SOUTHWES T AIRLINE S CO
. Rober t W . Kneisle y Associat e Genera l Counse l 190 1 L Street , N W - Suit e 64 0 Washington , D C 2003 6 (202 ) 263-628 4 (202 ) 263-629 1 - Fa x bob.kneislev(S)wnco.co m Marc h 23 , 201 0 VI AEMAI L AN D FEDE X Rebecc a MacPherson , Esq . Assistan t Chie f Counse l Regulation s Division , AGC-20 0 Federa l Aviatio n Administratio n 80 0 Independenc e Avenue , S.W
. Washington , D.C
. 2059 1 Re : Delta/U S AinA/av s Slo t Swap
. Docke t No . FAA-2010-010 9 Dea rMs . MacPherson : I a m writin g t o advis e th e Departmen t an d th e FAAo f tw o matter s i n connectio n wit h th e reference d docket . First , Southwes t Airline s release d th e followin g statemen t las t nigh t afte rDelt a Ai r Line s an d U S Airway s jointl yannounce d tha t the yha d negotiate d propose d slo t transfe ragreement s wit h fou rothe rairline s a t Ne wYor k LaGuardi a Airpor t (LGA ) an d Ronal d Reaga n Washingto n Nationa l Airpor t (DCA) : "A s w e predicte d i n ou rcomment s file d earlie rtoday , U S Airway s an d Delt a di d exactl ya s w e feare d b yattemptin g t o han d selec t thei rcompetitor s i n th e Ne wYor k an d Washington , D.C
. markets . I t i s no t u p t o U S Airway s an d Delt a t o unilaterall ydecid e ho wpubli casset s suc h a s valuabl e airpor t slot s ar e pu t int o us e t o serv e consumers , an d thi s ne w proposa l doe s no t alleviat e th e highl yanticompetitiv e natur e o f th e origina l Delta-U S Airway s agreement . Thi s announcement , mad e immediatel yafte rth e commen t deadlin e o n th e origina l proposa l closed , confirm s th e nee d fo r th e DOT/FAA , wit h th e appropriat e participatio n o f th e DOJ , t o reope n th e entir e proceedin g fo rfurthe rinvestigatio n an d t o permi t additiona l comment s o n thi s ne wproposal. " Accordingly , w e as k

th e DO T an d FA

At o advis e th e publi cho wthe yinten d t o proceed i n investigating , an d invitin g comment s upon , thi s ne wDelta/U S Ainvay s proposa l an d th e ne wissue s i t raises .Rebecc a MacPherson , Esq . Marc h 23 , 201 0 Pag e 2 Second , th e comment s tha t Southwes t file d i n thi s docke t yesterda y containe d inadverten t numerica l error s o n page s 6 an d 7 . Thos e error s hav e bee n correcte d i n th e attache d revise d versio n o f Southwest' s comments , whic h w e reques t b e place d i n th e docke t an d substitute d fo rth e comment s w e file d yesterday . W e apologiz e fo ran yinconvenienc e thi s ma ycause . Respectfully ,

Robert W . Kneisle y
cc : Docket No . FAA-2010-010 9BEFOR E TH E U.S
. DEPARTMEN T O F TRANSPORTATIO N FEDERA L AVIATIO N ADMINISTRATIO N

WASHINGTO N D C

PETITIO N FO R WAIVE R O F TH E TERM S O F TH E ORDE R LIMITIN G SCHEDULE D OPERATION S A T L AGUARDI AAIRPOR T Docke t No . FAA-2010-010 9

COMMENT S O F SOUTHWES T AIRLINE S CO
. O N DELT A- U S AIRWAYS PROPOSE D SLO T SWA P AN D FA ANOTIC E PROPOSIN G T O GRAN T WAIVE R Communication s wit h respect t o thi s documen t shoul d b e sen t to : Ro n Ricks Executiv e Vic e Presiden t Corporat e Service s & Corporat e Secretar y Madelein e Johnso n Vic e Presiden t - Genera l Counse l SOUTHWES T AIRLINE S CO
. 270 2 Lov e Fiel d Driv e Dallas , TX 75235-161 1 Rober t W . Kneisle y Associat e Genera l Counse l Lesli e C
. Abbot t Attorne y SOUTHWES T AIRLINE S CO
. 190 1 L Street , N.W . Suit e 64 0 Washington , D C 2003 6 bob.kneislev@wnco.co m (202 ) 263-628 4

Marc h 22,201 0TABL E O F CONTENT S
Th e Propose d Slo t Swa p Wil l Significantl yIncreas e Concentratio n an d Reduc e Competitio n a t Bot h DC Aan d LGA
. I f FA ADoe s No t Disapprov e th e Slo t Swa p Entirely , I t Shoul d Expan d It s Carve-Out s t o Ensur e Sufficien t Ne wCompetitio n a t Bot h DC A an d LGA
. III . Th e DO T an d FA AHav e Ampl e Lega l Authorit yt o Requir e Carve Out s A s a Conditio n o f Approvin g th e Slo t Swap
. IV . I f I t Wer e Abl e t o Acquir e Carved-Ou t Slots , Southwes t Woul d Generat e Enormou s Publi cBenefit s b yReducin g Fare s an d Increasin g Traffi ca t Bot h DC Aan d LGA
. Allocatin g Diveste d Slot s vi a a Transparen t Auctio n t o th e Highes t Bidde ri s th e Onl yWa yt o Ensur e Effectiv e Ne w Competitio n a t LG A an d DCA
. VI . Adequat e Airpor t Facilitie s Mus t b e Mad e Availabl e t o th e Recipient s o f Diveste d Slot s t o Ensur e The yHav e Effectiv e Acces s t o DC Aan d LGA
. Conclusio n Attachments : ECONOMI C ANALYSI S O F TH E DELTA/U S AIRWAY S SLO T SWA P AGREEMEN T AN D TH E FAA' S PROPOSE D SLO T CARVE-OUTS
. Campbel l Aviatio n Consultant s LL C EXHIBIT S t o Economi cAnalysi s o f Campbel l Aviatio n Consultant s LL CBEFOR E TH E U.S
. DEPARTMEN T O F TRANSPORTATIO N FEDERA L AVIATIO N ADMINISTRATIO N

WASHINGTO N D C

PETITIO N FO R WAIVE R O F TH E TERM S O F TH E ORDE R LIMITIN G SCHEDULE D OPERATION S A T L AGUARDI AAIRPOR T Docke t No . FAA-2010-010 9

COMMENT S O F SOUTHWES T AIRLINE S CO
. O N DELT A- U S AIRWAYS PROPOSE D SLO T SWA P AN D FA ANOTIC E PROPOSIN G T O GRAN T WAIVE R I . Th e Propose d Slo t Swa p Wil l Significantl yIncreas e Concentratio n an d Reduc e Competitio n a t Bot h DC Aan d LGA
. O n Augus t 24 , 2009 , Delt a Ai rLine s an d U S Ainway s jointl ypetitione d FA

Afo ra waive rfro m certai n restriction s i n th e FAA' s LaGuardi a Interi m Orde rt o allo wth e carrier s t o permanentl yexchang e severa l hundre d slot s a t LaGuardi a ("LGA" ) an d Washingto n Nationa l ("DCA" ) Airports , tw o o f th e mos t importan t airport s i n th e Unite d States
. Th e siz e an d scop e o f thi s reques t i s unprecedented . I t woul d instantl ymake Delt a th e larges t airlin e byfa ra t LGA , an d woul d significantl yexpan d U S Ainways ' already-dominan t positio n a t DCA
. I f approve d a s proposed , th e transactio n woul d doubl e Delta' s shar e o f LG Aslot s fro m 25 % t o 50% , an d transfor m LG Afro m a n airport serve d principall ybythre e carrier s o f simila rsiz e t o on e dominate d bya singl e carrier. ^
Se e Sectio n 3. 0 an d Exhibit s 1- 4 i n th e attache d Economi c Analysi s o f th e Delta/U S Airway s Slo t Swa p Agreemen t an d th e FAA' s Propose d Slo t Carve-Out s byDr . Bria n M . Campbel l an d Campbel l Aviatio n Consultant s (hereafte r "GA G Analysis") . Southwes t retaine d Dr . Campbel l an d GA G t o evaluat e th e propose d slo t transactio n a s wel l a s FAA' s propose d carve-ou t o f slot s a t DG Aan d LGA
.Th e nex t larges t LG Acarrie rwoul d b e American, a t 19% . A t DCA , U S Ainway s woul d becom e eve n mor e dominan t the n i t currentl yis , ascendin g fro m 47 % t o 57 % o f th e tota l slo t holdings . Th e next larges t carrier , American , woul d b e a distan t secon d wit h onl y15 % o f th e slots . I n man yrespect s th e Delta/U S Ainways slo t trad e resemble s a divisio n o f market s tha t i s designe d t o eliminat e existin g competitio n a t DCAan d LG Awhil e enhancin g eac h carrier' s siz e an d pricin g powe ra t eac h airport separatel ygoin g forward . A s th e CA C Analysi s demonstrates , th e slo t swa p i s likel yt o reduc e mos t o f th e competitio n betwee n Delt a an d U S Airway s i n DCAan d LG Amarket s today , whil e greatl y enhancin g thei rrespectiv e marke t position s a t DCAan d LG Aseparately. ^ Th e consequence s fo rth e publi co f thi s attempte d re-allocatio n o f market s wil l b e highe r fares , les s competition , an d fewe rservic e option s a t bot h airports . Th e significanc e o f DOT/FAA' s decisio n wit h regar d t o thi s transactio n canno t b e overemphasized . A s th e DOT an d FA Aar e wel l aware , deman d byairline s t o serv e thes e airport s vastl yexceed s th e numbe ro f slot s available , an d ther e ar e n o meaningfu l opportunitie s fo rnewentran t carrier s t o ente ro rexpan d a t LG Ao rDCAtoday . Thi s lac k o f low-far e competitio n alread ycause s million s o f dollar s i n consume rhar m ever y year . A s FA

Aha s show n i n it s Notic e proposin g t o approv e th e transactio n subject t o conditions, ^

fare s a t LG Aan d DCAar e significantl yhighe rtha n othe rairport s i n th e Ne wYor k

o rWashingto n area s tha t hav e meaningfu l low-far e competitio n suc h a s Baltimore-Washingto n Internationa l (BWI) . Delta , U S Ainway s an d othe rlarg e

^ GA G Analysi s Sectio n 3. 2 an d Exhibit s 1-4 .

' 7 5 Fed . Reg . 7306 , 7309-1 0 (Februar y18 , 2010 ) (hereafte r"FA A Notice") .incumben t carrier s a t DCAan d LG Aar e wel l insulate d fro m low-far e competitio n by

Southwes t Airline s a t BW I an d elsewher e du e t o bot h th e geograph yo f th e region s an d a lac k o f availabl e slots . A s a result , airfare s a t bot h DCAan d LG Aar e higher , an d servic e option s ar e mor e limited , tha n the ywoul d b e i n a n openl ycompetitiv e environment . Becaus e o f th e lac k o f competitio n an d acces s a t thes e airports , man yo f th e slot s a t DCAan d LG Aar e bein g systematicall yunderutilized , t o th e detrimen t o f th e public . Th e propose d slo t transfe rwoul d mak e thi s ba d situatio n worse . Beyon d th e shee rincreas e i n marke t concentratio n i t woul d creat e a t LG Aan d DCA , th e transactio n woul d fundamentall yalte rth e natur e o f competitio n at bot h airports . A t LGA , instea d o f a n airpor t balance d amon g thre e airline s o f roughl yequa l size , th e slo t swa p woul d catapul t Delt a int o a dominan t positio n mor e tha n twic e th e siz e o f th e neares t competitor . A t DCA , U S Ainvay s woul d hav e nearl yfou rtime s mor e slot s tha n th e nex t larges t holder . Bot h airport s woul d thu s becom e dominate d bya singl e high-far e legacy airlin e t o a n unprecedente d degree . Th e inevitabl e effect o f thi s increase d concentratio n a t airport s tha t ar e close d t o new entr ywil l b e t o suppres s competitio n fo r year s t o come , i f no t permanently . A s Dr . Campbel l point s ou t i n th e attache d Analysis , th e LG Aan d DCAdominan t carriers , wit h thei rvas t pool s o f slots , wil l hav e a n unmatche d abilit yt o targe t ne wentrant s an d smal l carrier s a t thos e airport s wh o wil l b e unabl e t o moun t a n effectiv e respons e becaus e the ylac k sufficien t slots.' * Moreover , Delt a an d U S Ainvay s wil l becom e th e mos t logica l hig h bidder s fo ran ynewslot s tha t

" GA G Analysi s Sectio n 3. 1 an d Exhibit s 1-4 .becom e available , bot h t o protect an d gro wthei rdominan t marke t positions. ^

Althoug h th e tw o carrier s clai m tha t thei rpropose d slo t transfe rwil l resul t i n certai n "efficiencies " an d othe rallege d benefits , th e trut h i s tha t a massiv e transfe ro f slot s i s no t necessar

yt o achiev e an ypubli cbenefits . Fo rexample . Delt a an d U S Ainvay s hav e bee n an d remai n fre e t o "up-gauge " th e aircraf t the yoperat e a t LG Aan d DCAa t an ytime , ye t the yhav e don e th e opposit e fo ryears . Ove rth e las t decad e Delta' s averag e aircraf t siz e a t LG Aha s decline d steadil yt o 10 5 seats , whil e U S Ainvays ' averag e aircraf t siz e a t DCAha s sun k t o a disma l 9 2 seats. ^

Durin g thi s tim e bot h carrier s vigorousl ydefende d thei rus e o f smal l aircraf t a s someho wpreferre d by th e public , an d bittertyoppose d FAA' s repeate d effort s t o requir e up-gaugin g o f thos e services. ^ Further , whil e bot h carrier s tou t th e allege d benefit s o f "networ k expansion " tha t th e propose d slo t dea l woul d mak e possible , thi s appear s t o b e nothin g mor e tha n a euphemis m fo rth e abilit yt o ad d flight s an d rais e fare s du e t o mor e slot s an d greate r dominanc e a t eac h airport separately . Significantly , nowher e i n th e carriers ' extende d defens e o f th e slo t transactio n an d it s allege d benefit s d o Delt a o rU S Ainvay s make an ymentio n o f ne wlow-far e competitio n a t DCA/LG Ao ra n expecte d reductio n i n fare s

