 9 / Line 11)17c. Fared DCA-Connecting Passengers Beyond AUS 16,653 (Line 19 – Line 19a) x (Line 10 / Line 11)Southwest Airlines’ DCA-SAN Passenger Forecast(First Normalized Year)Docket OST-2012-0029Exhibit WN-203Source/Basis1 Base O&D Passengers 117,143 YE Q3 2011 from O&D Survey via Diio, LLC.2 Fare Stimulation 39.1% Assumes no growth but includes fare stimulation.3 Service Stimulation 5.2% From Campbell-Hill Aviation Group QSI Model.4 Total Stimulation 46.3% (1+Line 2) x (1+Line 3) -1.5 Passengers After Stimulation 171,419 Line 1 x Line 4.6 Southwest Share 9.3% ORF-SAN One-Stop Share is 9.3% (See Appendix 3).7 Forecast DCA-AUS-SAN Passengers - Unconstrained 15,942 Line 5 x Line 6.Docket OST-2012-0029Exhibit WN-204Southwest’s Service Will Generate 91,806 AdditionalDCA-AUS Passengers Assuming Other Carriers Match Its Low FaresDCA-AUSAnnualP160,000180,000200,000assengers175,541Potential100,000120,000140,000+110%Stimulation191,80683 73540,00060,00080,00083,73583,735020,000Market Passengers Before Southwest Service Market Passengers After Southwest Service(First Normalized Year)(First Normalized Year)Source: U.S. DOT Origin & Destination Survey, via Diio, LLC.Note: First Normalized Year.1/ Includes fare and service stimulation based on QSI. Also includes historical growthto CY 2013 (3.8% annual rate). See Appendix 1 for details of stimulation estimates.Note: Includes fared passengers only.(FirstNormalizedYear)(FirstNormalizedYear)Docket OST-2012-0029Exhibit WN-205Southwest’s DCA-AUS Service Will Generate More Than $12 MillionAnnually In Consumer Fare Savings to Local PassengersDCA-AUSConsumer Fare$12 4$11$12$13$14Savings (Millions)$12.4Million$7$8$9$10$11$8.0Million$4 4$2$3$4$5$6$4.4Million$0$1$2Savings to ExistingPassengersSavings to NewPassengersTotal PassengerSavingsNote: First Normalized Year.Source: Appendix 1.(Market Stimulation)Southwest’s DCA-AUS-SAN Single-Plane Service Will Provide ImmediateConnecting Opportunities to Over 690,000 Passengers AnnuallyDocket OST-2012-0029Exhibit WN-206ConnectingOpportunitiestoOver690,000PassengersAnnuallySJCSJCSJCSJCDCADCAOAKOAKOAKOAKLASLASLASLASELPELPELPELPAUSAUSDALDALDALDALSANSANPHXPHXPHXPHXLBBLBBLBBLBBLAXLAXLAXLAXO&D Passengers1AUSAUSHRLHRLHRLHRLHRLHRLHRLHOUHOUHOUHOUDCA-AUSDCA-SANConnections2Other Beyond AUS3T t lP76,995117,143692,470619,6151 506 223Proposed WN Nonstop RouteProposed WN DCA-SAN One-StopWN ConnectionsOther Beyond AUS Connections1/ YE Q3 20112/ Includes roundtrip connections for the proposed flight schedules (Dallas and Houston).3/ Other current Southwest markets within 30% circuity.Source: OAG Schedules for June 2012, US DOT O&D Survey YE Q3 2011, via Diio, LLC.TotalPassengers1,506,223Docket OST-2012-0029Exhibit WN-207Southwest’s Proposed Service Will Be theFastest Single-Plane Option Between DCA and SANSAN-DCA BestRound-Trip SinglePlane ElapsedTimes By Carrier14:4515:0013:2513:5514:0013:0011 0012:00WN Si l PlAA Si l PlUA Si l Pl11:0000:00WN-SinglePlaneAA-SinglePlaneUA-SinglePlaneSource: OAG Schedules for June 13, 2012.Docket OST-2012-0029Exhibit WN-208Southwest’s Service Will Generate Over 54,000 NewDCA-SAN Single-Plane Passengers Due to Fare and Service StimulationDCA-SANAnnualP140 000160,000180,000+46%assengers171,419EstimatedStimulation154,276100,000120,000140,000117,143117,14340,00060,00080,000020,000Market Passengers Before Southwest Service Market Passengers After Southwest Service(YE Q3 2011)(First Normalized Year)Source: U.S. DOT Origin & Destination Survey, via Diio, LLC.1/ See Appendix 4 for details of stimulation estimates.Note: Includes fared passengers only.