SOUTHWEST AIRLINES CO. 

Robert W. Kneisley 

Associate General Counsel 

1901 L Street, NW - Suite 640 

Washington, DC 20036 

(202) 263-6284 

(202) 263-6291 - Fax 

bob.kneislev(S)wnco.com 

March 23, 2010 

VIA EMAIL AND FEDEX 

Rebecca MacPherson, Esq. 

Assistant Chief Counsel 

Regulations Division, AGC-200 

Federal Aviation Administration 

800 Independence Avenue, S.W. 

Washington, D.C. 20591 

Re: Delta/US AinA/avs Slot Swap. Docket No. FAA-2010-0109 

Dear Ms. MacPherson: 

I am writing to advise the Department and the FAA of two matters in 

connection with the referenced docket. 

First, Southwest Airlines released the following statement last night after Delta Air 

Lines and US Airways jointly announced that they had negotiated proposed slot 

transfer agreements with four other airlines at New York LaGuardia Airport (LGA) 

and Ronald Reagan Washington National Airport (DCA): 

"As we predicted in our comments filed earlier today, US 

Airways and Delta did exactly as we feared by attempting to 

hand select their competitors in the New York and Washington, 

D.C. markets. It is not up to US Airways and Delta to 

unilaterally decide how public assets such as valuable airport 

slots are put into use to serve consumers, and this new 

proposal does not alleviate the highly anticompetitive nature of 

the original Delta-US Airways agreement. 

This announcement, made immediately after the comment 

deadline on the original proposal closed, confirms the need for 

the DOT/FAA, with the appropriate participation of the DOJ, to 

reopen the entire proceeding for further investigation and to 

permit additional comments on this new proposal." 

Accordingly, we ask the DOT and FAA to advise the public how they intend to 

proceed in investigating, and inviting comments upon, this new Delta/US Ainvays 

proposal and the new issues it raises. 
Rebecca MacPherson, Esq. 

March 23, 2010 

Page 2 

Second, the comments that Southwest filed in this docket yesterday 

contained inadvertent numerical errors on pages 6 and 7. Those errors have been 

corrected in the attached revised version of Southwest's comments, which we 

request be placed in the docket and substituted for the comments we filed 

yesterday. We apologize for any inconvenience this may cause. 

Respectfully, 

Robert W. Kneisley 

cc: Docket No. FAA-2010-0109 
BEFORE THE 

U.S. DEPARTMENT OF TRANSPORTATION 

FEDERAL AVIATION ADMINISTRATION 

WASHINGTON DC 

PETITION FOR WAIVER OF THE TERMS 

OF THE ORDER LIMITING SCHEDULED 

OPERATIONS AT LA GUARDIA AIRPORT 

Docket No. FAA-2010-0109 

COMMENTS OF SOUTHWEST AIRLINES CO. 

ON DELTA - US AIRWAYS PROPOSED SLOT SWAP 

AND FAA NOTICE PROPOSING TO GRANT WAIVER 

Communications with respect to this document should be sent to: 

Ron Ricks 

Executive Vice President Corporate 

Services & Corporate Secretary 

Madeleine Johnson 

Vice President - General Counsel 

SOUTHWEST AIRLINES CO. 

2702 Love Field Drive 

Dallas, TX 75235-1611 

Robert W. Kneisley 

Associate General Counsel 

Leslie C. Abbott 

Attorney 

SOUTHWEST AIRLINES CO. 

1901 L Street, N.W. 

Suite 640 

Washington, DC 20036 

bob.kneislev@wnco.com 

(202) 263-6284 

March 22,2010 
TABLE OF CONTENTS 

The Proposed Slot Swap Will Significantly Increase Concentration 

and Reduce Competition at Both DCA and LGA. 

If FAA Does Not Disapprove the Slot Swap Entirely, It Should Expand 

Its Carve-Outs to Ensure Sufficient New Competition at Both DCA 

and LGA. 

III. The DOT and FAA Have Ample Legal Authority to Require CarveOuts As a Condition of Approving the Slot Swap. 

IV. If It Were Able to Acquire Carved-Out Slots, Southwest Would 

Generate Enormous Public Benefits by Reducing Fares and 

Increasing Traffic at Both DCA and LGA. 

Allocating Divested Slots via a Transparent Auction to the Highest 

Bidder is the Only Way to Ensure Effective New Competition at LGA 

and DCA. 

VI. Adequate Airport Facilities Must be Made Available to the Recipients 

of Divested Slots to Ensure They Have Effective Access to DCA and 

LGA. 

Conclusion 

Attachments: 

ECONOMIC ANALYSIS OF THE DELTA/US AIRWAYS SLOT SWAP 

AGREEMENT AND THE FAA'S PROPOSED SLOT CARVE-OUTS. 

Campbell Aviation Consultants LLC 

EXHIBITS to Economic Analysis of Campbell Aviation Consultants LLC 
BEFORE THE 

U.S. DEPARTMENT OF TRANSPORTATION 

FEDERAL AVIATION ADMINISTRATION 

WASHINGTON DC 

PETITION FOR WAIVER OF THE TERMS 

OF THE ORDER LIMITING SCHEDULED 

OPERATIONS AT LA GUARDIA AIRPORT 

Docket No. FAA-2010-0109 

COMMENTS OF SOUTHWEST AIRLINES CO. 

ON DELTA - US AIRWAYS PROPOSED SLOT SWAP 

AND FAA NOTICE PROPOSING TO GRANT WAIVER 

I. The Proposed Slot Swap Will Significantly Increase Concentration 

and Reduce Competition at Both DCA and LGA. 

On August 24, 2009, Delta Air Lines and US Ainways jointly petitioned FAA for a 

waiver from certain restrictions in the FAA's LaGuardia Interim Order to allow the 

carriers to permanently exchange several hundred slots at LaGuardia ("LGA") and 

Washington National ("DCA") Airports, two of the most important airports in the United 

States. The size and scope of this request is unprecedented. It would instantly make 

Delta the largest airline by far at LGA, and would significantly expand US Ainways' 

already-dominant position at DCA. If approved as proposed, the transaction would 

double Delta's share of LGA slots from 25% to 50%, and transform LGA from an airport 

served principally by three carriers of similar size to one dominated by a single carrier.^ 

See Section 3.0 and Exhibits 1-4 in the attached Economic Analysis of the Delta/US Airways Slot Swap Agreement 

and the FAA's Proposed Slot Carve-Outs by Dr. Brian M. Campbell and Campbell Aviation Consultants (hereafter 

"GAG Analysis"). Southwest retained Dr. Campbell and GAG to evaluate the proposed slot transaction as well as 

FAA's proposed carve-out of slots at DGA and LGA. 
The next largest LGA carrier would be American, at 19%. At DCA, US Ainways would 

become even more dominant then it currently is, ascending from 47% to 57% of the 

total slot holdings. The next largest carrier, American, would be a distant second with 

only 15% of the slots. 