'id . ^ CA C Analysi s Sectio n 7.0 ; Exhibit s 11,13,14,15 ; an d Appendix7-8 . See , e.g. , th e carriers ' publi cstatement s i n th e FAA' s LG ACongestio n Managemen t proceeding . Docke t No . FAA2006-25709 : "As th e larges t operato ro f a n integrate d networ k o f LG Aservice s t o a wid e arra yo f different-size d communities , U

S Airways , a

s a resul t o f marke t necessity , operate s th e lowes t averag e aircraf t size. " Comment s o f US Airways , Dec . 29 , 200 6 a t p . 1 1 (emphasi s i n original) ; "Delt a Connectio n carrier s provid e a numbe ro f service s fro m LaGuardi a Airpor t usin g regiona l je t aircraft . Thes e service s ar e essentia l fo rDelta' s LaGuardi a rout e network... " Comment s o f Delt a Ai rLines , Dec . 29 , 200 6 a t p . 36 .du e t o th e slo t transaction. ^

Moreover , Delta' s clai m tha t th e slo t transactio n wil l enabl e i t t o creat e a "rollin g hub " a t LG Ai s highl ysuspect . A s Dr . Campbel l point s out , i t i s unrealisti ctha t Delt a woul d i n fac t reduc e it s relianc e o n regiona l jet s i n tha t circumstanc e sinc e suc h behavio rwoul d b e contrar yt o al l o f Delta' s othe rhu b operations. ^ O f eve n greate r concer n i s tha t creatin g a "hub " o f an ykin d a t LG Awoul d b e a disservic e t o th e publi c an d t o NewYor k

i n particular , a s i t woul d squande ra larg e amoun t o f LGA' s highl y limite d capacit yt o accommodat e connectin g passenger s wh o hav e n o nee d o rdesir e t o b e a t LG Abu t instea d woul d onl yb e stoppin g ther e o n a journe yelsewhere . Consequently , whil e th e slo t swa p clearl ywil l benefi t bot h o f th e carrier s involved , thos e privat e benefit s wil l com e a t a stee p pric e t o th e public , i n th e for m o f highe rfares , reduce d competition , an d fewe rtrave l options . II . I f FA ADoe s No t Disapprov e th e Slo t Swa p Entirely . I t Shoul d Expan d It s Carve-Out s t o Ensur e Sufficien t Ne wCompetitio n a t Bot h DC Aan d LGA
. Southwes t doe s no t believ e tha t th e Delta/U S Ainvay s slo t swap , i n an yform , i s i n th e publi cinterest . Allowin g tw o o f th e country' s larges t airline s t o collud e o n tradin g asset s i n a wa yt o reduc e competitio n whil e dramaticall yincreasin g thei rmarke t dominanc e a t tw o o f th e Unite d States ' mos t importan t airport s is , o n it s face , a n alarmin g prospect tha t shoul d no t b e permitted . FA Aha s alread yshow n tha t thes e tw o carrier s operat e a larg e numbe ro f monopol yo rheavil ydominate d route s at LG Aan d

^ See Letter s i n thi s docke t entitle d Join t Reques t o f Delt a an d U S Airway s fo ra Waive r(Aug . 24 , 2009 ) an d Delta U S Airway s Slo t Exchang e (Jan . 29 , 2010 ) fro m th e petitionin g carriers .
* GA G Analysi s Sectio n 7.1 .DCA , an d charg e supra-competitiv e fare s a s a result . DOT/FA Ahave publicl ystate d fo r year s thei rconcern s regardin g th e lac k o f ne wentryan d low-far e competitio n a t th e slo t controlle d airports . Whil e th e DO T an d FA Ahav e no t ye t foun d th e appropriat e metho d t o ope n thes e airport s t o greate rcompetition , approvin g thi s transactio n i n an yfor m coul d b e a significan t an d permanen t ste p backwards . If , however , FA

Awishe s t o conside rth e impositio n o f slo t carve-out s a s a n alternativ e t o complet e denia l o f th e transaction , i t mus t ensur e tha t th e carve-out s ar e larg e enoug h t o inject sufficien t low-far e competitio n a t bot h LG Aan d DCAt o offse t th e increase d dominanc e o f Delt a an d U S Airways . Thi s i s especiall ytru e becaus e new entran t an d smal l incumben t carrier s ar e likel yt o hav e n o viabl e mean s t o acquir e additiona l slot s eithe rno wo rfo rth e foreseeabl e future , i f th e transactio n i s approve d eve n o n a modifie d basis . Thes e newentrant s an d smal l carrier s hav e fe wi f an yslot s t o trad e wit h incumben t carriers , an d excep t i n extraordinar ysituation s hav e foun d tha t th e larg e incumbent s ar e unwillin g t o sel l o rsubleas e slot s t o low-far e competitors , eve n i f thei rslot s ar e no t bein g full yutilized . Unfortunately , whil e th e FAA' s propose d carve-out s o f 2 0 slo t pairs a t LG Aan d 1 4 slo t pair s a t DCAar e a goo d start , the yar e to o limite d t o hav e a significan t restrainin g effect o n eithe rDelt a o rU S Ainvay s excep t i n a fe wmarkets . Competitio n fro m Southwes t o rothe rnewentran t carrier s a t LG Aan d DCA , especiall yi n busines s markets , i s no t likel yt o b e effectiv e withou t enoug h slot s t o offe ra patter n o f flight s throughou t th e da yi n eac h marke t served . Eve n i f a singl e carrie rwer e t o acquir e al l o f th e diveste d slot s propose d i n FAA' s notice , tha t woul d realisticall ysuppor t competitiv e servic e i n a t mos t thre e o rfou rLG Amarket s (2 0 roun d trip s total ) an d onl ytw o o rthre eDCAmarket s (fourtee n roun d trip s total) . I f th e acquirin g carrie rwer e t o us e th e

diveste d slot s t o serv e fou rLG Aroute s an d thre e DCAroutes , fo rexample , it s frequencywoul d b e n o mor e tha n fiv e flight s pe rda y- th e bar e minimu m necessar yt o offe ra competitiv e presenc e i n thos e markets.^ ° Moreover , i f th e diveste d slot s ar e divide d amon g severa l carrier s servin g multipl e market s wit h lowfrequencies , th e resultin g competitio n wil l b e s o dilute d i t wil l hav e n o effectiv e pric e disciplin e o n U S Ainvay s an d Delta , give n thei rvastl ylarge rpresenc e i n thos e market s an d man yothers . Adivestitur e o f 2 0 slo t pair s a t LG Awoul d reduc e Delta' s post-transactio n marke t shar e byonl y4% , fro m 50 % t o 46% , an d a carve-ou t o f 1 4 pairs fro m DCAwoul d reduc e U S Airways ' shar e als o byonl y4% , fro m 57 % t o 53%.^ ^ T o ensur e effectiv e low-far e competition , a carve-ou t o f a t leas t 4 0 slo t pairs a t LG Aan d 2 0 pair s a t DCA shoul d b e required.^

^ Adivestitur e o f 4 0 slo t pairs at LG Aan d 2 0 slo t pair s at DCA woul d equat e t o les s tha n 8 % o f tota l slot s a t eac h airport . I f thes e large rdivestiture s rende rth e transactio n s o unpalatabl e t o th e partie s tha t the ydecid e no t t o consummat e it . Southwes t contend s tha t thi s outcom e i s bette rfo rth e travelin g publi ctha n allowin g th e transactio n t o g o throug h wit h insufficien t opportunitie s fo rlow-far e competitio n at thes e critica l airports . However , ther e woul d b e stron g incentive s fo rth e carrier s t o g o fonvar d eve n wit h suc h expande d carve-out s sinc e (a ) FA Ai s proposin g t o allo wDelt a an d U S Ainvay s t o b e full ycompensate d fo rdiveste d slots , whateve rth e number , a s the ywil l b e permitte d t o sel l the m t o th e highes t bidders ; an d (b ) th e large rcarve-out s

GA G Analysi s Sectio n 4.0 .

" GA G Analysi s Sectio n 4.0 , Exhibit s 1-5 , an d Appendi x1 . GA G Analysi s Sectio n 4.0 .describe d abov e ar e stil l miniscul e compare d t o th e dominan t share s tha t Delt a an d U S

Ainvay s wil l hol d a t LG Aan d DCAafte rth e transaction . Acarve-ou t o f 4 0 slo t pairs a t LGA , fo rexample , woul d leav e Delt a wit h 42 % o f th e airport' s total , byfa rth e larges t holding . Wit h 47 8 slots . Delt a ca n certainl yachiev e an ylegitimat e "networ k expansion " tha t increase s bot h servic e an d competitio n a t LGA
. Similarly , wit h a carve-ou t o f 2 0 slo t pairs a t DCA , U S Ainvay s woul d stil l contro l 49 % o f al l DCAslots . Wit h 39 4 slot s at it s disposal , U S Airway s ca n unquestionabl yad d ne w nonsto p point s t o it s DCAnetwor k an d up-gaug e it s aircraf t t o operat e mor e efficientl ya s i t ha s sai d i t wil l d o i f th e transactio n i s approved . III . Th e DO T an d FA AHav e Ampl e Lega l Authorit yt o Requir e Carve-Out s A s a Conditio n o f Approvin g th e Slo t Swap
. Th e DOT an d FA

Aunquestionabl yhav e th e lega l authorit yt o requir e divestiture s o f slot s a s a conditio n o f approvin g Delta/U S Ainvays ' reques t fo ra n unprecedente d waive ro f FAA' s slo t regulations . Sinc e th e DOT/FAAhav e th e authorit yt o gran t th e carriers ' reques t i n ful l (a s eve n Delt a an d U S Ainvay s mus t agree) , DOT/FA A necessaril yhav e th e authorit yt o gran t th e reques t i n pa/t - whic h i s precisel ywha t FA A ha s propose d t o d o i n it s Notice . DOT/FAAmaygran t th e requeste d waive ronl yi f i t find s i t t o b e "i n th e publi cinterest. " Base d o n compellin g evidenc e an d thoroug h analysis , DOT/FAAhav e correctl ydetermine d tha t th e transactio n a s presente d "woul d resul t i n a substantia l increas e i n marke t concentratio n tha t woul d har m consumers " an d therefor e woul d no t b e i n th e publi cinterest.^ ^ DOT/FAAhav e als o conclude d tha t i f Delt a an d U S Ainvay s wer e t o mak e off-settin g slo t divestiture s a t bot h airports , th e

" 7 5 Fed . Reg . 7306 , 730 6 (Feb . 18 , 2010) .modifie d transactio n woul d b e i n th e publi cinterest .

I n fact , DOT/FAAhav e mad e clea ri n th e Notic e tha t the yinten d t o impos e condition s o n th e propose d transactio n i n pursui t o f thei rstatutor ydut yt o protect th e publi cinteres t by , fo rexample :

• "Placin g maximu m relianc e o n competitiv e marke t force s an d o n actua l an d potentia l competitio n t o provid e th e neede d ai rtransportatio n system, " 4 9 US C § 40101(a)(6) ;

• "Preventin g unfair , deceptive , predatory , o ranticompetitiv e practice s i n ai r transportation, " 4 9 US C § 40101(a)(9) ;

• "Avoidin g unreasonabl e industr yconcentration , excessiv e marke t domination , monopol ypowers an d othe rcondition s tha t woul d ten d t o allo w[an ] ai rcarrier.. . unreasonabl yt o increas e prices , reduc e sen/ices , o rexclud e competitio n i n ai r transportation, " 4 9 US C §40101(a)(10) ; an d

• "Encouragin g entr

yint o ai rtransportatio n market s bynew an d existin g ai r carriers... " 4 9 US C § 40101(a)(13) . DOT/FAAcoul d hav e gon e furthe ran d require d Delt a an d U S Airway s t o relinquis h slot s withou t compensatio n a s a conditio n fo rapprova l o f th e requeste d waiver . Th e fac t tha t DOT/FA

Atentativel yrejecte d tha t optio n an d ar e instea d proposin g t o allo w th e carrier s t o sel l th e slot s fo rful l valu e i s a discretionaryactio n tha t significantl ybenefit s th e carriers . IV . I f I t Wer e Abl e t o Acauir e Carved-Ou t Slots
. Southwes t Woul d Generat e Enormou s Publi cBenefit s b yReducin g Fare s an d Increasin g Traffi ca t Bot h DC Aan d LGA
. Toda ySouthwes t ha s n o slot s a t al l at DCAan d ha s onl ya toke n presenc e o f eigh t dail yflight s a t LGA.^" * Despit e multipl e effort s Southwes t ha s bee n unabl e t o

Southwes t acquire d 1 4 LG A slot s i n Marc h 200 9 vi a a n acquisitio n o f AT AAirlines , whic h wa s the n i n Chapte r1 1 bankruptcy . Southwes t inaugurate d servic e a t LG A usin g thes e slot s i n Jun e 2009 .acquir e an yDCAslots , o ran yadditiona l LG Aslot s t o expan d it s smal l operatio n ther e

t o a mor e efficien t size.^ ^ I f Southwes t wer e t o gai n meaningfu l acces s t o DCAan d LGA , i t woul d brin g badl yneede d competitio n t o bot h airports.^ ^ Fo rth e las t 3 8 year s th e "Southwes t Effect " ~ th e DOT' s descriptio n o f Southwest' s consisten t record o f dramaticall yreducin g fare s an d expandin g traffi cwhe n i t enter s ne w market s ~ ha s prove n t o b e th e mos t poten t forc e i n domesti cairlin e competition.^ ^ Eve n unde rth e FAA' s modes t propose d carve-outs , th e publi cbenefit s fro m Southwest' s competitio n woul d b e enormous . Base d o n empirica l data . Dr . Campbel l calculate d tha t Southwest' s averag e far e woul d b e 33 % lowe rtha n Delta' s averag e far e a t LGA , an d 49 % lowe rtha n U S Ainvay' s averag e far e a t DCA
. I f Southwes t wer e t o acquir e 2 0 slo t pairs a t LG Ai t woul d generat e $8 4 millio n i n far e saving s annuall ycompare d t o Delta' s us e o f thos e slots.^

^ Similarly , i f Southwes t wer e t o acquir e 1 4 slo t pairs a t DCAi t woul d generat e $10 9 millio n pe ryea rcompare d t o U S Ainvays ' us e o f th e slots.""^ Moreover , Southwes t woul d carr ymor e tha n 340,00 0 additiona l passenger s t o an d fro m eac h o f thos e airport s annuall yusin g it s B-73 7 aircraf t compare d t o Delta' s an d U S

^ ^ Southwes t wa s offere d LG A slot s b ya n incumben t carrie ro n on e occasio n bu t onl ya t exorbitan t prices , i.e. , price s tha t wer e s o hig h tha t th e resultin g flight s woul d have bee n uneconomic .