(YEQ32011)(FirstNormalizedYear)Docket OST-2012-0029Exhibit WN-209Southwest’s DCA-SAN One-Stop Service Will Generate MoreThan $8 9 MillionAnnually In Consumer Fare Savings8.9MillionAnnuallyInConsumerFareSavingsDCA-SANConsumer FareSavings(Milli )$8$9$10$7.3Million(Millions)$8.9Million1$5$6$7$2$3$4$1.7Million$0$1Savings to ExistingPassengersSavings to NewPassengersTotal PassengerSavingsNote: First Normalized Year.1/ Total does not add due to rounding.Source: Appendix 4.(Market Stimulation)Docket OST-2012-0029Exhibit WN-210Southwest’s DCA-AUS Service Will Generate$1.7 Million Annually In Consumer Fare Savings toPassengers Connecting at AUSDCA-Beyond AUSConsumer Fare$2.0$1.7MillionSavings (Millions)$1.7Million$1.0$1.5$0.5ConservativeAssumption$0.0Savings to ExistingPassengersSavings to NewPassengersTotal PassengerSavings0Note: First Normalized Year.Source: Appendix 5.(Market Stimulation)Docket OST-2012-0029Exhibit WN-211DCA-AUS-SAN Proposal Will Generate Over $23 Millionof Annual Consumer Fare Savings$22$24TotalConsumer FareSavings (Millions)$23.1Million$$16$18$20$22$17.0Million$8$10$12$14$6.1Million$0$2$4$6Savings to ExistingPassengersSavings to NewPassengersTotal PassengerSavings(Market Stimulation)This corresponds to the same fare savings shown in Exhibits WN-119 and WN-120.Note: First Normalized Year.Source: Sum of Exhibits WN-205, WN-209 and WN-210.AppendicesSummary of Consumer Surplus Benefits fromSouthwest Proposed DCA – AUS Nonstop ServiceAppendix1Page1of4(A) (B) (C) (D) (E) (F) (G) (H) (I) (J) (K) (L) (M) (N) (O)Passengers Predicted Projected WN Fare Passengers After New Total ConsumerO&D Market Miles Before Stimulation Service Stimulation Base Fare Fees Total Fare Absolute % Stimulation Stimulation Passengers Existing Passengers New Passengers SurplusMarketDCA-AUS 131583,73521.6% $249.94 $14.59 $264.53 $168.63 -$95.90 -36% 72.4% 175,54191,806$8,029,988 $4,401,998 $12,431,985Fare StimulationAverage Fare Before WN Fare ChangeConsumer SurplusSummary of Consumer Surplus Benefits fromSouthwest Proposed DCA – AUS Nonstop ServiceAppendix1Page2of4(A) Nonstop Miles(B) DCA fared passengers for YE Q3 2011(C) Predicted Service stimulation fromCampbell-Hill Aviation Group, QSI model.(D) Average Fare for Fared Passengers (excludes passengers using frequent flier miles). Includes nonstop and connecting passengers. UsesYE Q3 2011 U.S. DOT Origin-Destination Passenger Survey data via Diio, LLC.(E) Average checked baggage and rebooking/cancellation fees perpassenger derived by Campbell-Hill Aviation Group using DOT Form-41 andDOT data (YE Q3 2011)DOTdata(YEQ32011).(F) Column D + Column E(G) DCA-AUS fare calculated at Southwest’s yield curve (Appendix6) for YE Q3 2011, plus checked baggage and rebooking/cancellation fees.(H) Column G – Column F(I) Column H / Column F(J) Calculated using a price elasticity coefficient of -1.2 (See Appendix 1, page 3).The arc elasticity formula is: Arc Ep = [(Q2-Q1)/((Q1+Q2)/2)] / [(P2-P1)/((P1+P2)/2)] , where Q1 = passengers before WN service,Q2 = Passengers after WN service, P1=Fare Before WN service, P2 = Fare After WN service.(K)Column B x(1+ Column C)x(1+ Column J)) ( ) ( )(L) Column K – Column B(M) Column H x -1 x Column B(N) Column H x Column L x 0.5 x -1. This is the triangle area in Appendix 1, page 4.(O) C l M C l N(O)ColumnM+ColumnNLower Fares Would Increase Passenger VolumeAppendix1Page3of4“Total elasticity of demand for air travel is a measure of air travelers’ response tovariations in the cost of air travel. This parameter measures the percentage change in airpassenger trips resulting froma one-percent change in tripprices. Total elasticities arenegative because price and quantity demanded are inversely proportionalnegativebecausepriceandquantitydemandedareinverselyproportional. ...... FAA sponsored an extensive review of the economic literature