In many respects the Delta/US Ainways slot trade resembles a division of markets 

that is designed to eliminate existing competition at DCA and LGA while enhancing 

each carrier's size and pricing power at each airport separately going forward. As the 

CAC Analysis demonstrates, the slot swap is likely to reduce most of the competition 

between Delta and US Airways in DCA and LGA markets today, while greatly 

enhancing their respective market positions at DCA and LGA separately.^ The 

consequences for the public of this attempted re-allocation of markets will be higher 

fares, less competition, and fewer service options at both airports. 

The significance of DOT/FAA's decision with regard to this transaction cannot be 

overemphasized. As the DOT and FAA are well aware, demand by airlines to serve 

these airports vastly exceeds the number of slots available, and there are no meaningful 

opportunities for new entrant carriers to enter or expand at LGA or DCA today. This 

lack of low-fare competition already causes millions of dollars in consumer harm every 

year. As FAA has shown in its Notice proposing to approve the transaction subject to 

conditions,^ fares at LGA and DCA are significantly higher than other airports in the 

New York or Washington areas that have meaningful low-fare competition such as 

Baltimore-Washington International (BWI). Delta, US Ainways and other large 

^ GAG Analysis Section 3.2 and Exhibits 1-4. 

' 75 Fed. Reg. 7306, 7309-10 (February 18, 2010) (hereafter "FAA Notice"). 
incumbent carriers at DCA and LGA are well insulated from low-fare competition by 

Southwest Airlines at BWI and elsewhere due to both the geography of the regions and 

a lack of available slots. As a result, airfares at both DCA and LGA are higher, and 

service options are more limited, than they would be in an openly competitive 

environment. Because of the lack of competition and access at these airports, many of 

the slots at DCA and LGA are being systematically underutilized, to the detriment of the 

public. 

The proposed slot transfer would make this bad situation worse. Beyond the 

sheer increase in market concentration it would create at LGA and DCA, the transaction 

would fundamentally alter the nature of competition at both airports. At LGA, instead of 

an airport balanced among three airlines of roughly equal size, the slot swap would 

catapult Delta into a dominant position more than twice the size of the nearest 

competitor. At DCA, US Ainvays would have nearly four times more slots than the next 

largest holder. Both airports would thus become dominated by a single high-fare legacy 

airline to an unprecedented degree. The inevitable effect of this increased 

concentration at airports that are closed to new entry will be to suppress competition for 

years to come, if not permanently. As Dr. Campbell points out in the attached Analysis, 

the LGA and DCA dominant carriers, with their vast pools of slots, will have an 

unmatched ability to target new entrants and small carriers at those airports who will be 

unable to mount an effective response because they lack sufficient slots.'* Moreover, 

Delta and US Ainvays will become the most logical high bidders for any new slots that 

" GAG Analysis Section 3.1 and Exhibits 1-4. 
become available, both to protect and grow their dominant market positions.^ 

Although the two carriers claim that their proposed slot transfer will result in 

certain "efficiencies" and other alleged benefits, the truth is that a massive transfer of 

slots is not necessary to achieve any public benefits. For example. Delta and US 

Ainvays have been and remain free to "up-gauge" the aircraft they operate at LGA and 

DCA at any time, yet they have done the opposite for years. Over the last decade 

Delta's average aircraft size at LGA has declined steadily to 105 seats, while US 

Ainvays' average aircraft size at DCA has sunk to a dismal 92 seats.^ During this time 

both carriers vigorously defended their use of small aircraft as somehow preferred by 

the public, and bitterty opposed FAA's repeated efforts to require up-gauging of those 

services.^ 

Further, while both carriers tout the alleged benefits of "network expansion" that 

the proposed slot deal would make possible, this appears to be nothing more than a 

euphemism for the ability to add flights and raise fares due to more slots and greater 

dominance at each airport separately. Significantly, nowhere in the carriers' extended 

defense of the slot transaction and its alleged benefits do Delta or US Ainvays make 

any mention of new low-fare competition at DCA/LGA or an expected reduction in fares 

'id. 

^ CAC Analysis Section 7.0; Exhibits 11,13,14,15; and Appendix 7-8. 

See, e.g., the carriers' public statements in the FAA's LGA Congestion Management proceeding. Docket No. FAA2006-25709: "As the largest operator of an integrated network of LGA services to a wide array of different-sized 

communities, US Airways, as a result of market necessity, operates the lowest average aircraft size." Comments of 

US Airways, Dec. 29, 2006 at p. 11 (emphasis in original); "Delta Connection carriers provide a number of services 

from LaGuardia Airport using regional jet aircraft. These services are essential for Delta's LaGuardia route 

network..." Comments of Delta Air Lines, Dec. 29, 2006 at p. 36. 
due to the slot transaction.^ 

Moreover, Delta's claim that the slot transaction will enable it to create a "rolling 

hub" at LGA is highly suspect. As Dr. Campbell points out, it is unrealistic that Delta 

would in fact reduce its reliance on regional jets in that circumstance since such 

behavior would be contrary to all of Delta's other hub operations.^ Of even greater 

concern is that creating a "hub" of any kind at LGA would be a disservice to the public 

and to New York in particular, as it would squander a large amount of LGA's highly 

limited capacity to accommodate connecting passengers who have no need or desire to 

be at LGA but instead would only be stopping there on a journey elsewhere. 

Consequently, while the slot swap clearly will benefit both of the carriers involved, those 

private benefits will come at a steep price to the public, in the form of higher fares, 

reduced competition, and fewer travel options. 

II. If FAA Does Not Disapprove the Slot Swap Entirely. It Should 

Expand Its Carve-Outs to Ensure Sufficient New Competition 

at Both DCA and LGA. 

Southwest does not believe that the Delta/US Ainvays slot swap, in any form, is 

in the public interest. Allowing two of the country's largest airlines to collude on trading 

assets in a way to reduce competition while dramatically increasing their market 

dominance at two of the United States' most important airports is, on its face, an 

alarming prospect that should not be permitted. FAA has already shown that these two 

carriers operate a large number of monopoly or heavily dominated routes at LGA and 

^ See Letters in this docket entitled Joint Request of Delta and US Airways for a Waiver (Aug. 24, 2009) and DeltaUS Airways Slot Exchange (Jan. 29, 2010) from the petitioning carriers. 