" Th e FAA' s observatio n tha t DC Ai s a separat e competitiv e marke t fro m BW I an d IA D i s consisten t wit h Southwest' s experience . Specifically , airline s servin g th e sam e destination s fro m DG A tha t Southwes t serve s fro m BW I o rIA D hav e bee n abl e t o maintai n a consisten t far e premiu m abov e Southwest' s fares . Thi s indicate s tha t DG Ai s effectivel yinsulate d fro m Southwest' s low-far e service s a t BW I an d IA D du e t o it s unique proximit yt o downtow n Washingto n D G a s wel l a s slo t constraint s tha t preven t ne wentry .

" Fo rth e lates t exampl e o f thi s phenomeno n se e Southwes t Effect i s Kickin g i n a t MSP
. Minneapoli s Sta rTribune , Marc h 6 , 201 0 ("On e yea rafte rth e low-cos t carrie rcam e t o town , th e averag e far e fro m her e t o Chicago' s Midwa y has droppe d mor e tha n 6 0 percent , t o $101...
. An d passenge rnumber s fo ral l carrier s o n tha t rout e jumpe d 5 0 percent , t o 3,36 5 pe rday") . ^ ^ GA G Analysi s Sectio n 6. 1 an d Exhibi t 8 . 1 0Ainvays ' servic e wit h regiona l jet s an d turboprops.^ °

A s note d earlier , w e believ e tha t FAA' s propose d carve-out s o f 2 0 slo t pair s a t LG Aan d 1 4 pairs a t DCAar e to o smal l an d shoul d b e expande d i n orde rt o more effectivel ycounteract th e anticompetitiv e effect s o f th e Delta/U S Ainvay s slo t swap . However , i f Southwes t wer e abl e t o acquir e jus t th e limite d numbe ro f DCAan d LG A slot s tha t FA

Aha s initiall ypropose d t o carv e out , enormou s publi cbenefit s woul d stil l b e generate d fro m significantl ylowe rfare s an d greatl yincrease d traffi ci n th e fe w market s tha t Southwes t woul d serv e a t thos e airports . I n othe rword s Southwes t woul d pu t th e diveste d slot s t o thei rprope rcompetitiv e us e an d generat e hundred s o f million s o f dollar s annuall yi n benefit s t o consumer s i n doin g so . V . Allocatin g Diveste d Slot s vi a a Transparen t Auctio n t o th e Highes t Bidde ri s th e Onl yWa yt o Ensur e Effectiv e Ne wCompetitio n a t LG Aan d DCA
. Th e laudabl e goal s se t ou t i n FAA' s notic e wil l no t b e achieve d unles s th e slo t sal e proces s i s structure d t o ensur e tha t slot s ar e allocate d t o thos e newentran t o r limite d incumben t carrier s tha t wil l generat e th e maximu m competitio n an d publi c benefit s possible . Th e FAA' s notic e wa s undecide d o n th e manne rb ywhic h th e diveste d slot s shoul d b e allocated , an d invite d commen t o n possibl e option s includin g specificall yth e following : (1 ) allowin g Delt a an d U S Ainvay s t o dispos e o f th e slot s vi a "privat e sales; " (2 ) establishin g a cash-only , single-bi d proces s wit h bidders ' identitie s blinded , bu t allowin g th e sellin g carrier s t o accep t o rreject th e highes t bid ; o r(3 ) establishin g a n FA

A"bulleti n board " t o invit e offer s bu t allowin g Delt a an d U S Ainvay s

" GA G Analysi s Sectio n 6. 2 an d Exhibi t 10 . ^ ° GA G Analysi s Sectio n 7. 0 an d Exhibit s 1 2 an d 16 . 1 1t o negotiat e term s an d consideratio n wit h eligibl e buyers.^ ^ Al l o f thes e option s ar e flawed , however , an d i f adopte d a s describe d ar e unlikel yt o achiev e th e FAA' s goa l o f injectin g meaningfu l competitio n a t LG Aan d DCA
. Th e onl ysur e wa yt o guarante e tha t diveste d slot s generat e th e maximu m competitiv e benefi t possibl e i s t o auctio n th e diveste d slot s t o th e highes t bidder s i n a n open , transparent , cash-only , competitiv e biddin g proces s amon g eligibl e buyers . Allowin g th e sellin g carrier s t o selec t th e buyers , o rt o determin e th e term s an d condition s o f sale , i s a n invitatio n fo rmanipulatio n o f th e allocatio n proces s fo ranti competitiv e purposes.^

^ Althoug h th e FA

Aha s justifiabl ylimite d th e poo l o f eligibl e buyers t o carrier s wit h les s tha n fiv e percen t o f DCAan d LG Aslots , ther e ar e man y carrier s i n tha t pool , an d ther e i s a wid e variatio n amon g the m wit h respect t o thei r competitiv e strength s an d th e use s t o whic h the ywoul d pu t th e slots . I f Delt a an d U S Ainvay s wer e give n discretio n t o choos e th e buyers o f diveste d slots , i t woul d no t b e surprisin g fo rthe m t o selec t th e weakes t competitor s the ywoul d hav e t o fac e i n th e future . Alternatively , Delta/U S Ainvay s migh t decid e t o distribut e th e slot s amon g man y differen t buyer s t o preven t an ysingl e carrie rfro m gainin g a n effectiv e competitiv e presenc e agains t them . I n eithe rcircumstance . Southwes t woul d likel yb e th e sellers ' las t choic e a s a buye ro f carved-ou t slots , a t leas t i n an ysignifican t quantity . Fo rthes e reasons , unde rn o circumstance s shoul d th e sellin g carrier s b e give n discretio n t o determin e wh o th e buyers o f diveste d slot s wil l be , o rt o specifyth e term s an d condition s o f sale . Instead , Delt a an d U S Ainvay s shoul d simpl yb e require d t o sel l

" FA ANotic e a t 7311-12 .

" Se e discussio n o f thi s issu e i n Sectio n 9. 0 o f th e GA G Analysis . 1 2th e slot s t o th e highes t bidders i n a n ope n an d transparen t cash-onl yauctio n amon g th e

poo l o f eligibl e buyers . I t ha s lon g bee n recognize d tha t auction s ar e th e mos t efficien t mean s fo rallocatin g scarc e resource s i n a manne rtha n ensure s the ywil l b e pu t t o th e maximu m societa l benefit . Th e FA Aitsel f ha s recognize d thi s principle,^ ^ an d man y governmen t agencie s us e auction s t o allocat e scarc e asset s t o ensur e tha t th e asset s ar e pu t t o thei rbes t publi cuse , e.g. , th e Federa l Communication s Commissio n (radi o an d broadban d frequencies) , Departmen t o f th e Interio r(oi l an d ga s drillin g rights) , an d th e U.S
. Fores t Servic e (timbe rtracts).^ ^ Th e Departmen t o f Justic e ha s specificall y advocate d th e us e o f auction s i n th e context o f slots , a s a mean s o f allocatin g slot s t o thos e carrier s tha t plac e th e highes t valu e o n the m an d wil l therefor e pu t the m t o th e maximu m competitiv e use.^ ^ A s th e DO J ha s pu t it , "[i] n thi s way , scarc e resource s ar e allocate d byth e pric e mechanis m t o th e highes t value d uses."^ ^ I n th e presen t case , i n orde rt o ensur e th e faires t an d mos t objectiv e process , th e auctio n o f diveste d slot s shoul d b e limite d t o cash-onl ybids , withou t condition s o rothe r form s o f consideration . Th e valu e o f othe rtype s o f consideratio n i n a sal e o f slot s i s likel yt o var

ywidel yamon g carrier s dependin g o n thei rsubjectiv e need s an d interests , an d i s inherentl ysubjec t t o interpretatio n an d manipulation . Cash-onl ybids , o n th e othe rhand , ar e clea rt o al l participant s an d no t subject t o interpretation . I n addition .

" Congestio n Managemen t Rul e fo rLaGuardi a Airport , Fina l Rule , 7 3 Fed . Reg . 6057 4 (Oct
. 10 , 2008) ; Supplementa l Notic e o f Propose d Rulemaking , 7 5 Fed . Reg . 2084 6 (Apri l 17 , 2008) . ^ * See , e.g. , U.S
. Departmen t o f Justice , Economi cAnalysi s Grou p Discussio n Paper . Proposa l Fo rA Market-Base d Solutio n t o Airpor t Dela y(hereafte r"DOJ EA

G Slo t Auctio n Discussio n Paper") . October , 2007 , p . 3 , n . 5 .

" DO J EA G Slo t Auctio n Discussio n Paper . ^ ^ DO J EA G Slo t Auctio n Discussio n Paper , p . 9 .
1 3allowin g othe rform s o f consideratio n i n th e biddin g proces s i s especiall yinappropriat e

i n thi s cas e sinc e newentrant s bydefinitio n hav e n o othe rasset s a t thes e airport s t o trad e i n a purchas e transaction . Beyon d that , cash-onl ybiddin g i s particularl y appropriat e here becaus e ther e i s n o establishe d "publi cprice " fo rslot s a t DCAo rLGA ; ver yfe wslo t sale s hav e take n plac e a t all , an d ther e ha s bee n n o transparencyt o thos e tha t have . Acash-onl yauction , o n th e othe rhand , wil l establis h clea rprice s fo rth e slot s bein g bi d upon.^

^ Contrar yt o FAA' s initia l suggestion , ther e i s n o nee d fo rth e identitie s o f bidder s i n a tru e auctio n t o b e blinded , s o lon g a s th e sellin g carrier s hav e n o rol e i n th e biddin g proces s an d ar e require d t o sel l t o th e highes t bidde rregardles s o f identity . Similarly , n o restriction s shoul d b e place d o n th e numbe ro f slo t "bundles " tha t a n eligibl e buye r maybi d upon . A s note d earlie ri n thes e comments , effectiv e competitio n at DCAan d LG Arequire s a critica l mas s o f slots , an d tha t goa l wil l b e thwarte d i f artificia l restraint s ar e impose d upo n th e abilit yo f eligibl e buyers t o participat e i n th e biddin g process . A n open , transparent , an d unrestricte d auctio n a s outline d abov e wil l produc e th e mos t robus t biddin g possible , withou t confusio n o rargumen t ove rwh o th e highes t bidders are . Suc h auction s wil l b e eas yfo rFA At o administer , an d wil l b e th e quickes t an d mos t efficien t mean s o f effectuatin g th e slo t divestiture s tha t DOT/FA Ahav e correctl y determine d ar e i n th e publi cinteres t t o enhanc e competition.^ ^

" Not e tha t th e "single-bid " optio n mentione d i n FAA' s Notic e differ s significantl yfro m a tru e auction . Asingle-bi d proces s wil l no t achiev e th e objectiv e o f determinin g a highes t bidde ri n a n open , multi-bi d environment . ^ ^ Th e seller s o f th e slot s (as wel l a s thei rcreditors , t o th e exten t an yo f th e slot s ar e collateralized ) hav e n o basi s fo ropposin g th e auctio n proces s describe d abov e sinc e i t wil l generat e th e highes t retur n t o Delt a an d U S Airway s fo rth e diveste d slots . 1 4VI . Adeguat e Airpor t Facilitie s Mus t b e Mad e Availabl e t o th e

Recipient s o f Diveste d Slot s t o Ensur e The yHav e Effectiv e Acces s t o DC Aan d LGA
. Slot s bythemselve s ar e o f n o valu e t o a newentran t a t LG Ao rDCAwithou t viabl e an d commensurat e airpor t facilitie s t o pu t th e slot s int o service . Suc h facilitie s woul d includ e gates , ticke t counte rpositions , operation s space , an d baggag e make-u p areas . A s th e DOT an d FA Aar e wel l aware , availabl e groun d facilitie s a t LG Aan d DCA ar e almos t non-existen t today , an d coul d b e completel yforeclose d t o a ne wentran t i f th e DL/U S slo t transactio n wer e approve d withou t specificall yrequirin g facilitie s t o accompan yth e diveste d slots . I n fact , Delt a an d U S Ainvay s ar e proposin g a n extensiv e exchang e o f groun d facilitie s a t bot h airport s commensurat e wit h th e new leve l o f servic e envisione d fo reac h carrie ri n thei rorigina l deal . Thi s exchang e simpl y confirm s th e obvious , tha t th e holders o f slot s a t bot h airport s nee d adequat e groun d facilitie s t o pu t thei rslot s int o service . Newentrant s o rlimite d incumbents , bydefinition , have fe wi f an yfacilitie s t o suppor t newservic e a t thes e tightl ycontrolle d airports . Southwes t ha s n o facilitie s a t al l a t DCA , an d ha s onl ya singl e gat e a t LG Awhic h i s full yutilize d handlin g eigh t dail y flights . W e suspect tha t mos t othe religibl e buyers o f diveste d slot s ar e i n a simila r position . Ye t th e FAA' s orde ri s silen t o n th e nee d t o mak e groun d facilitie s availabl e t o th e buyers o f diveste d slots . I n orde rfo rth e publi cbenefit s o f carved-ou t slot s t o b e realized , th e FA