regarding total elasticityof demand for air travel at a national level. Thefindings of this review are summarized inChapter 2 and Appendix G ofReport to Congress: Child Restraint SystemsVol 1 and 2Chapter2andAppendixGofReporttoCongress:ChildRestraintSystems,Vol.1and2,May 1995. The elasticity values found in the academic literature range from –0.6 to –4.5.Representative values for business and non-business travelers are presented in TableC.2. Values in Table C.2 can be tailored tothe mix of passengers at an airport. Overallweighted values are –0.79 and –1.59 for business and non-business travelers,respectively, with an overall average (assuming the 50/50 mix typical of the nation atlarge) of –1.2. ...”Source: “FAA Airport Benefit-Cost Analysis Guidance”, Office of Aviation Policy and Planning, Federal Aviation Administration, December 15, 1999.Consumer Surplus IllustrationAppendix1Page4of4FareMarginal Consumer Surplus to Current Passengers(Measured in this report)Consumer Surplus to New Passengers(Measured in this report)Unchanged Consumer Surplus(Not measured in this report)P1P2Demand CurvePassengersQ1Q2Source: “FAA Airport Benefit-Cost Analysis Guidance”, Office of Aviation Policy and Planning, Federal Aviation Administration, December 15, 1999.Calculation of WN Connecting Percentage for DCA-AUSBased on Southwest’s PHL-HOU ExperienceAppendix2Source/Basis1WN PHLHOU LocalO&D Passengers94 428From O&D Survey and T100 Data via Diio LLC YE Q3 2011-HOULocalO&DPassengers,FromO&DSurveyandT-100DataviaDiio,LLC.,YEQ32011.2 WN PHL-Beyond HOU Connecting Passengers 62,734 From O&D Survey and T-100 Data via Diio, LLC., YE Q3 2011.3 Beyond HOU as a % of Local 76% (Line 2 / Line 1) x 100%.4 Adjustment for AUS size relative to HOU 93% Line 8.5 Adjustment for Markets that Connect to Schedule Times 53% Line 12.6 Estimated DCA-AUS Unconstrained BeyondShare of Locals 37% Line 3 x Line 4 x Line 5.7 PHL-Beyond HOU Market O&D Passengers within 30% Circuity 1,879,656 From O&D Survey and T-100 Data via Diio, LLC., YE Q3 2011.8PHL-Beyond AUS O&D Passengers Within 30% Circuity1,753,633From O&D Survey and T-100 Data via Diio, LLC., YE Q3 2011.BeyondAUSO&DPassengersWithin30%Circuity1,753,633FromO&DSurveyandT100DataviaDiio,LLC.,YEQ32011.9 Ratio of AUS Beyond to HOU Beyond 93% (Line 8 / Line 7) x 100%.10 DCA-DAL/DFW and DCA-HOU/IAH O&D Passengers 692,470 FromO&D Survey and T-100 Data via Diio, LLC., YE Q3 201111 Total O&D Passengers to Markets Within 30%Circuity of DCA-AUS 1,312,085 FromO&D Survey and T-100 Data via Diio, LLC., YE Q3 201112 DAL/DFW and HOU/IAH Share of Total AUS within 30% Circuity 53% (Line 10 / Line 11) x 100%Estimate of Southwest’s Unconstrained Share UsingSouthwest’s ORF-SAN Single Plane ExperienceAppendix3g pSource/Basis1Southwest ORF-SAN Single-Plane Passengers 8,782 From O&D Surveyand T-100 Data via Diio, LLC., YE Q3 2011.2Total ORF-SAN Fared O&D Passengers 94,807 From O&DSurvey and T-100 Data via Diio, LLC., YE Q3 2011.3Southwest Share of ORF-SAN Single-Plane Passengers 9.3% Line 1 /Line 2Summary of Consumer Surplus Benefits fromSouthwest Proposed DCA – SAN Single-Plane ServiceAppendix4Page1of2pg(A) (B) (C) (D) (E) (F) (G) (H) (I) (J) (K) (L) (M) (N) (O)Passengers Predicted Projected WN Fare Passengers After New Total ConsumerO&D Market Miles Before Stimulation Service Stimulation Base Fare Fees Total Fare Absolute % Stimulation Stimulation Passengers Existing Passengers New Passengers SurplusMarketFare StimulationAverage Fare Before WN Fare ChangeConsumer SurplusDCA-SAN 2276117,1435.2% $244.39 $13.96 $258.35 $196.41 -$61.94 -24% 39.1% 171,41954,276$7,255,855 $1,680,932 $8,936,787Appendix4Page2of2Summary of Consumer Surplus Benefits fromSouthwest Proposed DCA – SAN Single-Plane Service(A) Nonstop Miles.