* GAG Analysis Section 7.1. 
DCA, and charge supra-competitive fares as a result. DOT/FAA have publicly stated for 

years their concerns regarding the lack of new entry and low-fare competition at the slot 

controlled airports. While the DOT and FAA have not yet found the appropriate method 

to open these airports to greater competition, approving this transaction in any form 

could be a significant and permanent step backwards. 

If, however, FAA wishes to consider the imposition of slot carve-outs as an 

alternative to complete denial of the transaction, it must ensure that the carve-outs are 

large enough to inject sufficient low-fare competition at both LGA and DCA to offset the 

increased dominance of Delta and US Airways. This is especially true because new 

entrant and small incumbent carriers are likely to have no viable means to acquire 

additional slots either now or for the foreseeable future, if the transaction is approved 

even on a modified basis. These new entrants and small carriers have few if any slots 

to trade with incumbent carriers, and except in extraordinary situations have found that 

the large incumbents are unwilling to sell or sublease slots to low-fare competitors, even 

if their slots are not being fully utilized. 

Unfortunately, while the FAA's proposed carve-outs of 20 slot pairs at LGA and 

14 slot pairs at DCA are a good start, they are too limited to have a significant 

restraining effect on either Delta or US Ainvays except in a few markets. Competition 

from Southwest or other new entrant carriers at LGA and DCA, especially in business 

markets, is not likely to be effective without enough slots to offer a pattern of flights 

throughout the day in each market served. Even if a single carrier were to acquire all of 

the divested slots proposed in FAA's notice, that would realistically support competitive 

service in at most three or four LGA markets (20 round trips total) and only two or three 
DCA markets (fourteen round trips total). If the acquiring carrier were to use the 

divested slots to serve four LGA routes and three DCA routes, for example, its 

frequency would be no more than five flights per day - the bare minimum necessary to 

offer a competitive presence in those markets.^° Moreover, if the divested slots are 

divided among several carriers serving multiple markets with low frequencies, the 

resulting competition will be so diluted it will have no effective price discipline on US 

Ainvays and Delta, given their vastly larger presence in those markets and many others. 

A divestiture of 20 slot pairs at LGA would reduce Delta's post-transaction market 

share by only 4%, from 50% to 46%, and a carve-out of 14 pairs from DCA would 

reduce US Airways' share also by only 4%, from 57% to 53%.^^ To ensure effective 

low-fare competition, a carve-out of at least 40 slot pairs at LGA and 20 pairs at DCA 

should be required.^^ A divestiture of 40 slot pairs at LGA and 20 slot pairs at DCA 

would equate to less than 8% of total slots at each airport. If these larger divestitures 

render the transaction so unpalatable to the parties that they decide not to consummate 

it. Southwest contends that this outcome is better for the traveling public than allowing 

the transaction to go through with insufficient opportunities for low-fare competition at 

these critical airports. However, there would be strong incentives for the carriers to go 

fonvard even with such expanded carve-outs since (a) FAA is proposing to allow Delta 

and US Ainvays to be fully compensated for divested slots, whatever the number, as 

they will be permitted to sell them to the highest bidders; and (b) the larger carve-outs 

GAG Analysis Section 4.0. 

" GAG Analysis Section 4.0, Exhibits 1-5, and Appendix 1. 

GAG Analysis Section 4.0. 
described above are still miniscule compared to the dominant shares that Delta and US 

Ainvays will hold at LGA and DCA after the transaction. A carve-out of 40 slot pairs at 

LGA, for example, would leave Delta with 42% of the airport's total, by far the largest 

holding. With 478 slots. Delta can certainly achieve any legitimate "network expansion" 

that increases both service and competition at LGA. Similarly, with a carve-out of 20 

slot pairs at DCA, US Ainvays would still control 49% of all DCA slots. With 394 slots at 

its disposal, US Airways can unquestionably add new nonstop points to its DCA network 

and up-gauge its aircraft to operate more efficiently as it has said it will do if the 

transaction is approved. 

III. The DOT and FAA Have Ample Legal Authority to Require 

Carve-Outs As a Condition of Approving the Slot Swap. 

The DOT and FAA unquestionably have the legal authority to require divestitures 

of slots as a condition of approving Delta/US Ainvays' request for an unprecedented 

waiver of FAA's slot regulations. Since the DOT/FAA have the authority to grant the 

carriers' request in full (as even Delta and US Ainvays must agree), DOT/FAA 

necessarily have the authority to grant the request in pa/t- which is precisely what FAA 

has proposed to do in its Notice. DOT/FAA may grant the requested waiver only if it 

finds it to be "in the public interest." Based on compelling evidence and thorough 

analysis, DOT/FAA have correctly determined that the transaction as presented "would 

result in a substantial increase in market concentration that would harm consumers" and 

therefore would not be in the public interest.^^ DOT/FAA have also concluded that if 

Delta and US Ainvays were to make off-setting slot divestitures at both airports, the 

" 75 Fed. Reg. 7306, 7306 (Feb. 18, 2010). 
modified transaction would be in the public interest. 

In fact, DOT/FAA have made clear in the Notice that they intend to impose 

conditions on the proposed transaction in pursuit of their statutory duty to protect the 

public interest by, for example: 

• "Placing maximum reliance on competitive market forces and on actual and 

potential competition to provide the needed air transportation system," 49 USC § 

40101(a)(6); 

• "Preventing unfair, deceptive, predatory, or anticompetitive practices in air 

transportation," 49 USC § 40101(a)(9); 

• "Avoiding unreasonable industry concentration, excessive market domination, 

monopoly powers and other conditions that would tend to allow [an] air carrier... 

unreasonably to increase prices, reduce sen/ices, or exclude competition in air 

transportation," 49 USC §40101(a)(10); and 

• "Encouraging entry into air transportation markets by new and existing air 

carriers..." 49 USC § 40101(a)(13). 

DOT/FAA could have gone further and required Delta and US Airways to relinquish 

slots without compensation as a condition for approval of the requested waiver. The 

fact that DOT/FAA tentatively rejected that option and are instead proposing to allow the 

carriers to sell the slots for full value is a discretionary action that significantly benefits 

the carriers. 

IV. If It Were Able to Acauire Carved-Out Slots. Southwest Would 

Generate Enormous Public Benefits by Reducing Fares and 

Increasing Traffic at Both DCA and LGA. 