Ashoul d amen d it s orde rt o requir e Delt a an d U S Ainvays , workin g wit h th e respectiv e airport authorities , t o mak e commensurat e airport facilitie s availabl e o n commerciall yreasonabl e term s t o th e buyers o f thos e slot s pursuan t t o a long-ter m 1 5lease . Specifically , a carve-ou t o f 2 0 slo t pairs a t LG Awoul d reguir e a divestitur e o f

fou rgate s (an d supportin g facilities) , an d a carve-ou t o f 1 4 pairs a t DCAwoul d reguir e a divestitur e o f thre e gates . Moreover , th e buyers o f th e carved-ou t slot s shoul d no t b e require d t o paymor e fo rthes e facilitie s tha n Delta , U S Ainvay s an d othe rincumben t carrier s ar e payin g fo rcomparabl e facilitie s pursuan t t o lease s wit h th e respectiv e airport authorities . Assumin g tha t Delt a an d U S Airway s ar e require d t o dives t a numbe ro f slot s a s a conditio n o f approva l fo rthei rwaive rrequest , i t follow s tha t the ywil l no t requir e th e ful l complemen t o f airport facilitie s tha t the ywer e proposin g t o exchange . Consequently , FA Ashoul d requir e Delt a an d U S Ainvay s t o retur n th e neede d facilitie s t o eac h airport s o th e airport authoritie s ca n the n leas e the m directl yt o th e recipient s o f th e diveste d slots . Asecon d bu t les s desirabl e optio n i s t o requir e th e carrier s themselve s t o includ e th e appropriat e numbe ro f gate s an d othe rfacilitie s wit h th e slo t bundle s bein g auctioned . However , onl yth e airport s hav e ful l knowledg e o f thei rfacilitie s an d ar e i n th e bes t positio n t o determin e how t o accommodat e new carrier s mos t effectively . Ideally , therefore , eac h airport authorit yshoul d hav e contro l ove rth e assignmen t an d leasin g o f groun d facilitie s t o th e buyers o f carved-ou t slots . Th e FA Ashould , however , requir e tha t th e newcarrier s b e accommodate d o n term s n o les s favorabl e tha n thos e accorde d t o Delt a an d U S Ainvay s a t LG Aan d DCA
. A s note d above . Delt a an d U S Ainvay s wil l hav e ampl e facilitie s remainin g a t LG Aan d DCAt o accommodat e thei rslo t portfolio s afte rthi s transaction , eve n wit h divestiture s o f facilitie s commensurat e wit h carved-ou t slots . Du e t o thei rlarg e gat e holdings , th e incumben t carrier s alread ybenefi t fro m significan t gat e schedulin g
1 6flexibilit y(fo rexampl e t o accommodat e irregula roperations ) tha t smalle rcarrier s simpl y

d o no t have . Unde rth e propose d slo t transfe ragreemen t Delt a woul d gai n numerou s additiona l gate s vi a th e acquisitio n o f U S Ainvays ' Mainlin e an d Shuttl e terminals . At DCA , th e fac t tha t U S Airway s i s proposin g t o accommodat e 4 2 ne wroundtri p flight s wit h onl ythre e ne wgates , suggest s tha t th e carrie ralread yha s exces s facilities . I f U S Ainvay s receive s a mor e modes t additio n o f 2 8 roundtrips , i t ca n certainl yfin d spac e fo r the m o n thei rexistin g 1 5 gates , plu s it s significan t off-gat e commute rhard-stan d facilities . Th e DOT/FA

Ahav e ampl e authorit yt o requir e Delt a an d U S Ainvay s t o mak e suc h facilitie s availabl e a s a conditio n o f approvin g thei rextraordinar yreques t fo ra waive ro f th e FAA' s slo t regulations . I t clearl yi s i n th e publi cinteres t t o d o s o sinc e thes e facilitie s ar e require d t o enabl e ne wentran t an d limite d incumben t carrier s t o utiliz e diveste d slot s an d brin g consume rbenefit s t o th e market . I n fact , i f th e incumben t carrier s wer e t o den yth e buyers o f carved-ou t slot s sufficien t groun d facilitie s o n reasonabl e terms , th e DOT woul d b e justifie d i n findin g suc h actio n t o b e a n unfai rcompetitiv e practic e and/o ra n unfai rmetho d o f competitio n i n violatio n o f 4 9 US C §41712
. V . Conclusio n Th e Delta-U S Ainvay s slo t transfe ragreement , a s presented , woul d dramaticall y reduc e competitio n a t LG Aan d DCA , tw o o f th e mos t critica l airport s i n th e Unite d States , fo ryear s t o come . Southwes t urge s th e DOT/FA At o eithe rdisapprov e th e carriers ' extraordinar

yreques t fo ra waive ro f th e LG AInteri m Orde rentirely , o r conditio n i t upo n slo t carve-out s large rtha n th e 2 0 slo t pairs a t LG Aan d 1 4 pairs a t 1 7DCAtha t FA Ainitiall yproposed . To ensur e tha t th e slo t divestiture s achiev e th e DOT/FAA' s desire d objectiv e o f injectin g effectiv e ne wcompetitio n a t DC Aan d LGA , slot s shoul d b e auctione d t o th e highes t bidder s amon g eligibl e buyers i n a cash-onl y proces s withou t givin g th e sellin g carriers discretio n t o select th e buyers o rdictat e th e term s o f sale . I n addition , sufficien t gate s an d othe rgroun d facilitie s mus t b e mad e availabl e t o th e buyers o f diveste d slot s o n reasonabl e terms . I f Southwes t i s abl e t o acquir e sufficien t slot s a t LG Aan d DC Athoug h thi s proces s i t wil l generat e hundred s o f million s o f dollar s i n far e saving s an d carr yhundred s o f thousand s o f additiona l passenger s annuall ythroug h a n efficien t an d competitiv e utilizatio n o f thes e scarc e publi cassets . )ectfull ysubmitted , ?bber t WrKnSt^ley

^ Associat e Genera l Counse l Southwes t Airline s Co
. Marc h 22 , 201 0 Washingto n D C

1 8

## BEFOR E TH E

U.S . DEPARTMEN T O FTRANSPORTATIO N FEDERA LAVIATIO N ADMINISTRATIO N 

### Docke t No . FA A - 2010-010 9
ECONOMI C ANALYSI S O FTH E DELTA/U S AIRWAY S SLO T SWAP AGREEMEN T AND TH E FAA' S PROPOSE D SLO T CARVE-OUT S

Prepare dby :

Campbel l Aviatio n Consultant s LL C

Dr . Bria n M . Campbel l Charlottesville , V A Presiden t Marc h22,201 0 bnicconsulting@earthlink.ne tTABL E O F CONTENT S

Sectio n Titl e Pag e 1. 0 Introductio n 1 2. 0 Summar y o f

Conclusion s 1 3. 0 Th e Propose dSlo t Swa p Transactio n Woul dFundamentall y Alte r th e Competitiv e Dynamic s o f

LG A an dDC A Whil e Lockin g Ou t Futur e Competitio n 2 3. 1 I f th e Slo t Transactio n i s Approved , Delt aan dU S Airway s Woul dB e Abl e t o Us e Thei r Dominan t

Position s a

t LG A andDCA fo

r Anticompetitiv e Purpose s 3 3. 2 Th e Slo t

Swa p Woul dLeav e Delt aandU S Airway s Jus t Enoug hSlot s t o Serv e Thei r Hub s an dth e Shuttle , Eliminatin g Nearl y Al l Competitio n Betwee n Thema t Bot h LG A andDCA 5 4. 0 Large r

Slo t Carve-Out s a t

Bot hLG A an dDC A ar e Essentia l t o Mitigat e th e Anticompetitiv e Effect s o f th e DeltaAJ S Airway s Transactio n 8 5. 0 Th e Mos t

Pro-Competitiv e Outcom e fo r FAA' s Modes t

Carve-Out s I s Fo r

Al l th e Slot s T o B e Acquire dB y A Singl e Low-Far e Carrie r 1 1 6. 0 Unde r

Th e FAA' s Propose dCarve-Outs , Southwest' s Servic e Woul dProduc e Approximatel y $19 3 Millio n o f Annua l Far e Saving s 1 2 6. 1 Southwest' s Servic e a t LG A Woul dSav e Passenger s $8 4 Millio n Annuall y 1 3 6. 2 Southwest' s Servic e a t DCA Woul dSav e Passenger s $10 9 Millio n Annuall y 1 4 7. 0 Southwes t

Woul dMak e Muc hMor e Efficien t Us e o f Slot s Tha n Delt ao r

U S Airway s 1 4 7. 1 Delt aI s a

n Inefficien

t Use r o f LG A Slot s 1 5 7. 2 U S Airway s I s a

n Inefficient

User o f DCA Slot s 1 6 8. 0 Th e FA A Carve-Ou t Proposa l Mus t

Provid e Assurance s o f Effectiv e Airpor t Acces s b y Includin g Adequat e Airpor t Facilitie s fo r

th e Carrier s Acquirin g Slots. . 1 6 9. 0 A Pro-Competitiv e Outcom e Require s aSimpl e Market-Base dAuctio n 1 7TABL E O F CONTENT S

ATTACHMEN T A : Qualification s o f Dr . Bria n M . Campbel l EXHIBITS : Exhibi t 1 Th e Slo t

Swap Woul dMak e Delt aB y Fa r th e Larges t

Carrie r a t LG A Exhibi t 2 Th e Slo t

Swap Woul dTransfor mLG A int o a n Airpor t Dominate dB y aSingl e Carrie r Exhibi t 3 Th e Slo t

Swap Woul dIncreas e U S Airways ' Dominanc e a t DC A Exhibi t 4 U S Airway s Woul dHav e Nearl y Fou r Time s Mor e DC A Slot s tha n th e Nex t Larges t Holde r Exhibi t 5 FAA' s Propose dCarve-Out s Woul dOnl y Marginall y Diminis hth e Anti
Competitiv e Impact s o f

th e Slo t Swap Exhibi t 6 Southwest' s Averag e Fare s ar e Significantl y Lowe r tha n Delta' s a t

LG A an d U S Airways ' a t

DC A Exhibi t 7 Southwest' s Averag e Far e Woul dB e 33 % Lowe r Tha n Delta' s Averag e Far e a t LG A Exhibi t 8 Ne w Low-Far e Servic e b y Southwes t Usin g 2 0 Pair s o f

LG A Slot s Woul d Generat e $8 4 Millio n i n Annua l Passenge r Saving s Exhibi t 9 Southwest' s Averag e Far e Woul dB e 49 % Lowe r Tha n U S Airways ' Averag e Far e a t DC A Exhibi t 1 0 Ne w Low-Far e Servic e b y Southwes t Usin g 1 4 Pair s o f

DC A Slot s Woul d Generat e $10 9 Millio n i n Annua l Passenge r Saving s Exhibi t 1 1 Onl y 53 % o f

Delta' s Departure s a t

LG A Utiliz e Mainlin e Aircraf t i n Route s Ove r

25 0 Mile s Exhibi t 1 2 Usin g 2 0 Pair s o f Slot s a t LG A Southwes t

Woul dOperat e 30 % Mor e Seat s an d Carr y Ove r

350,00 0 Mor e Passenger s Pe r Yea r Tha n Delt a Exhibi t 1 3 Delta' s Averag e Aircraf t Siz e a t LG A Ha s Decline d17 % I n Th e Las t Decad e T o 10 5 Seat s Exhibi t 1 4 Onl y 38 % o f

U S Airways ' Departure s a t DC A Utiliz e Mainlin e Aircraf t i n Route s Ove r

25 0 Mile s Exhibi t 1 5 U S Airways ' Averag e Aircraf t Siz e a t DC A I s Les s Tha n 10 0 Seat s Exhibi t 1 6 Usin g 1 4 Pair s of Slot s a t DC A Southwes t

Woul dOperat e 49 % Mor e Seat s an dCarr y 345,00 0 Mor e Passenger s Pe r Yea r Tha n U S Airway sTABL E O F CONTENT S

APPENDICES : Appendix- 1 Curren t an dProspectiv e Slot s Operate db y Delt aan dU S Airway s a t LG A an dDC A Appendix- 2 Curren t Delt aan dU S Airway s Dail y Departure s b y Marke t a t LG A Appendix- 3 Curren t Delt aan dU S Airway s Dail y Departure s b y Marke t a t DC A Appendix- 4 Southwes t Airline s Yiel dCurv e fo r th e Yea r Ende dSeptembe r

200 9 Appendix- 5 D La t

LG A Yiel dCurv e fo r

th e Yea r Ende dSeptembe r

200 9 Appendix- 6 U S a t

DC A Yiel dCurv e fo r

th e Yea r Ende dSeptembe r

200 9 Appendix- 7 Onl y 53 % o f Delta' s Departure s a t

LG A Utiliz e Mainlin e Aircraf t i n Route s Ove r

25 0 Mile s Appendix- 8 Onl y 38 % o f U S Airways ' Departure s a t DC A Utiliz e Mainlin e Aircraf t i n Route s Ove r