(B) DCA fared passengers for YE Q3 2011.p(C) Assumes 0% service stimulation because this is just diversion.(D) Average Fare for Fared Passengers (excludes passengers using frequent flier miles). Includes nonstop and connecting passengers. Uses YEQ3 2011 U.S. DOT Origin-Destination Passenger Survey data via Diio, LLC.(E) Average checked baggage and rebooking/cancellation fees perpassenger derived by Campbell-Hill Aviation Group using DOT Form-41 and DOTdata (YE Q3 2011)data(YEQ32011).(F) Column D + Column E(G) DCA-AUS fare calculated at Southwest’s yield curve (Appendix6) for YE Q3 2011, plus checkedbaggage and rebooking/cancellation fees.(H) Column G – Column F.(I) Column H / Column F.(J) Calculated using a price elasticity coefficient of -1.2 (See Appendix 1, page 3).The arc elasticity formula is: Arc Ep = [(Q2-Q1)/((Q1+Q2)/2)] / [(P2-P1)/((P1+P2)/2)] , where Q1 = passengers before WN service,Q2 = Passengers after WN service, P1=Fare Before WN service, P2 = Fare After WN service.(K)Column B x(1+ Column C)x(1+ Column J)) ( ) ( )(L) Column K – Column B(M) Column H x -1 x Column B(N) Column H x Column L x 0.5 x -1. This is the triangle area in Appendix 1, page 4.(O) C l M C l N(O)ColumnM+ColumnNSummary of Consumer Surplus Benefits fromSouthwest’s ConnectingService Beyond AUSAppendix5Page1of2g y(A) (B) (C) (D) (E) (F) (G) (H) (I) (J) (K) (L) (M) (N) (O)Passengers Assumed Projected WN Assumed Fare Passengers After Weighted Forecast WN ConsumerO&D Market Miles Before Stimulation Service Stimulation Base Fare Fees Total Fare Absolute % Stimulation Stimulation Passenger Share Ave. Fare Savings Connecting Passengers SurplusMarket1 184410 2140 0%$236 4$13 1$2 0 0$163 8$86 23 %0 0%410 2149 2%Fare StimulationAverage Fare Before WN Fare ChangeDCA-DAL/DFW1,184410,2140.0%$236.54$13.51$250.05$163.78-$86.27 -35%0.0%410,21459.2%DCA-HOU/IAH1,218282,2560.0% $277.72 $16.20 $293.93 $165.08 -$128.85 -44% 0.0% 282,25640.8%692,470692,470100.0% -$103.62 16,653$1,725,650This analysis conservatively assumesno traffic stimulation or fare matching by othercarriers in these 2 connecting markets.Summary of Consumer Surplus Benefits fromSouthwest’s ConnectingService BeyondAUSAppendix5Page2of2(A) Nonstop Miles(B) DCA fared passengers for YE Q3 2011g y(C) Assumed no service stimulation for connecting markets.(D) Average Fare for Fared Passengers (excludes passengers using frequent flier miles). Includes nonstop and connecting passengers. Uses YEQ3 2011 U.S. DOT Origin-Destination Passenger Survey data via Diio, LLC.(E) Average checked baggage and rebooking/cancellation fees perpassenger derived by Campbell-Hill Aviation Group using DOT Form-41 andDOT data (YE Q3 2011)DOTdata(YEQ32011).(F) Column D + Column E(G) DCA-Beyond fare calculated at Southwest’s yield curve (Appendix 6) for YE Q3 2011, plus checked baggage and rebooking/cancellation fees.(H) Column G – Column F(I) Column H / Column FJ) For Beyond AUS markets Southwestdid not estimate traffic stimulation.(K) Column B (no stimulation is assumed)(L) Share of O&D passengers from Column K(M) Fare Change from Column H weighted by O&D share from Column L(N) Forecast WN connecting passengers. Assumes that all are diverted from existing services.(O) Column H x -1 x Column NSouthwest's Yield CurveAppendix6100.0¢YE Q3 2011 NonstopMarket Yield70.0¢80.0¢90.0¢y = 2290.2x-0.722R2= 0.917440.0¢50.0¢60.0¢0 0¢10.0¢20.0¢30.0¢0.0¢0 200 400 600 800 1000 1200 1400 1600 1800 2000 2200 2400 2600Nonstop MilesYield is based on fared passengers.Note: Fare curve includes markets with nonstop service and over 600 one-way departures for YE Q3 2011.Source: U.S. DOT, O&D Survey and Schedule data, YE Q3 2011, via Diio, LLC.