Today Southwest has no slots at all at DCA and has only a token presence of 

eight daily flights at LGA.^"* Despite multiple efforts Southwest has been unable to 

Southwest acquired 14 LGA slots in March 2009 via an acquisition of ATA Airlines, which was then in Chapter 11 

bankruptcy. Southwest inaugurated service at LGA using these slots in June 2009. 
acquire any DCA slots, or any additional LGA slots to expand its small operation there 

to a more efficient size.^^ If Southwest were to gain meaningful access to DCA and 

LGA, it would bring badly needed competition to both airports.^^ For the last 38 years 

the "Southwest Effect" ~ the DOT's description of Southwest's consistent record of 

dramatically reducing fares and expanding traffic when it enters new markets ~ has 

proven to be the most potent force in domestic airline competition.^^ Even under the 

FAA's modest proposed carve-outs, the public benefits from Southwest's competition 

would be enormous. Based on empirical data. Dr. Campbell calculated that 

Southwest's average fare would be 33% lower than Delta's average fare at LGA, and 

49% lower than US Ainvay's average fare at DCA. If Southwest were to acquire 20 slot 

pairs at LGA it would generate $84 million in fare savings annually compared to Delta's 

use of those slots.^^ Similarly, if Southwest were to acquire 14 slot pairs at DCA it 

would generate $109 million per year compared to US Ainvays' use of the slots.""^ 

Moreover, Southwest would carry more than 340,000 additional passengers to and from 

each of those airports annually using its B-737 aircraft compared to Delta's and US 

^^ Southwest was offered LGA slots by an incumbent carrier on one occasion but only at exorbitant prices, i.e., 

prices that were so high that the resulting flights would have been uneconomic. 

" The FAA's observation that DCA is a separate competitive market from BWI and IAD is consistent with 

Southwest's experience. Specifically, airlines serving the same destinations from DGA that Southwest serves from 

BWI or IAD have been able to maintain a consistent fare premium above Southwest's fares. This indicates that 

DGA is effectively insulated from Southwest's low-fare services at BWI and IAD due to its unique proximity to 

downtown Washington DG as well as slot constraints that prevent new entry. 

" For the latest example of this phenomenon see Southwest Effect is Kicking in at MSP. Minneapolis Star Tribune, 

March 6, 2010 ("One year after the low-cost carrier came to town, the average fare from here to Chicago's Midway 

has dropped more than 60 percent, to $101.... And passenger numbers for all carriers on that route jumped 50 

percent, to 3,365 per day"). 

^^ GAG Analysis Section 6.1 and Exhibit 8. 

10 
Ainvays' service with regional jets and turboprops.^° 

As noted earlier, we believe that FAA's proposed carve-outs of 20 slot pairs at 

LGA and 14 pairs at DCA are too small and should be expanded in order to more 

effectively counteract the anticompetitive effects of the Delta/US Ainvays slot swap. 

However, if Southwest were able to acquire just the limited number of DCA and LGA 

slots that FAA has initially proposed to carve out, enormous public benefits would still 

be generated from significantly lower fares and greatly increased traffic in the few 

markets that Southwest would serve at those airports. In other words Southwest would 

put the divested slots to their proper competitive use and generate hundreds of millions 

of dollars annually in benefits to consumers in doing so. 

V. Allocating Divested Slots via a Transparent Auction to the 

Highest Bidder is the Only Way to Ensure Effective New Competition 

at LGA and DCA. 

The laudable goals set out in FAA's notice will not be achieved unless the slot 

sale process is structured to ensure that slots are allocated to those new entrant or 

limited incumbent carriers that will generate the maximum competition and public 

benefits possible. The FAA's notice was undecided on the manner by which the 

divested slots should be allocated, and invited comment on possible options including 

specifically the following: (1) allowing Delta and US Ainvays to dispose of the slots via 

"private sales;" (2) establishing a cash-only, single-bid process with bidders' identities 

blinded, but allowing the selling carriers to accept or reject the highest bid; or (3) 

establishing an FAA "bulletin board" to invite offers but allowing Delta and US Ainvays 

" GAG Analysis Section 6.2 and Exhibit 10. 

^° GAG Analysis Section 7.0 and Exhibits 12 and 16. 

11 
to negotiate terms and consideration with eligible buyers.^^ All of these options are 

flawed, however, and if adopted as described are unlikely to achieve the FAA's goal of 

injecting meaningful competition at LGA and DCA. 

The only sure way to guarantee that divested slots generate the maximum 

competitive benefit possible is to auction the divested slots to the highest bidders in an 

open, transparent, cash-only, competitive bidding process among eligible buyers. 

Allowing the selling carriers to select the buyers, or to determine the terms and 

conditions of sale, is an invitation for manipulation of the allocation process for anticompetitive purposes.^^ Although the FAA has justifiably limited the pool of eligible 

buyers to carriers with less than five percent of DCA and LGA slots, there are many 

carriers in that pool, and there is a wide variation among them with respect to their 

competitive strengths and the uses to which they would put the slots. If Delta and US 

Ainvays were given discretion to choose the buyers of divested slots, it would not be 

surprising for them to select the weakest competitors they would have to face in the 

future. Alternatively, Delta/US Ainvays might decide to distribute the slots among many 

different buyers to prevent any single carrier from gaining an effective competitive 

presence against them. In either circumstance. Southwest would likely be the sellers' 

last choice as a buyer of carved-out slots, at least in any significant quantity. 

For these reasons, under no circumstances should the selling carriers be given 

discretion to determine who the buyers of divested slots will be, or to specify the terms 

and conditions of sale. Instead, Delta and US Ainvays should simply be required to sell 

" FAA Notice at 7311-12. 

" See discussion of this issue in Section 9.0 of the GAG Analysis. 

12 
the slots to the highest bidders in an open and transparent cash-only auction among the 

pool of eligible buyers. It has long been recognized that auctions are the most efficient 

means for allocating scarce resources in a manner than ensures they will be put to the 

maximum societal benefit. The FAA itself has recognized this principle,^^ and many 

government agencies use auctions to allocate scarce assets to ensure that the assets 

are put to their best public use, e.g., the Federal Communications Commission (radio 

and broadband frequencies), Department of the Interior (oil and gas drilling rights), and 

the U.S. Forest Service (timber tracts).^^ The Department of Justice has specifically 

advocated the use of auctions in the context of slots, as a means of allocating slots to 

those carriers that place the highest value on them and will therefore put them to the 

maximum competitive use.^^ As the DOJ has put it, "[i]n this way, scarce resources are 

allocated by the price mechanism to the highest valued uses."^^ 

In the present case, in order to ensure the fairest and most objective process, the 

auction of divested slots should be limited to cash-only bids, without conditions or other 

forms of consideration. The value of other types of consideration in a sale of slots is 

likely to vary widely among carriers depending on their subjective needs and interests, 

and is inherently subject to interpretation and manipulation. Cash-only bids, on the 

other hand, are clear to all participants and not subject to interpretation. In addition. 