25 0 Mile s

II I

### ECONOMI C ANALYSI S O FTH E DELTA/U S AIRWAY S SLO T SWAP

AGREEMEN T AND TH E FAA' S PROPOSE D SLO T CARVE-OUT S 1.0 Introductio n Southwes t Airline s Co . ("Southwesf ) retaine dCampbel l Aviatio n Consultant s ("CAC" ) t o examin e th e slo t

swa p proposal advance db y Delt aandU S Airway s at LG A andDCA . I

n conjunctio n wit

hthi s slo t

swa p evaluation , CA C wa s requeste dt o analyz e th e efficac y o f th e FAA' s carve-ou t

proposal t o lessen th e anti-competitiv e effect s o f th e transaction . Delt aan dU S Airway s propos e t o swa p alarg e number

o f operatin g slot s wit

heac hother a t tw o major

slo t controlle dairports . Delt awoul dobtai n 14 0 pair s o f slot s fro mU S Airway s a

t LGA, ' andi

n retur n woul dtrad e 4 2 slo t

pair s t o U S Airway s a

t DCA . Th e FA

A propose s t o approv e th e transactio n subjec t t o a2 0 slo t

pai r carve-ou t fo r qualifyin g airline s a

t LGA , anda 1 4 slo t pai r carve-ou t a t DCA . The CAC analysi s wa s directe dby Dr . Bria n Campbell . I

t employ s standardtime-teste d DO T method s o f

marke t analysi s usin g traditional publicall y availabl e aviatio n dat asources . Dr . Campbel l ha s participate di n score s o f

DOT/FAA/CA B regulatory proceeding s andh e ha s appeare da s a

n exper t witnes s in over

7 5 adversarial aviatio n hearings . A synopsi s o f hi s experienc e relevan t

t o thi s proceedin g i s presente di n Attachmen t

A t o thi s text . 2. 0 Summar y o f

Conclusion s CAC ha s examine dth e Delta / U S Airway s slo t

swa p proposal andth e carve-ou t solutio n suggeste db y th e FAA , andha s reache dth e followin g conclusions :
• Th e slo t

swa p a s proposed , o r

a s modifie db y th e FAA , woul dfundamentally alter th e competitiv e dynamic s o f

LG A an dDC A by creatin g on e dominant carrier a t each airpor t andeffectively lockin g ou t ftiture competition . Delt awoul ddominate LG A service s wit

h46 % t o 50 % o f

al l th e operatin g slots , andU S Airway s woul ddominate DC A service s wit

h53 % t o 57 % o f

al l th e slots . • Wit ho r withou t carve-outs , th e propose dslo t swa p woul dleav e U S Airway s wit h 4 7 slot s a t LG A an dDelt awit

h4 6 a t DC A - jus t

enoug ht o serv e thei r

hubs , portion s o f th e Shuttle , andlittl e else . B y eliminatin g mos t o f th e competitio n betwee n th e tw o

^ Thi s consist s o f

apermanent

transfer o f 125 LGA slo t

pair s plu s aleas e wit

h a n optio n t o purchas e a

n additional 1 5 LG A slo t pairs .carrier s whil e creatin g dominant position s a

t separate airports , th e transactio n i s i n th e nature o f adivisio n o f

market s tha

t wil l rais e fare s anddiminis hpassenger options . • Th e FAA' s slo t

carve-ou t

solutio n doe s no t

g o fa r enoug ht o remedy th e anticompetitiv e effect s o f

th e propose dswap . I

n order t o injec t ameaningful degre e o f ne w competitio n t o offse t th e increase dconcentration , 4 0 t o 5 0 pair s shoul db e carved-ou t

a t LGA , andat

leas t 2 0 slo t pair s shoul db e mad e availabl e a t DCA . • I f th e transactio n i s approve dit i s unlikel y tha

t any other

carrier wil l b e abl e t o acquire futur

e DC A or

LG A slot s at economicall y viabl e price s sinc e Delt aandU S Airway s wil l hav e bot

hoffensiv e anddefensiv e reason s fo r capturin g any availabl e slots . Thu s it

i s critical t o increas e th e number o f slo t carve-out s require dfo

r approval o f

th e transaction . • I f Southwes t

were t o acquire jus t

th e slo t carve-out s propose dby th e FAA , i t woul d sav e passenger s $8 4 millio n annuall y a t LG A and$10 9 millio n per

yea r a t DCA . • Southwes t

woul dus e diveste dLGA an dDC A slot s muc hmore efficiently than th e incumbents , operatin g over 460,00 0 more annua

l seat s andcarryin g over 340,00 0 more passenger s a

t eachairpor

t tha n Delt ao r U S Airways . • Gates , baggag e make-up , counter , andoffic e spac e are critical requirement s andar e integral t o an

y flight operation . They shoul db e package dfo r sal e wit hth e slot s t o ensure aviabl e operatio n b y ane w entran t o r smal l incumbent . • Th e mechanis mfo

r th e sal e o f

slots , gate s an dterminal spac e shoul db e asimpl e market-base dauction . Al l thre e alternativ e method s suggeste db y th e FA A woul d allo w th e seller s t o rejec t bid s fro mastron g competito r

even if it i s th e highes t bidder . Delt aandU S Airway s shoul db e require dt o sell eac hbundl e o f slots , gate s andterminal facilitie s t o th e highes t bidder a t th e winnin g price , withou t influenc e on th e sal e process . 3. 0 Th e Propose dSlo t Swap Transactio n Woul dFundamentall y Alte r th e Competitiv e Dynamic s of

LG A an dDC A Whil e Lockin g Ou t Futur e Competitio n Under th e propose dtransactio n U S Airway s woul dtrad e awa y 14 0 LGA slo t

pairs , or 75 % of it s current

slot s at LG A (Appendix-1) , leavin g i t littl e more tha

n servic e t o it s hubs . Likewise , a

t DC A Delt awoul dturn over 4 2 pair s o f

slot s to U S Airways , o r

abou t 48 % o f it scurrent

slots . Delt awoul db e lef t t o serv e it s seve n hub s to/fro mDCA andlittl e else . At bot h acces s controlle dairports , th e carrier s wil l vacat e anumber o f market s serve db y th e other , and many more market s where th e competitiv e structure wil l b e reduce dby on e carrier . The outcome o f

th e Delta/U S Airway s slo t swa p i s clearl y anti-competitiv e an di n some respect s appear s t o b e adivisio n o f markets . Th e FAA share dit s concern s over anti-competitiv e effect s i n it s Solicitatio n o f Comments . A

t pag e 1 2 th e FAA state s "...i t i s apparent

that if th e propose dtransactio n i s approved , th e carrier s wil l increas e th e number o f market s the y serv e o n amonopol y or dominant basis...and...ther e i s n o assuranc e that al l market s currentl y bein g serve dby th e departin g carrier wil l b e maintaine db y th e ne w carrier. " Similarly , th e FAA addresse s th e anti-competitiv e pricin g outcome s o n pag e 1 3 o f

it s Solicitatio n o f

Comment s i

n statin g "Th e Departmen t tentativel y conclude s that th e propose d transactio n i s likel y t o resul t in higher fare s fo r consumer s i

n certai n domesti c markets... " I t state s furthe

r that i f th e transactio n i s approve da s proposed , th e competitiv e environmen t a t LG A andDC A "woul dbecome significantl y more concentrated... " and"th e carrier s woul d likel y rel y on thei r

increase ddominanc e t o maintai n o r enhanc e thei r

premiu mfar

e structure s i

n market s serve da

t bot hairports. " A s aresult , significant carve-out s are require dt o remedy th e anti-competitiv e outcome s identifie db y th e FAA . Th e greater

th e concentratio n FA

A allow s Delt aandU S Airway s t o achieve , th e more unlikel y it

wil l b e that

any other

airlin e wil l b e abl e t o acquire LG A or DC A slot s a

t economicall y viabl e price s andmount sustainabl e competitiv e service s i n th e future . Under

th e Delta/U S Airway s proposal , competitio n wil l b e significantl y diminished , market s wil l largel y b e divide dbetwee n thos e tw o carriers , an dnew o r expande dcompetitio n a

t LG A andDC A wil l effectively b e locke dou t

fo r year s t o come if

no t permanently . 3. 1 I f th e Slo t Transactio n i s Approved , Delt aan dU S Airway s Woul dB e Abl e t o Us e Thei r Dominan t

Position s a t

LG A an dDC A fo r

Anticompetitiv e Purpose s A s show n i

n Exhibit s 1 and2 , th e to p tw o carrier s a t LGA , U S Airway s andDelta , presentl y account

fo r 33 % and25 % o f

th e slot s respectively . Afte r th e propose dslo t

swap . Delt a woul dhav e 50 % an dth e nex t larges t carrie r (American ) woul dhav e onl y 19% .At DC A th e picture o f

dominanc e i s eve n more acute (Exhibit s 3 an d4) . Toda y U S Airway s ha s 47 % o f

th e slot s andDelt aha s 21% . Wit hth e propose dslo t

swa p U S Airway s woul dincreas e it s share t o 57% , nearl y fou r time s more tha

n th e nex t larges t holder (America n Airline s a t 15%). ^ A t bot hairport s ther e wil l b e clea r marke t dominanc e unles s th e FAA significantly increase s th e number

o f carved-out s slots . I f

it doe s not , the n th e tw o carrier s wil l b e abl e t o exer t extraordinar

y marke t power disproportionat e t o thei r

slo t share s du e t o thei r

massiv e cache s o f slot s i n tightl y controlle dandcapacity-fixe dmarkets . A fe w example s o f

thi s marke t

power illustrate thi s point :
• Delt aandU S Airway s can shif t asignificant

number o f slot s t o targe t

market s serve d by others , includin g ne w entrants . Wit hver y fe w slot s a t thei r disposal , th e targete d carrier s hav e littl e abilit

y t o respon dcompetitively . The aggresso r ca n stil l maintai n it s sea t capacit y in market s where i

t withdre w slot s t o battl e others , simpl y b y up gaugin g it s fligh

t equipment . I

t coul dals o engag e i

n predatory pricin g a

t th e same time . Th e FAA recognize dthi s harmful prospec t ver y clearl y whe n it

state d that..."the y [Delt aan dU S Airways ] could , if the y s o chose , us e thei r adde dslo t interest s t o targe t

smaller competitors , fo

r exampl e by increasin g thei r roundtrip s i

n competitiv e market s and'sandwiching ' competito r flights. Wit

hrelativel y fe

w slo t interest s o f

thei r own , competitors.. . ma

y b e unabl e t o successfully respond." ^
• Afte r th e slo t swap . Delt awoul db e th e mos t logica l highes t bidder fo r any new LG

A slot s tha t ma y com e on th e market , eithe r throug hbankruptc y o r

sheer capitulatio n b y acompetitor . Delt awil l hav e every economi c incentiv e t o outbi dal l other carrier s for th e fe w slot s that

ma y come t o marke t

post-transaction . Delta' s economi c interest s are bot hdefensiv e andoffensive : yet an y other part y intereste din purchasin g slot s i n th e futur e woul dhav e only a

n offensiv e interest , andtherefore coul dno t justif y th e level o f price s that

Delt awoul db e willin g t o pa y simply t o foreclos e competition . I n essence , Delt awoul db e th e on e carrier that coul dmake th e highes t

an dbes t us e (fo r itself ) o f additional LG

A slot s i n th e future .

' Th e FAA' s propose dcarve-out s woul dreduc e thes e share s by jus t 4 % a t eac h airport . ' FAA , Solicitatio n o f

Comments , pag e 15 .• Th e same scenari o woul dexis t a t DC A if th e slo t swa p i s consummated . U S Airway s woul dhav e a

n eve n greater

incentiv e than Delt aa

t LG A t o out-bi deveryon e fo r futur e slot s that

ma y become available . U S Airway s charge s muchhigher fare s a t DC A than Delt adoe s a

t LGA . Consequently , it s economi c incentiv e t o defend agains t ne w and/o r

stronger competitio n a

t DC A i s enormous . A classi c exampl e of thi s same economi c behavio r i s th e cas e o f

Britis hAirway s a

t Londo n Heathro w Airport . Over

alon g perio do f

time , whenever

slot s becam e availabl e t o b e "purchased" , Britis hAirway s wa s th e acquirer almos t withou t exception , unti l th e more recen t

slo t restructurin g under

th e U S -EU bilateral liberalization . Thu s Britis h Airway s alway s defende ditsel f agains t competitiv e entr

y o r expansio n a

t it s Heathro w hub fo

r man y years , especiall y by lo w far e carriers . Th e propose dslo t

swa p woul dtransfor

mth e competitiv e structure an dservic e character a t bot hLG A andDC A b y creatin g on e clearl y dominant airlin e a t eac hairport . Th e only wa y fo r th e FA A t o restrai n th e anti-competitiv e outcome s an dpotentiall y abusiv e practice s by Delt aan d U S Airway s i s t o disapprov e th e transactio n altogether o r increas e significantl y th e number s o f carved-ou t

slots . I f th e slo t swa p i s complete dwit

hjus t th e FAA-propose dcarve-outs , th e acquirer s o f

thos e slot s (whether

Southwes t

o r any other eligibl e buyer) wil l hav e grea t difficult y buyin g additional slot s fo

r futur e expansion . A s show n i n more detai l below , th e mos t effectiv e wa y t o secure lo w fare s andcompetitiv e disciplin e a t LG A andDCA woul db e fo

r on e o r more stron g low-far

e carrier s t o becom e importan t marke t participant s a

t bot hairports , andlarger carve-out s are essential t o achievin g that objective . 3. 2 Th e Slo t

Swa p Woul dLeav e Delt aan dU S Airway s Jus t Enoug hSlot s t o Serv e Thei r Hub s an dth e Shuttle , Eliminatin g Nearl y Al l Competitio n Betwee n The ma t BothLG A an dDCA Excep t fo r residual service s t o it s hub s an dlittl e else , U S Airway s woul dlargel y vacate LG A b y turnin g th e vas t

majorit y o f it s slot s over

t o Delta , andDelt awoul dd o likewis e a t DCA . Th e carrier s wil l eac habando n a t leas t seve n market s where the y compete wit hth e other

today , andwil l eliminate competitiv e servic e i n a n unknow n number

o f additional markets . Appendix- 2 list s th e current dail y departure s a

t LG A side-by-sid e fo

r bot hDelt aandU S Airways . Th e dea

l propose db y th e carriers , anda s tentativel y agree dt o b y th e FAA , woul dleav e U S Airway s wit hslot s fo r 4 7 dail y departures.' * Currentl y it s hub departure s fro mLG A includ e 1 1 t o Charlotte , 1 6 t o Washingto n Reaga n an d2 2 t o Philadelphia , fo r atotal o f