" Congestion Management Rule for LaGuardia Airport, Final Rule, 73 Fed. Reg. 60574 (Oct. 10, 2008); 

Supplemental Notice of Proposed Rulemaking, 75 Fed. Reg. 20846 (April 17, 2008). 

^* See, e.g., U.S. Department of Justice, Economic Analysis Group Discussion Paper. Proposal For A Market-Based 

Solution to Airport Delay (hereafter "DOJ EAG Slot Auction Discussion Paper"). October, 2007, p. 3, n. 5. 

" DOJ EAG Slot Auction Discussion Paper. 

^^ DOJ EAG Slot Auction Discussion Paper, p. 9. 

13 
allowing other forms of consideration in the bidding process is especially inappropriate 

in this case since new entrants by definition have no other assets at these airports to 

trade in a purchase transaction. Beyond that, cash-only bidding is particularly 

appropriate here because there is no established "public price" for slots at DCA or LGA; 

very few slot sales have taken place at all, and there has been no transparency to those 

that have. A cash-only auction, on the other hand, will establish clear prices for the 

slots being bid upon.^^ 

Contrary to FAA's initial suggestion, there is no need for the identities of bidders 

in a true auction to be blinded, so long as the selling carriers have no role in the bidding 

process and are required to sell to the highest bidder regardless of identity. Similarly, 

no restrictions should be placed on the number of slot "bundles" that an eligible buyer 

may bid upon. As noted earlier in these comments, effective competition at DCA and 

LGA requires a critical mass of slots, and that goal will be thwarted if artificial restraints 

are imposed upon the ability of eligible buyers to participate in the bidding process. An 

open, transparent, and unrestricted auction as outlined above will produce the most 

robust bidding possible, without confusion or argument over who the highest bidders 

are. Such auctions will be easy for FAA to administer, and will be the quickest and most 

efficient means of effectuating the slot divestitures that DOT/FAA have correctly 

determined are in the public interest to enhance competition.^^ 

" Note that the "single-bid" option mentioned in FAA's Notice differs significantly from a true auction. A single-bid 

process will not achieve the objective of determining a highest bidder in an open, multi-bid environment. 

^^ The sellers of the slots (as well as their creditors, to the extent any of the slots are collateralized) have no basis 

for opposing the auction process described above since it will generate the highest return to Delta and US Airways 

for the divested slots. 

14 
VI. Adeguate Airport Facilities Must be Made Available to the 

Recipients of Divested Slots to Ensure They Have Effective 

Access to DCA and LGA. 

Slots by themselves are of no value to a new entrant at LGA or DCA without 

viable and commensurate airport facilities to put the slots into service. Such facilities 

would include gates, ticket counter positions, operations space, and baggage make-up 

areas. As the DOT and FAA are well aware, available ground facilities at LGA and DCA 

are almost non-existent today, and could be completely foreclosed to a new entrant if 

the DL/US slot transaction were approved without specifically requiring facilities to 

accompany the divested slots. In fact, Delta and US Ainvays are proposing an 

extensive exchange of ground facilities at both airports commensurate with the new 

level of service envisioned for each carrier in their original deal. This exchange simply 

confirms the obvious, that the holders of slots at both airports need adequate ground 

facilities to put their slots into service. 

New entrants or limited incumbents, by definition, have few if any facilities to 

support new service at these tightly controlled airports. Southwest has no facilities at all 

at DCA, and has only a single gate at LGA which is fully utilized handling eight daily 

flights. We suspect that most other eligible buyers of divested slots are in a similar 

position. Yet the FAA's order is silent on the need to make ground facilities available to 

the buyers of divested slots. In order for the public benefits of carved-out slots to be 

realized, the FAA should amend its order to require Delta and US Ainvays, working with 

the respective airport authorities, to make commensurate airport facilities available on 

commercially reasonable terms to the buyers of those slots pursuant to a long-term 

15 
lease. Specifically, a carve-out of 20 slot pairs at LGA would reguire a divestiture of 

four gates (and supporting facilities), and a carve-out of 14 pairs at DCA would reguire a 

divestiture of three gates. Moreover, the buyers of the carved-out slots should not be 

required to pay more for these facilities than Delta, US Ainvays and other incumbent 

carriers are paying for comparable facilities pursuant to leases with the respective 

airport authorities. 

Assuming that Delta and US Airways are required to divest a number of slots as 

a condition of approval for their waiver request, it follows that they will not require the full 

complement of airport facilities that they were proposing to exchange. Consequently, 

FAA should require Delta and US Ainvays to return the needed facilities to each airport 

so the airport authorities can then lease them directly to the recipients of the divested 

slots. A second but less desirable option is to require the carriers themselves to include 

the appropriate number of gates and other facilities with the slot bundles being 

auctioned. However, only the airports have full knowledge of their facilities and are in 

the best position to determine how to accommodate new carriers most effectively. 

Ideally, therefore, each airport authority should have control over the assignment and 

leasing of ground facilities to the buyers of carved-out slots. The FAA should, however, 

require that the new carriers be accommodated on terms no less favorable than those 

accorded to Delta and US Ainvays at LGA and DCA. 

As noted above. Delta and US Ainvays will have ample facilities remaining at 

LGA and DCA to accommodate their slot portfolios after this transaction, even with 

divestitures of facilities commensurate with carved-out slots. Due to their large gate 

holdings, the incumbent carriers already benefit from significant gate scheduling 

16 
flexibility (for example to accommodate irregular operations) that smaller carriers simply 

do not have. Under the proposed slot transfer agreement Delta would gain numerous 

additional gates via the acquisition of US Ainvays' Mainline and Shuttle terminals. At 

DCA, the fact that US Airways is proposing to accommodate 42 new roundtrip flights 

with only three new gates, suggests that the carrier already has excess facilities. If US 

Ainvays receives a more modest addition of 28 roundtrips, it can certainly find space for 

them on their existing 15 gates, plus its significant off-gate commuter hard-stand 

facilities. 

The DOT/FAA have ample authority to require Delta and US Ainvays to make 

such facilities available as a condition of approving their extraordinary request for a 

waiver of the FAA's slot regulations. It clearly is in the public interest to do so since 

these facilities are required to enable new entrant and limited incumbent carriers to 

utilize divested slots and bring consumer benefits to the market. In fact, if the 

incumbent carriers were to deny the buyers of carved-out slots sufficient ground 

facilities on reasonable terms, the DOT would be justified in finding such action to be an 

unfair competitive practice and/or an unfair method of competition in violation of 49 USC 

§41712. 

V. Conclusion 

The Delta-US Ainvays slot transfer agreement, as presented, would dramatically 

reduce competition at LGA and DCA, two of the most critical airports in the United 

States, for years to come. Southwest urges the DOT/FAA to either disapprove the 

carriers' extraordinary request for a waiver of the LGA Interim Order entirely, or 

condition it upon slot carve-outs larger than the 20 slot pairs at LGA and 14 pairs at 

17 
DCA that FAA initially proposed. To ensure that the slot divestitures achieve the 

DOT/FAA's desired objective of injecting effective new competition at DCA and LGA, 

slots should be auctioned to the highest bidders among eligible buyers in a cash-only 

process without giving the selling carriers discretion to select the buyers or dictate the 

terms of sale. In addition, sufficient gates and other ground facilities must be made 

available to the buyers of divested slots on reasonable terms. If Southwest is able to 

acquire sufficient slots at LGA and DCA though this process it will generate hundreds of 

millions of dollars in fare savings and carry hundreds of thousands of additional 

passengers annually through an efficient and competitive utilization of these scarce 

public assets. 

)ectfully submitted, 

?bbert WrKnSt^ley^ 

Associate General Counsel 

Southwest Airlines Co. 

March 22, 2010 

Washington DC 

18 
BEFORE THE 

U.S. DEPARTMENT OF TRANSPORTATION 

FEDERAL AVIATION ADMINISTRATION 

Docket No. FAA - 2010-0109 

ECONOMIC ANALYSIS OF THE DELTA/US AIRWAYS SLOT SWAP 

AGREEMENT AND THE FAA'S PROPOSED SLOT CARVE-OUTS 

Prepared by: 

Campbell Aviation Consultants LLC 

Dr. Brian M. Campbell Charlottesville, VA 

President March 22,2010 bnicconsulting@earthlink.net 
TABLE OF CONTENTS 

Section Title Page 

1.0 Introduction 1 

2.0 Summary of Conclusions 1 

3.0 The Proposed Slot Swap Transaction Would Fundamentally Alter the Competitive 

Dynamics of LGA and DCA While Locking Out Future Competition 2 

3.1 If the Slot Transaction is Approved, Delta and US Airways Would Be Able to Use 

Their Dominant Positions at LGA and DCA for Anticompetitive Purposes 3 

3.2 The Slot Swap Would Leave Delta and US Airways Just Enough Slots to Serve Their 

Hubs and the Shuttle, Eliminating Nearly All Competition Between Them at Both 

LGA and DCA 5 

4.0 Larger Slot Carve-Outs at Both LGA and DCA are Essential to Mitigate the 

Anticompetitive Effects of the DeltaAJS Airways Transaction 8 

5.0 The Most Pro-Competitive Outcome for FAA's Modest Carve-Outs Is For All 

the Slots To Be Acquired By A Single Low-Fare Carrier 11 

6.0 Under The FAA's Proposed Carve-Outs, Southwest's Service Would Produce 

Approximately $193 Million of Annual Fare Savings 12 

6.1 Southwest's Service at LGA Would Save Passengers $84 Million Annually 13 

6.2 Southwest's Service at DCA Would Save Passengers $109 Million Annually 14 

7.0 Southwest Would Make Much More Efficient Use of Slots Than Delta or US 

Airways 14 

7.1 Delta Is an Inefficient User of LGA Slots 15 

7.2 US Airways Is an Inefficient User of DCA Slots 16 

8.0 The FAA Carve-Out Proposal Must Provide Assurances of Effective Airport 

Access by Including Adequate Airport Facilities for the Carriers Acquiring Slots.. 16 

9.0 A Pro-Competitive Outcome Requires a Simple Market-Based Auction 17 
TABLE OF CONTENTS 

ATTACHMENT A: Qualifications of Dr. Brian M. Campbell 

EXHIBITS: 

Exhibit 1 The Slot Swap Would Make Delta By Far the Largest Carrier at LGA 

Exhibit 2 The Slot Swap Would Transform LGA into an Airport Dominated By a Single 

Carrier 

Exhibit 3 The Slot Swap Would Increase US Airways' Dominance at DCA 

Exhibit 4 US Airways Would Have Nearly Four Times More DCA Slots than the Next 

Largest Holder 

Exhibit 5 FAA's Proposed Carve-Outs Would Only Marginally Diminish the AntiCompetitive Impacts of the Slot Swap 

Exhibit 6 Southwest's Average Fares are Significantly Lower than Delta's at LGA and 

US Airways' at DCA 

Exhibit 7 Southwest's Average Fare Would Be 33% Lower Than Delta's Average Fare at 

LGA 

Exhibit 8 New Low-Fare Service by Southwest Using 20 Pairs of LGA Slots Would 

Generate $84 Million in Annual Passenger Savings 

Exhibit 9 Southwest's Average Fare Would Be 49% Lower Than US Airways' Average 

Fare at DCA 

Exhibit 10 New Low-Fare Service by Southwest Using 14 Pairs of DCA Slots Would 

Generate $109 Million in Annual Passenger Savings 

Exhibit 11 Only 53% of Delta's Departures at LGA Utilize Mainline Aircraft 

in Routes Over 250 Miles 

Exhibit 12 Using 20 Pairs of Slots at LGA Southwest Would Operate 30% More Seats and 

Carry Over 350,000 More Passengers Per Year Than Delta 

Exhibit 13 Delta's Average Aircraft Size at LGA Has Declined 17% In The Last Decade 

To 105 Seats 

Exhibit 14 Only 38% of US Airways' Departures at DCA Utilize Mainline Aircraft in 

Routes Over 250 Miles 

Exhibit 15 US Airways' Average Aircraft Size at DCA Is Less Than 100 Seats 

Exhibit 16 Using 14 Pairs of Slots at DCA Southwest Would Operate 49% More Seats 

and Carry 345,000 More Passengers Per Year Than US Airways 
TABLE OF CONTENTS 

APPENDICES: 