4 9 flights. It

coul deasil y tri mtw o fro

mth e Philadelphi aservice , where it appear s t o hav e exces s slots , t o get

dow n t o it s ne w total o f

47. ^ I n CAC' s judgmen t

U S Airway s wil l hav e powerful economi c incentive s t o maintai n mos t if no t al l o f thes e hub services . I

n order t o d o so , however , U S Airway s wil l nee dt o withdraw fro mother LG A market s it

currentl y serves , includin g some tha t Delt aals o serve s ("overla p markets") . Th e LG

A overla p market s that

CAC believe s woul d los e U S Airways ' competitio n wit hDelt aar e show n i n Tabl e 1 . Tabl e 1 LG A Overla p Market s Tha t U S Airway s Wil l Likel v Abandon ^ OA GDail y Departure s - Feb , 17 , 201 0 Delt a 5 5 4 3 U S

Current 6 4 4 2 Airway s Afte

r Slo t Swa p 0 0 0 0 Raleigh/Durham Indianapoli s Columbu s Charlesto n I n th e February , 201 0 OA Gthere ar e a n additional 1 8 LG

A market s that

CAC conclude s U S Airway s wil l abandon , leavin g on e les s carrier t o provid e competitio n t o other airlines. ^ Turnin g t o DC A where Delt awoul db e lef t wit h4 6 slot s afte

r th e swap , th e same phenomeno n i s observed . Th e current schedule ddail y departure s b y Delt aandU S Airway s ar e

" * A s derive dby CA C fromth e current FAA slo t report s an

danalysi s o f

commuter

schedule s i

n th e OAG . ' I n it s Augus t

12 , 200 9 pres s releas e U S Airway s state dtha t i t woul dcontinu e hourl y servic e fromLG A t o bot h DCA andBOS . However , a s th e FA A state di n it s Solicitatio n o f

Comment s a

t pag e 15 , neither

carrier ha s committe dt o an

y particula

r market s fo

r definedperiods , andthe y are free t o discontinu e service s a t any time . CAC doe s no t believ e tha

t i t woul db e in U S Airways ' lon g run economi c interes t t o continu e t o serv e th e LGA-BO S route , given other

more strategi c use s o f

it s reduce dnumber

o f slots . However , fo

r purpose s o f

thi s discussio n CA C ha s treate dLGA-BO S a s aretaine droute fo r U S Airways . Th e Augus t 12 , 200 9 pres s releas e als o state dtha t U S Airway s woul dmaintai n it s monopoly LGA-PI T service s alon g wit h Wilmington , Nort

h Carolin aservice . Current schedule s sho w 1 0 dail y roun dtrip s (Appendix-2) , whic h i s aleve l tha t make s littl e economi c sens e goin g forwar d sinc e i t woul ddeteriorat e th e carrier' s hub schedules . * Wit hor without th e FAA propose dcarve-outs . ' Se e Appendix-2 .show n b y marke t in Appendix-3 . At

DC A Delt aserve s it s seven hub s wit hatotal o f

4 3 dail y departures. * I

t coul daddthre e trip s amon g thes e seven hub s anddro p th e DCA-LGA Shuttl e route , o r it coul dpreserv e th e Shuttl e b y removin g 1 2 roundtrip s fro mit s current

DCA-Delt ahub schedules . Delt astate dpublicall y on Augus t 12 , 200 9 that

i t woul dcontinu e DCA-LGA service . O f cours e there i s n o guarante e tha t Delt awil l maintai n servic e i n any particula

r market , andw e believ e tha

t Delta' s futur

e service s a

t LG A andDC A wil l b e drive n b y th e economi c incentive s it face s a t th e tim e rather

than th e publi c statement s it i s makin g now . Delt awoul dhav e t o deteriorate it s current

hub service s t o accommodate th e DCA-LGA Shuttle . CAC believe s tha t th e remainder

o f Delta' s DC A servic e wil l b e dropped , andthi s include s a t leas t thre e market s i

n competitio n wit

hU S Airways , a s show n in Tabl e 2 . Tabl e 2 DC A Overla p Market s Tha t Delt aWil l Likel v Abando n OA GDail y Departure s - Feb , 17 , 201 0 Delt a Afte

r U S Airway s Current Slo t

Swa p Bosto n 1 5 7 0 Indianapoli s 4 2 0 Huntsvill e 4 2 0 Th e current

OA Gschedul e (Appendix-3 ) show s a n additional five DC A market s tha t Delt aprobabl y wil l abandon , leavin g on e les s competito r i n thos e markets . When th e current schedule s are examine din light o f th e slot s remainin g wit

heac hcarrier

(afte r th e propose dswap ) CAC ha s conclude dthat

th e carrier s woul donly b e abl e t o maintai n servic e t o thei r hub s and possibl y competitiv e servic e i n th e LG A Shuttl e markets . CAC examine dth e slo t

swa p proposal agains t

eac hcarrier' s current

schedules , and evaluate dthei r

option s usin g rational airlin e economi c behavio r t o reconfigure thei r

remainin g 4 6 o r 4 7 dail y departure s a

t th e airport s where the y woul dgiv e up slots . Upo n doin g s o i t become s clea

r that th e slo t transactio n woul denabl e Delt aandU S Airway s t o divid e DC A and LG A market s betwee n themselves , lessen competitio n i n th e process , an dcreate dominant ALT (16) , CV G(4) , DT

W(8) , ME

M (3) , MS P (6) , JF K

(5) , an dSLC (1) . 7position s a t eac ho f th e airport s separately . Th e FA A i s correc t i n observin g tha t

"Th e competitiv e har mresultin g fro mthi s transactio n a s propose dwoul doccu r no t jus t a t th e city-pai r level , bu t a t th e networ k

o r airpor t leve l a s well , especiall y give n ou r conclusio n tha t

alternativ e airport s ar e no t

perfec t substitute s fo r

servic e a t

DC A an dLGA." ^ A n examinatio n o f

Appendice s 2 an d3 reveal s tha t whil e Delt aan dU S Airway s currentl y overla p i n si x LG A markets , ther e woul db e a t mos t tw o overlappin g segment s lef t afte r th e propose dtransaction"^ . A t DC A ther e ar e five overlappin g market s toda y an dpost transactio n CA C believe s ther e woul db e at mos t onl y two" . Base do

n CAC' s experienc e and knowledg e o f

airlin e economic s andschedulin g practices , it doe s no t believ e that

U S Airway s woul d remai n in th e LGA-BO S market , o r that Delt awoul dcontinu e t o serv e DCA-BO S especiall y if i t continue s DCA-LGA service . Consequently , CA C expect s tha t DL-U S head-to-hea dcompetitio n woul db e los t

i n seve n importan t

market s a s aresul t

o f thi s transaction . I f

U S Airway s withdraw s fro mLGA-BO S th e coun t woul dincreas e t o eight . 4. 0 Large r

Slo t Carve-Out s a t

Bot hLG A an dDC A ar e Essentia l t o Mitigat e th e Anticompetitiv e Effect s o f th e Delta/U S Airway s Transactio n Currentl y ther e ar e 56 0 pair s o f slot s i n tota l a t

LGA , an d41 7 at

DCA , operate db y schedule dai r

carrier s an dcommuter s (Appendix-1) . Th e slo t trad e propose db y Delt aan dU S Airway s woul dincreas e th e concentratio n o f slot s operate db y th e dominan t carrier s a t

eac h airpor t t o anti-competitiv e levels , an dasignifican t carve-ou t

o f slot s a t bot hairport s i s essentia l t o offse t thes e anti-competitiv e effects . Th e FAA' s propose dcarve-out s ar e unquestionabl y justifie da s fa

r a s the y go , bu t

ar e insufficien t

t o mitigat e th e anti-competitiv e consequence s o f th e transactio n excep t

i n aver y fe w markets . A s show n i n Exhibit s 1 , 2 , 5 an dAppendix-1 , Delt acurrentl y operate s 13 8 slo t pair s a t LGA , o r 25 % o f th e tota l 56 0 slo t

pairs . Th e carrier s hav e propose dtha t U S Airway s woul d transfe r atota l o f

14 0 slo t pair s t o Delta . Delta' s shar e woul dthe n b e 50 % o f th e airpor t

total . Th e FA A ha s propose dt o carve-ou t 2 0 pair s fo r

sal e t o othe r

qualifyin g carriers , includin g Southwes t

Airlines . Th e FAA' s propose dcarve-ou t represent s jus t

4 % o f th e LG A tota l slots . I f

FAA , Solicitatio n o f

Comments , page s 15-16 . ' " LGA-DCA , andLGA-BO S assumin g U S Airway s remain s i n th e market . " DCA-LGA andDCA-DTW . .mad e final, it woul dreduc e Delta' s post-transactio n share fro m50 % t o astill-dominant 46 % (Exhibi t 1) . Under th e FAA' s propose dLG A carve-ou t

o f 2 0 slo t pairs , acompetitiv e respons e by other airline s coul donl y b e mounte din a t mos t thre e o r fou r o f th e 7 6 non-sto p LG

A market s that ar e serve dtoday.' ^ Thi s i s becaus e effectiv e competitio n i n mainline-size dmarket s i n Ne w Yor k require s hig hfrequenc y o f servic e durin g th e operatin g day . Th e FAA mus t agre e sinc e it s Solicitatio n o f

Comment s propose s t o allocate th e carved-ou t slot s i n bundle s that

spreadthos e slot s fairly evenl y durin g th e day . Thi s support s th e conclusio n tha t th e acquirin g carrier(s ) woul dlikely serv e only afe w high-densit

y LG A market s wit

hahig henoug hfrequenc y o f servic e on anonsto p basi s t o b e competitiv e wit hDelt aandother

incumbents.' ^ On th e other hand , if th e slot s were scattere damon g severa l ne w acquirer s wit

halo w frequenc y o f

servic e i n multipl e LG

A markets , th e resul t

woul db e ver

y wea k competitio n t o th e incumbents , benefitin g aver y smal l percentag e o f

LG A passengers . Sucha

n outcome woul dno t

b e th e highes t

andbes t us e o f th e diveste dslot s fo

r th e travelin g publi c A more meaningful andsustainabl e competitiv e respons e t o th e Delta/U S Airway s proposal require s alarger carve-ou t a t LGA , somethin g on th e orde r o f 4 0 t o 5 0 pair s o f

slot s in CAC' s judgment . Fo r

ne w competitiv e mainlin e service s a t LGA t o b e effectiv e fo r th e consumer , carrier s woul dlikel y schedul e betwee n thre e (lo w traffi c densit y markets ) and1 0 (hig htraffi c density markets ) roun dtrips . If 5 0 slo t pair s were carve dout , i

t i s reasonabl e t o assume th e acquirin g carrier s woul dschedul e a n averag e o f

five roun dtrip s pe r

da y i n 1 0 mainlin e markets . Wit

hfewe r than 5 0 total pairs , th e acquirin g carrier(s ) woul dlikely concentrate thei r

ne w service s i

n fewe r market s wit

ha n averag e o f

more tha n five roun dtrip s per day . Marketin g andoperatin g efficiencie s ar e greater wit hhigher level s o f frequency . S o th e fewe r th e availabl e slots , th e greater i s th e likelihoo do f

concentratio n i

n th e larges t

market s wit

h th e maximu msustainabl e frequency . Conversely , th e greater th e number

o f slot s available , th e greater th e number

o f market s serve dandth e smaller th e averag e siz e o f

marke t serve dwit

h carve-ou t slots . A carve-ou t

o f 5 0 slot s pair s a

t LG A wil l inject

meaningful lo w far

e competitio n and resul t i n significant

consumer

benefits . And , i

t shoul db e note dthat

a5 0 slo t pai r carve-ou t a t

' ^ 5 6 o f th e 7 6 total non-sto p market s are serve dby Delt ao r U S Airways , o r

both . '^ O f cours e alow-far

e carrie r acquirin g carved-ou t

slot s woul dprovid e additional benefit s t o connectin g passenger s beyon dth e nonsto p segment .LG

A woul dreduc e Delta' s overal l share o f LG A slot s by onl y 9% ; i

t is , however , 36 % o f

th e 140-pair transfer requeste db y th e applicants , whic hi s clos e t o th e FAA' s propose dcarve-ou t percentag e a

t DC A (33%) . Th e propose dtrad e a

t DC A i s smaller , ands o i s th e FAA' s propose dcarve-out . Bu t th e problem s o f

a n anti-competitiv e outcome ar e th e same . A s show n i

n Exhibit s 3 throug h5 and Appendix-1, U S Airway s currentl y operate s 19 4 o f th e DC A slo t

pairs , o r 47% . Th e propose d transactio n contemplate s that Delt awil l transfer

4 2 slo t pair s t o U S Airways , raisin g U S Airways ' prospectiv e slo t share a t DC A t o 57% . Th e FAA' s propose dcarve-ou t o f 1 4 slo t pair s woul dd o littl e t o mitigate th e anti-competitiv e consequence s o f th e DL/U S transaction . Fourtee n pair s represen t

onl y 4 % o f

th e total DC A slots , s o it woul dno t

reduc e U S Airways ' post-transactio n share significantly , no r it s marke t

dominanc e (Exhibi t

3) . Realistically , wit

h only 1 4 pair s o f

slot s availabl e to other

carriers , includin g Southwest , meaningful competitio n coul db e provide di

n a t mos t tw o o r thre e o f DCA' s 7 2 non-sto p markets . Th e DC A carve-ou t shoul db e increase dt o a

t leas t 2 0 slo t pair s s o that

ne w effectiv e lo w far

e competitio n ca

n b e provide di

n fou r o r five mainlin e markets . Thi s i s stil l smal l i n relatio n t o th e total DCA servic e profile , bu t

it i s almos t 50 % o f th e proponents ' reques t

fo r transfer (4 2 slo t pairs) . Th e FAA' s Solicitatio n o f Comments^

^ state s clearl y that

it s own analysi s o f

th e thre e Ne w York/Newar

k are aairport s demonstrate s that the y are no t

effectiv e substitute s fo

r on e another . FAA dre w th e same conclusio n fro mit s analysi s o f

inter-airpor

t far e competitio n (or lack thereof ) i n th e thre e Washington/Baltimore are aairports . CAC agree s wit hth e Agency' s competitiv e far

e analyse s andth e conclusion s i t reached . I n bot hmulti-airpor

t regions , slo t

capacit y a t LG A andDC A ha s bee n tightl y regulate d sinc e 196 9 b y th e Hig hDensit y Rule . Sinc e th e implementatio n o f "Buy-Sell " i

n 1984 , airline s a t bot hairport s hav e pai dmillion s o f dollar s t o acquire smal l number s o f slot s fro meac hother ; andthes e multi-millio n dolla r slo t transaction s too k

plac e durin g year s when there wa s plent y o f free capacit

y availabl e a

t other airport s i n th e same regio n - EW

RandJFK

i n th e cas e o f

Ne w York/Newark , an dBWI an dIAD i n th e Washington/Baltimore region . Wh y the n hav e carrier s pai ds o muchfo

r acces s t o LG

A andDCA ? Th e reaso n i s that i t ha s been th e only wa

y t o compete effectively fo

r th e separate pocket s o f

hig hdensit

y populatio n tha

t LG A andDC A serv e withi n ageographicall y larg e anddivers e region . Indeed , al l th e legac y airline s recogniz e this , a s

'' * Se e FAA , Solicitatio n o f Comments , page s 14-15 . 1 0the y hav e insiste don servin g al l thre e Washington/Baltimore are aairport s a s wel l a s al l thre e

Ne w Yor k City-are aairport s (wit

hth e exceptio n o f

Continental a

t JFK) i n order t o reac hth e separate pool s o f

passenger s withi n thos e broadareas . Th e onl y wa y t o injec t

effectiv e competitio n into suc habroadregional marketplac e i s t o assure effectiv e acces s t o al l airport s withi n that

region , a s n o singl e airpor t ca n effectively serv e th e entire market . . Therefore , effectiv e acces s by low-far e carrier s t o LG

A an dDC A direcfly i s th e onl y wa y t o disciplin e pricin g a t thos e airports . I

t i s als o th e onl y wa

y t o make efficient

us e o f th e scarc e publi c resource s that

LGA andDC A slot s represent . On e o f th e FAA' s objective s i

n establishin g carve-ou t

slot s i s to..."counterbalanc e th e potential har

mt o consumers."' ^ It s propose dcarve-out s are astep i n th e righ t

directio n but shoul db e enlarge da s suggeste dabov e t o provid e meaningful competitiv e relie f andprotec t consumer s fro

msupra-competitiv e fares . 5. 0 Th e Mos t

Pro-Competitiv e Outcom e fo r FAA' s Modes t

Carve-Out s I s Fo r

Al l th e Slot s T o B e Acquire dB y A Singl e Low-Far e Carrie r Unles s th e FAA increase s th e carve-out s a s recommende dabove , th e bes t outcome fo

r consumer s woul db e achieve di f on e qualifyin g lo w far

e carrier i s abl e t o acquire al l 2 0 slo t pair s a t LG A andal l 1 4 a

t DCA . If

th e slot s were scattere damon g several carrier s the y wil l no t provid e any on e carrier

sufficient mas s t o operate enoug hfrequenc y i n multipl e markets , and thereb y operate efficiently wit hlo w uni t

costs . Furthermore , becaus e o f th e sheer siz e o f th e larg e LG A an dDC A loca

l markets , a

n airlin e wit

honly atoke n presenc e a t either airpor t canno t affor dt o marke t

efficiently'^ . A s aconsequence , tha t carrier coul dfail , a s AirTra

n andSpiri t hav e don e i

n DC A andLG

A market s i

n th e recen t

past'^ . Conversely , if

it trie s t o mount

a n effectiv e marketin g campaig n i t canno t achiev e it s lo w cos t

structure andpric e it s service s consisten t wit hth e res t o f it s system . On th e other

hand , th e more slot s that aqualifyin g carrier ca n acquire , th e more efficientl y i t ca n schedul e th e ne w service s t o integrate optimall y wit hit s

' ^ Se e FAA , Solicitatio n o f Comments , pag e 1 . ' * Fo r example , asingl e pag e advertisemen t in th e Ne w Yor

k Time s cost s $151,00 0 fo

r amid-week

placement . Wit

h only 50 0 or

1,00 0 seat-departure s pe r

day , thi s cos t

i s difficult

t o justify . " Betwee n May , 199 8 andFebruary , 200 9 AirTra n withdre w fromLGA-PIT , LGA-ROC , LGA-SRQ , LGA-TYS , DCA-FLLandDCA-PBI . Betwee n January , 200 1 andJanuary , 200 7 Spiri t withdre w fromLGA-PBI , LGA-RSW , DCA-DTW , DCA-MLB andDCA-MYR . 1 1systemnetwork , andth e greater th e consumer

benefit s that

ca n b e achieve dthroug hlo w cost s andcompetitiv e flight

schedules . Whil e th e limite dcarve-out s propose db y th e FA A canno t possibl y disciplin e al l th e potential anti-competitiv e behavio r o f adominant

Delt aa t LG A or U S Airway s a

t DCA , th e bes t optio n under

that proposal woul db e fo

r al l thos e slot s to b e concentrate di n th e hand s o f

asingle , strong , low-far

e competitor . A singl e carrier woul dhav e th e flexibility t o us e th e limite dnumber o f availabl e slot s t o it s bes t

competitiv e advantag e o n thre e o r fou r route s a t LG A andtw o route s a t DCA . Splittin g th e slot s amon g tw o o r more carrier s will , a s note dearlier , onl y dilute th e impac t o f th e ne w servic e vis-a-vi s th e incumbent s andprovid e fe w competitiv e benefit s t o th e public . Thi s nee dfo

r concentratin g th e slot s wit hasingl e carrier

coul db e avoide dif

th e FA A decide dupo n muc hlarger carve-outs , especiall y a

t LGA . If th e FA A doe s no t

increas e th e carve-out s th e airlin e consumer andth e publi c interes t wil l b e bes t

serve di f Southwes t

Airline s acquire s mos t

i f no t al l availabl e slots . Southwes t i s b y fa r th e mos t successful lo w far

e carrier amon g al l qualifyin g buyers , havin g been profitabl e fo r 3 8 consecutiv e years . I

t ha s th e financial strengt

han dstayin g power

t o muscl e it s wa

y into a fe w market s a

t LG A an dDCA . Southwes t

ha s ahistor

y o f enterin g market s aggressivel y and expandin g it s lo w far

e services , no t

contractin g o r

abandonin g markets . Other qualifyin g carrier s hav e acheckere dhistor

y wit hne w marke t

entr y whe n facedwit

hcompetitio n fro

mdominant incumbent

carriers . Finally , Southwes t ca n make th e bes t

us e o f th e slot s b y leveragin g it s extensiv e domesti c networ k whic hinclude s over

3,00 0 flights per

da y t o 6 8 citie s usin g afleet o f over 50 0 B73 7 aircraft . N o other carrier ca n leverag e 2 0 slo t

pair s a t LG A and1 4 pair s a

t DCA wit hth e same efficiency , sustaine dlo w fares , andother consumer

benefits , a s Southwes t Airlines . 6. 0 Unde r

Th e FAA' s Propose dCarve-Outs , Southwest' s Servic e Woul dProduc e Approximatel y $19 3 Millio n O f Annua l Far e Saving s Throughou t

it s history , Southwest' s low-far e service s hav e generate dbillion s o f dollar s o f far e saving s fo

r passengers . Thi s ha s been tru e acros s Americ ai n ver y larg e markets , medium size dmarkets , andsmal l markets . I t ha s als o been tru e regardles s o f th e number

o f competitor s i n aSouthwes t

market . Assumin g tha

t Southwes t

acquire s 2 0 pair s o f

slot s a t LG A and1 4 pair s a t DCA , CAC ha s estimate dth e amount o f annual passenger

far e saving s b y comparin g 1 2Southwest' s calculate dfare , base dupo n it s syste myiel dcurv e (Exhibi t 6 an dAppendi x 4) , wit h Delta' s fare s a t

LG A an dU S Airways ' fare s at DC A fro mAppendice s 5 an d6 . If equation s fo

r th e DLandU S systemyiel dcurve s are use dt o estimate far e savings , insteado f

th e loca l DL-LG

A an d US-DC A yiel dcurve s (Appendix- 5 an dAppendix-6) , th e saving s are even greater - Southwes t

Airline s passenger s woul dsav e $12 0 millio n a t LG A and$8 5 millio n a

t DCA , fo r atotal o f $20 5 million . T o er r

1 R o n th e conservativ e side , CA C eliminate dal l non-sto p market s unde r 25 0 miles . Al l yiel d curve s fo r

Delt aan dU S Airway s includ e afe e o f $2 5 pe r passenge r

fo r on e checke dbag . 6. 1 Southwest' s Servic e A t LG A Woul dSav e Passenger s $8 4 Millio n Annuall y Th e averag e non-sto p distanc e o f al l Delt aLG A flights ove r 25 0 mile s i s 83 8 miles . Th e estimate dDelt aone-wa y far e i n thes e market s i s $14 5 (derive dfro mAppendix-5) . Today , al l th e legac y carrier s charg e extr afee s fo r checke dbaggage . Southwes t doe s no t

charg e fo r

th e firs t o r secon dbag . I t

i s reasonabl e t o assum e tha t th e averag e Delt apassenge r at LG A travellin g a n averag e distanc e o f

83 8 mile s check s on e ba g pe r trip . Thi s add s $25 ' t o th e averag e fare . Th e tota l equivalen t

far e o n Delt ai s therefor e $17 0 (Exhibi t 7) . O n Southwes t

th e calculate d far e i s $11 4 fo r

atri p o f 83 8 mile s (fro mAppendix-4 ) an dn o adjustmen t need s t o b e mad e fo r baggag e fees . Thus , i t ca n b e expecte dtha t Southwest' s averag e far e at LG A woul db e approximatel y 33 % lowe r tha n wha t

Delt acharge s fo r

passenge r

trave l plu s on e checke dba g (Exhibi t 7) . Wit h2 0 slo t

pair s (4 0 dail y flights) a t LGA , Southwes t

woul doperat e 2,000,20 0 one-wa y seats^' ' an dcarr y 1,500,15 0 passenger s assumin g a n averag e loa dfacto r o f 75% . A t

a n averag e far e o f $114 , Southwest' s passenge r revenu e wil l b e $171. 0 million . Delta , o n th e othe r hand , woul dcharg e $255. 0 millio n t o carr y th e sam e 1,500,15 0 passenger s (Exhibi t 8) . Th e saving s b y LG A passenger s o n Southwes t Airline s wil l b e $84. 0 million .

' * CA C doe s no t expec t tha t Southwes t Airline s woul

dserv e th e Shuttl e market s o r an y others unde

r 25 0 miles i

f th e FAA' s propose

dcarve-out

s ar e th e onl y slots i t coul dacquire . " Delta' s curren

t charg e fo r on e checke dbag . U S Airways ' charge is th

e same . ^ ° Utilizin g th e 137-sea t B737-700 . 1 36. 2 Southwest' s Servic e a t DC A Woul dSav e Passenger s $10 9 Millio n Annuall y U S Airway s i s aver

y hig hfar

e carrie r a t DCA . I

n fact . Exhibi t

6 show s quite conclusivel y ho w muc hhigher U S Airways ' DC A far

e structure i s compare deven t o Delta' s fare s a t LGA . Southwest' s fare s woul db e dramaticall y lower a t bot hairports . U S Airway s currentl y operate s 47 % o f th e DC A slots , andit

seek s by thi s transactio n t o increas e it s dominanc e t o a57 % share (Exhibi t 3) . Wit hth e curren t

lack o f competitio n t o U S Airway s a

t DCA , i t i s no t surprisin g that

U S Airways ' averag e far e i n DC A market s over

25 0 mile s i s $188 , whil e Southwest' s systemyiel dformul aproduce s a n averag e far

e on Southwes t

o f $10 9 a t th e same averag e tri p lengt ho f 71 1 mile s (Exhibi t

9) . A s i n th e cas e o f

Delt aa t LGA , i t i s reasonabl e t o assume that th e averag e U S Airway s passenger travellin g a

n averag e o f

71 1 mile s wil l pa

y $2 5 fo r on e checke dbag . When th e ba g fe e i s adde dt o th e underlyin g fare , U S Airway s total passenger

cos t i s $213 , whil e Southwest' s woul db e $109 , o r 49 % les s (Exhibi t

9) . If Southwes t

were t o acquire 1 4 pair s o f slot s a t DC A t o inaugurate it s first ever servic e a t DCA , it woul doperat e approximatel y 1,400,14 0 annua l seat s andcarr

y 1,050,10 5 one-wa

y passenger s a

t a75 % loadfactor . A s show n i n Exhibi t 10 , Southwest' s total passenger revenu e woul db e $114. 5 millio n annually , whil e U S Airway s woul dcharg e $223. 7 millio n t o carr y th e same 1,050,15 0 passengers . Thi s passenger trave l cos t

saving s on Southwes t

woul damount

t o $109. 2 millio n annuall y (Exhibi t 10) . 7. 0 Southwes t

Woul dMak e Muc hMor e Efficien t Us e o f Carved-Ou t

Slot s Tha n Delt a o r U S Airway s Slot s a t bot hDC A andLG

A ar e valuabl e andscarc e publi c asset s that shoul db e pu t

t o thei r mos t efficient us e b y th e carrier s that

hav e bee n given th e right s t o operate them . Yet bot h Delt aandU S Airway s are highl y inefficient user s o f thei r slots . I f Southwes t

Airline s were t o acquire th e slot s tha

t th e FAA carve s out , i

t woul dmak

e fa r better utilizatio n o f

thes e scarc e publi c assets .