Appendix-1 Current and Prospective Slots Operated by Delta and US Airways at LGA 

and DCA 

Appendix-2 Current Delta and US Airways Daily Departures by Market at LGA 

Appendix-3 Current Delta and US Airways Daily Departures by Market at DCA 

Appendix-4 Southwest Airlines Yield Curve for the Year Ended September 2009 

Appendix-5 DL at LGA Yield Curve for the Year Ended September 2009 

Appendix-6 US at DCA Yield Curve for the Year Ended September 2009 

Appendix-7 Only 53% of Delta's Departures at LGA Utilize Mainline Aircraft 

in Routes Over 250 Miles 

Appendix-8 Only 38% of US Airways' Departures at DCA Utilize Mainline Aircraft in 

Routes Over 250 Miles 

III 
ECONOMIC ANALYSIS OF THE DELTA/US AIRWAYS SLOT SWAP 

AGREEMENT AND THE FAA'S PROPOSED SLOT CARVE-OUTS 

1.0 Introduction 

Southwest Airlines Co. ("Southwesf) retained Campbell Aviation Consultants ("CAC") 

to examine the slot swap proposal advanced by Delta and US Airways at LGA and DCA. In 

conjunction with this slot swap evaluation, CAC was requested to analyze the efficacy of the 

FAA's carve-out proposal to lessen the anti-competitive effects of the transaction. 

Delta and US Airways propose to swap a large number of operating slots with each other 

at two major slot controlled airports. Delta would obtain 140 pairs of slots from US Airways at 

LGA,' and in return would trade 42 slot pairs to US Airways at DCA. The FAA proposes to 

approve the transaction subject to a 20 slot pair carve-out for qualifying airlines at LGA, and a 

14 slot pair carve-out at DCA. 

The CAC analysis was directed by Dr. Brian Campbell. It employs standard time-tested 

DOT methods of market analysis using traditional publically available aviation data sources. Dr. 

Campbell has participated in scores of DOT/FAA/CAB regulatory proceedings and he has 

appeared as an expert witness in over 75 adversarial aviation hearings. A synopsis of his 

experience relevant to this proceeding is presented in Attachment A to this text. 

2.0 Summary of Conclusions 

CAC has examined the Delta/ US Airways slot swap proposal and the carve-out solution 

suggested by the FAA, and has reached the following conclusions: 

• The slot swap as proposed, or as modified by the FAA, would fundamentally alter the 

competitive dynamics of LGA and DCA by creating one dominant carrier at each 

airport and effectively locking out ftiture competition. Delta would dominate LGA 

services with 46% to 50% of all the operating slots, and US Airways would dominate 

DCA services with 53% to 57% of all the slots. 

• With or without carve-outs, the proposed slot swap would leave US Airways with 47 

slots at LGA and Delta with 46 at DCA - just enough to serve their hubs, portions of 

the Shuttle, and little else. By eliminating most of the competition between the two 

^ This consists of a permanent transfer of 125 LGA slot pairs plus a lease with an option to purchase an additional 

15 LGA slot pairs. 
carriers while creating dominant positions at separate airports, the transaction is in the 

nature of a division of markets that will raise fares and diminish passenger options. 

• The FAA's slot carve-out solution does not go far enough to remedy the 

anticompetitive effects of the proposed swap. In order to inject a meaningful degree 

of new competition to offset the increased concentration, 40 to 50 pairs should be 

carved-out at LGA, and at least 20 slot pairs should be made available at DCA. 

• If the transaction is approved it is unlikely that any other carrier will be able to 

acquire future DCA or LGA slots at economically viable prices since Delta and US 

Airways will have both offensive and defensive reasons for capturing any available 

slots. Thus it is critical to increase the number of slot carve-outs required for 

approval of the transaction. 

• If Southwest were to acquire just the slot carve-outs proposed by the FAA, it would 

save passengers $84 million annually at LGA and $109 million per year at DCA. 

• Southwest would use divested LGA and DCA slots much more efficiently than the 

incumbents, operating over 460,000 more annual seats and carrying over 340,000 

more passengers at each airport than Delta or US Airways. 

• Gates, baggage make-up, counter, and office space are critical requirements and are 

integral to any flight operation. They should be packaged for sale with the slots to 

ensure a viable operation by a new entrant or small incumbent. 

• The mechanism for the sale of slots, gates and terminal space should be a simple 

market-based auction. All three alternative methods suggested by the FAA would 

allow the sellers to reject bids from a strong competitor even if it is the highest 

bidder. Delta and US Airways should be required to sell each bundle of slots, gates 

and terminal facilities to the highest bidder at the winning price, without influence on 

the sale process. 

3.0 The Proposed Slot Swap Transaction Would Fundamentally Alter the Competitive 

Dynamics of LGA and DCA While Locking Out Future Competition 

Under the proposed transaction US Airways would trade away 140 LGA slot pairs, or 

75% of its current slots at LGA (Appendix-1), leaving it little more than service to its hubs. 

Likewise, at DCA Delta would turn over 42 pairs of slots to US Airways, or about 48% of its 
current slots. Delta would be left to serve its seven hubs to/from DCA and little else. At both 

access controlled airports, the carriers will vacate a number of markets served by the other, and 

many more markets where the competitive structure will be reduced by one carrier. The 

outcome of the Delta/US Airways slot swap is clearly anti-competitive and in some respects 

appears to be a division of markets. 

The FAA shared its concerns over anti-competitive effects in its Solicitation of 

Comments. At page 12 the FAA states "...it is apparent that if the proposed transaction is 

approved, the carriers will increase the number of markets they serve on a monopoly or dominant 

basis...and...there is no assurance that all markets currently being served by the departing carrier 

will be maintained by the new carrier." 

Similarly, the FAA addresses the anti-competitive pricing outcomes on page 13 of its 

Solicitation of Comments in stating "The Department tentatively concludes that the proposed 

transaction is likely to result in higher fares for consumers in certain domestic markets..." It 

states further that if the transaction is approved as proposed, the competitive environment at 

LGA and DCA "would become significantly more concentrated..." and "the carriers would 

likely rely on their increased dominance to maintain or enhance their premium fare structures in 

markets served at both airports." As a result, significant carve-outs are required to remedy the 

anti-competitive outcomes identified by the FAA. 

The greater the concentration FAA allows Delta and US Airways to achieve, the more 

unlikely it will be that any other airline will be able to acquire LGA or DCA slots at 

economically viable prices and mount sustainable competitive services in the future. Under the 

Delta/US Airways proposal, competition will be significantly diminished, markets will largely be 

divided between those two carriers, and new or expanded competition at LGA and DCA will 

effectively be locked out for years to come if not permanently. 