1 47. 1 Delt aI s a n Inefficien t Use r o f LG A Slot s A n examinatio n o f

Delta' s curren t

LaGuardi aschedul e reveal s tha t in al l market s over 25 0 mile s serve dby Delta , th e carrier' s averag e seat s per departure i s only 105 . Thi s i s becaus e only 53 % o f

it s departure s are wit

hmainlin e aircraf

t whil e 47 % are wit

hregional jet s (RJ's ) and turbo-prop s (Exhibi t

1 1 andAppendix-7) . Southwes t operatin g 2 0 daily pair s o f LG A slot s wit

h 137-sea t aircraf t wil l produc e 30% , or

467,20 0 more seat s tha

n Delt aandcarr

y 350,00 0 more passenger s per

yea r (Exhibi t 12) . Analysi s o f

Delta' s LG

A schedul e over

th e pas t 1 0 year s reveal s that

fo r al l market s over 25 0 mile s serve db y Delta , it s averag e aircraf t siz e decline dprecipitousl y fro m12 6 i n 200 0 t o 10 5 seat s currentl y (Exhibi t 13) . Despite th e carrier' s publi c statements , there i s considerabl e doub t tha t i f th e slo t transfer i s approve dDelt awil l make more efficien t us e o f it s cach e o f

LG A slot s andincreas e it s proportio n o f mainlin e flights. I

n fact , i f i t convert s LGA into aDelt a "rollin g hub, " a s i

t ha s publicl y state di

t will , the n Delt acanno t

realisticall y conver

t it s LG A 9 1 servic e into apredominantl y mainlin e operation . Hub s require alarg e number o f R J andturbo
pro p service s becaus e the y are essential t o feedin g th e hub . Thi s i s demonstrate dby Delta' s own hub s i

n Atlanta , Cincinnat

i andSalt Lak e City . A t Atlant a50 % o f

al l Delt adeparture s ar

e RJ s o r turbo-props . At

Cincinnati , RJ s an dturbo-prop s account fo r 84 % o f al l Delt adepartures , anda t Salt Lak e Cit y th e commuter

aircraf t percentag e i s 75%^^ . Consequently , if LaGuardi a wer e t o become aDelt ahub , i t i s likely tha

t it s percentag e o f

operation s flown by RJ' s an dturbo
prop s woul dactuall y increas e beyon dth e curren t 47% . There i s afurthe

r questio n abou t

"hubbing " tha

t i s o f grea t publi c concern . Wit

hscarc e capacit y availabl e t o serv e alarg e metropolitan population , it i s no t i n th e publi c interest , o r

i n th e interes t

o f Ne w York , t o allocate 40 % o r more o f th e dominant

LG A carrier' s capacit

y t o accommodatin g connectin g passenger s wh o hav e n o nee do r desire t o b e a

t LG A andare only passin g throug hth e airport . CAC recognize s that thi s conditio n exist s a

t O'Har e today andtha

t th e FA A ha s trie dt o mitigate it s anti-competitiv e consequences^ ^ by givin g special treatment to ne w entran t

carrier s whe n afe

w slot s ca

n b e mad e available . Th e resul t o f thi s initiative .
^ ' Se e th e Augus t

24 , 200 9 letter

t o Davi dGrizzle , FAA Chie f Counsel , fromBen Hirs t

(Delta ) andStephen Johnso n (U S Airways) . ^ ^ Dat afromOfficia

l Airlin e Guide , schedule s fo r Februar y 201 0 (Februar

y 201 0 Ma

x Edition) . " Se e th e FAA O'Har e Rule . 1 5however , ha s been minimal . Th e FAA i s no w presente dwit hauniqu e opportunit

y t o leve l th e playin g fieldsomewha

t andt o redres s th e highl y inefficient us e o f scarc e slot s by Delt aa

t LG A andU S Airway s a

t DCA . T o accomplis hthi s laudabl e goa l asignificantl y greater

number o f slo t carve-out s i s required . 7. 2 U S Airway s I s a n Inefficien t Use r o f DC A Slot s Only 38 % o f

U S Airways ' operation s a t DC A in market s over

25 0 mile s are conducte d wit hmainlin e aircraft ; 62 % are wit hRJ' s an dturboprop s (Exhibi t 1 4 andAppendix-8) . Thi s i s a gros s underutilizatio n o f

scarc e capacit

y a t DCA , andth e tren dha s worsene dover th e pas t 1 0 year s (Exhibi t

15) . Currently , U S Airway s average s onl y 9 2 seat s per departure i

n market s over 25 0 mile s (Exhibi t

15) . I n 200 0 it average d9 9 seat s per

departure . Clearl y U S Airway s coul d significantly increas e it s sea t capacit y at DC A i f it wishe dt o d o s o jus t

by usin g th e slot s i

t ha s toda y more efficiently . A massiv e slo t swa p i s no t necessar y fo r U S Airway s t o accomplis hthi s sorely-neede dup-gaugin g o f DCA flights. If Southwes t

were t o acquire all 1 4 pair s o f carved-ou t

slot s i t woul doffe

r 1,400,140 annual seat s a

t DC A compare dto 940,24 0 seat s b y U S Airway s (Exhibi t 16) . Southwes t

woul d achiev e 49 % greater

efficienc y (seat s per

flight) tha

n U S Airway s (Exhibi t

16),'^' * provid e almos t on e hal f amillio n more seats , andcarr y 345,00 0 more passenger s per yea r wit h1 4 dail y roun d trips . 8. 0 Th e FA A Carve-Ou t Proposa l Mus t

Provid e Assurance s of

Effectiv e Airpor t

Acces s b y Includin g Adequat e Airpor t Facilitie s fo r

th e Carrier s Acquirin g Slot s When th e FA

A finalize s it s slo t

carve-ou t proposal it

mus t addres s th e critical need s o f ne w slo t acquirer s fo

r complementar

y gate , counter , baggag e make-up an doffic e facilitie s a t bot hLG A an dDCA . A ne w entran t o r smal l incumbent

lik e Southwes t

Airline s canno t

utiliz e carve dou t

slot s if it canno t b e assure do f

reasonabl y price dandcompetitivel y efficient gate s and terminal facilities . Slot s an dgates/terminal spac e ar e inextricabl y tie dtogether a s essential requirement s fo

r ne w o r expande doperation s utilizin g some o r al l o f th e carve-outs .

^ * 13 7 seat s pe r

flight (Southwest ) vs . 9 2 seat s pe r flight (U S Airways) . 1 6T o hav e asuccessful carve-ou t solutio n th e FAA mus t

require Delt aand/o r

U S Airway s t o includ e a

t leas t fou r gate s closel y clustere dtogethe r a t LG A an dthre e gate s similarl y situate d a t DCA . Furthermore , abaggag e make-up roo mandareasonabl e amount o f ticke t counter an d offic e spac e shoul db e include di n th e carve-ou t

package , andthes e groun dfacilitie s shoul db e tie dt o th e slot s andprice dby auction . 9. 0 A Pro-Competitiv e Outcom e Require s aSimpl e Market-Base dAuctio n Th e FA A ha s posite dthre e alternativ e mechanism s fo r effectin g th e slo t

transfers . In all thre e instances , however . Delt aandU S Airway s woul db e allowe dt o selec t thei r competitor(s) , either directl y vi aaprivat e sal e o r indirectl y by dictatin g th e term s o f sal e or rejectin g th e highes t bidder . A s show n in Exhibit s 8 and10 , i f Southwes t

Airline s acquire s 2 0 slo t pair s a t LG A and1 4 pair s a

t DCA , th e annual far

e saving s t o passenger s i s estimate dt o b e $19 3 million . Thi s i s $19 3 millio n les s revenu e t o Delt aan dU S Airways ; an di t ma y al l come fro

myiel d dilution . I n CAC' s opinion , rational behavio r b y Delt aand/o r

U S Airway s woul db e to rejec t abid fro mSouthwes t

Airlines , if

the y hav e achoice , even if Southwes t

bid s muc hmore tha

n th e nex t highes t bidder . Delt aan dU S Airway s kno w that Southwes t

ha s enormou s stayin g power , that it wil l adhere t o it s low-far e pricin g strategy , andma y tr y t o expan dover

tim e if it ca n acquire additional slots . I

n fact , i n order t o preven t

Southwes t

fro macquirin g slots , i

t coul db e economicall y rational fo

r Delt aandU S Airway s t o giv e th e slot s fo r littl e o r n o mone y t o a carrier the y expecte dwoul dmaintai n th e current far e structure , o r

a t leas t no t reduc e fare s t o th e level the y expec t

Southwes t

wil l charge . Th e FA A shoul dnot , therefore , construc t any disposal mechanis mwhere Delt ao r U S Airway s hav e any discretio n t o selec t th e buyer(s ) o r

any other

rol e in determinin g th e rule s o f sale . It shoul db e asimpl e straightforwardcash-onl y publi c auctio n manage dby th e FAA . Each bundl e o f slot s wit hthei r associate dgate s andother groun dfacilitie s shoul db e auctione dof f t o th e highes t

bidder . Thi s recommende dprocedure shoul db e conducte dseparatel y fo r eac ho f th e tw o airport' s slo t

an dgroun dfacilitie s package .

^ ' Thi s i s arati o o f

five dail y departure s andfive arrival s per gate . Whil e Southwes t

Airline s ca

n achiev e higher utilizatio n a

t les s delay-pron e airports , i t will nee dfou

r more gate s a

t LG A if i t acquire s 2 0 slo t

pairs . 1 7Only in thi s wa y ca n fai r opportunit

y b e accorde dal l intereste dbidders ; an donl y i n thi s fashio n wil l th e publi c interes t b e bes t served . Th e auctio n proces s i s th e bes t market-base d mechanis mfo

r maximizin g consumer

welfare i n th e allocatio n o f

scarc e resources . Th e part y willin g t o pa

y th e mos t

fo r ascarc e resourc e wil l make th e bes t us e o f it i n acompetitiv e marketplace . Th e Departmen t o f Justic e ha s articulate dthi s principl e ver y wel l b y statin g "I n mos t markets , resource s use dt o produc e aproduc t hav e price s tha

t ac t a s arationin g mechanism . Us e o f aresourc e t o produc e aproduc t i s les s profitabl e t o firms a s pric e rises , al l els e equal , and when resource s are scarc e andfirms compete fo r th e right t o them , thei r

price s begi n t o b e bi d up . Pric e rise s unti l thos e valuin g th e resourc e th e leas t dro p out , an deventuall y th e marke t clear s when th e quantit

y demande di s equa

l t o th e quantit

y supplied . I

n thi s way , scarc e Of t resource s are allocate dby th e pric e mechanis mto th e highes t value duses. " Th e DOJ paper goe s on t o state that

administrativ e method s o f allocatin g scarc e airpor

t resource s ar

e unlikel y t o promote efficien

t airpor t usag e o r t o promote competition . T o achiev e th e desire dpubli c benefits , allocatio n o f th e LG A andDC A slo t

andterminal facilit y carve-out s mus t

g o t o th e highes t

bidder i n aprocedure where Delt aandU S Airway s canno t selec t th e buyers , dictate th e term s o f sale , o r otherwis e influenc e atransparen t and competitiv e biddin g process . Delt aan dU S Airway s shoul dsimply b e require dt o sell eac h bundl e o f slots , gate s andterminal facilitie s to th e highes t bidder a t th e winnin g price . 00000000 0

^ * Se e U.S . Department

o f Justice , Economi c Analysi s Group Discussio n Paper . Proposal Fo r A Market-Base d Solutio n t o Airpor

t Delav . October , 2007 , pag e 9 . 1 8Attachmen t A Pag e 1 

### Qualification s of

Dr . Bria n M . Campbel l President , Campbel l Aviatio n Consultants , LL C Dr . Campbel l provide s economi c consultin g service s t o passenger andcarg o airlines , airports , andtrad e associations . H e ha s serve dcommercial aviatio n partie s fo r th e pas t 4 2 years , durin g whic hperio dh e wa s als o aco-founder andsenio r

executiv e o f

tw o new entran t

low-far e airlines . H e ha s als o testifie da s a n economi c witnes s in more tha n 7 5 case s befor

e th e CAB , DOT , th e U.S . Congress , Federal courts , arbitratio n panels , th e Canadia n Transpor

t Commission , th e Parliament

o f Canad aandth e Europea

n Commission . From197 3 t o 197 5 h e wa s Vic e President o f Simat , Helliese n andEichner , Inc . Afte r he returne dfull-time t o th e consultin g busines s in 1986 , Dr . Campbel l wa s afoundin g partner of Leeper , Cambridge , andCampbel l andsubsequentl y Th e Campbell-Hil l Aviatio n Group . Throughou t

hi s career . Dr . Campbel l ha s been involve di n numerou s project s involvin g slots , services , fare s an dcompetitio n i n comple x multi-airport

region s lik

e Ne w York/Newark , Washington/Baltimore andSa n Francisco/Oakland/San Jose . Some o f thes e studie s wer

e conducte dfo

r airlines , an dother s were performe dfo r airport s or

airpor t authorities . I

n th e late 1970' s h e prepare dastudy fo r th e FA A whic hmodele dth e Washington/Baltimore airport s systemwit

hth e goa l o f testin g awid e rang e o f

ne w potential operatin g rule s andcombination s o f rule s fo r DCA . Dr . Campbel l ha s provide deconomi c consultin g service s t o awid e variet y o f airline s includin g schedule dan dnon-scheduled , passenger andexpress/cargo , domesti c an d international , commuter , legacy , low-fare , an dstart-up airlines . He ha s prepare dbusines s plan s fo r start-up s andwa s aco-founder o f tw o ne w airline s sinc e 1978 , includin g Midwa y Airlines , Inc . Dr . Campbel l hold s aPh.D . degre e i n Busines s Administratio n fro mColumbi a University ; a

n MB A degre e fro

mth e Universit

y o f Wester n Ontario ; andaBachelo r o f Commerc e degre e fro

mMcGil l University .

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