3.1 If the Slot Transaction is Approved, Delta and US Airways Would Be Able to Use 

Their Dominant Positions at LGA and DCA for Anticompetitive Purposes 

As shown in Exhibits 1 and 2, the top two carriers at LGA, US Airways and Delta, 

presently account for 33% and 25% of the slots respectively. After the proposed slot swap. Delta 

would have 50% and the next largest carrier (American) would have only 19%. 
At DCA the picture of dominance is even more acute (Exhibits 3 and 4). Today US 

Airways has 47% of the slots and Delta has 21%. With the proposed slot swap US Airways 

would increase its share to 57%, nearly four times more than the next largest holder (American 

Airlines at 15%).^ 

At both airports there will be clear market dominance unless the FAA significantly 

increases the number of carved-outs slots. If it does not, then the two carriers will be able to 

exert extraordinary market power disproportionate to their slot shares due to their massive caches 

of slots in tightly controlled and capacity-fixed markets. A few examples of this market power 

illustrate this point: 

• Delta and US Airways can shift a significant number of slots to target markets served 

by others, including new entrants. With very few slots at their disposal, the targeted 

carriers have little ability to respond competitively. The aggressor can still maintain 

its seat capacity in markets where it withdrew slots to battle others, simply by upgauging its flight equipment. It could also engage in predatory pricing at the same 

time. The FAA recognized this harmful prospect very clearly when it stated 

that..."they [Delta and US Airways] could, if they so chose, use their added slot 

interests to target smaller competitors, for example by increasing their roundtrips in 

competitive markets and 'sandwiching' competitor flights. With relatively few slot 

interests of their own, competitors... may be unable to successfully respond."^ 

• After the slot swap. Delta would be the most logical highest bidder for any new LGA 

slots that may come on the market, either through bankruptcy or sheer capitulation by 

a competitor. Delta will have every economic incentive to outbid all other carriers for 

the few slots that may come to market post-transaction. Delta's economic interests 

are both defensive and offensive: yet any other party interested in purchasing slots in 

the future would have only an offensive interest, and therefore could not justify the 

level of prices that Delta would be willing to pay simply to foreclose competition. In 

essence, Delta would be the one carrier that could make the highest and best use (for 

itself) of additional LGA slots in the future. 

' The FAA's proposed carve-outs would reduce these shares by just 4% at each airport. 

' FAA, Solicitation of Comments, page 15. 
• The same scenario would exist at DCA if the slot swap is consummated. US Airways 

would have an even greater incentive than Delta at LGA to out-bid everyone for 

future slots that may become available. US Airways charges much higher fares at 

DCA than Delta does at LGA. Consequently, its economic incentive to defend 

against new and/or stronger competition at DCA is enormous. A classic example of 

this same economic behavior is the case of British Airways at London Heathrow 

Airport. Over a long period of time, whenever slots became available to be 

"purchased", British Airways was the acquirer almost without exception, until the 

more recent slot restructuring under the US -EU bilateral liberalization. Thus British 

Airways always defended itself against competitive entry or expansion at its 

Heathrow hub for many years, especially by low fare carriers. 

The proposed slot swap would transform the competitive structure and service character 

at both LGA and DCA by creating one clearly dominant airline at each airport. The only way for 

the FAA to restrain the anti-competitive outcomes and potentially abusive practices by Delta and 

US Airways is to disapprove the transaction altogether or increase significantly the numbers of 

carved-out slots. If the slot swap is completed with just the FAA-proposed carve-outs, the 

acquirers of those slots (whether Southwest or any other eligible buyer) will have great difficulty 

buying additional slots for future expansion. As shown in more detail below, the most effective 

way to secure low fares and competitive discipline at LGA and DCA would be for one or more 

strong low-fare carriers to become important market participants at both airports, and larger 

carve-outs are essential to achieving that objective. 

3.2 The Slot Swap Would Leave Delta and US Airways Just Enough Slots to Serve 

Their Hubs and the Shuttle, Eliminating Nearly All Competition Between Them at 

Both LGA and DCA 

Except for residual services to its hubs and little else, US Airways would largely vacate 

LGA by turning the vast majority of its slots over to Delta, and Delta would do likewise at DCA. 

The carriers will each abandon at least seven markets where they compete with the other today, 

and will eliminate competitive service in an unknown number of additional markets. 

Appendix-2 lists the current daily departures at LGA side-by-side for both Delta and US 

Airways. The deal proposed by the carriers, and as tentatively agreed to by the FAA, would 
leave US Airways with slots for 47 daily departures.'* Currently its hub departures from LGA 

include 11 to Charlotte, 16 to Washington Reagan and 22 to Philadelphia, for a total of 49 

flights. It could easily trim two from the Philadelphia service, where it appears to have excess 

slots, to get down to its new total of 47.^ In CAC's judgment US Airways will have powerful 

economic incentives to maintain most if not all of these hub services. In order to do so, however, 

US Airways will need to withdraw from other LGA markets it currently serves, including some 

that Delta also serves ("overlap markets"). The LGA overlap markets that CAC believes would 

lose US Airways' competition with Delta are shown in Table 1. 

Table 1 

LGA Overlap Markets That US Airways Will Likelv Abandon^ 

OAG Daily Departures - Feb, 17, 2010 

Delta 

5 

5 

4 

3 

US 

Current 

6 

4 

4 

2 

Airways 

After 

Slot Swap 

0 

0 

0 

0 

Raleigh/Durham 

Indianapolis 

Columbus 

Charleston 

In the February, 2010 OAG there are an additional 18 LGA markets that CAC concludes 

US Airways will abandon, leaving one less carrier to provide competition to other airlines.^ 

Turning to DCA where Delta would be left with 46 slots after the swap, the same 

phenomenon is observed. The current scheduled daily departures by Delta and US Airways are 

"* As derived by CAC from the current FAA slot reports and analysis of commuter schedules in the OAG. 

' In its August 12, 2009 press release US Airways stated that it would continue hourly service from LGA to both 

DCA and BOS. However, as the FAA stated in its Solicitation of Comments at page 15, neither carrier has 

committed to any particular markets for defined periods, and they are free to discontinue services at any time. CAC 

does not believe that it would be in US Airways' long run economic interest to continue to serve the LGA-BOS 

route, given other more strategic uses of its reduced number of slots. However, for purposes of this discussion CAC 

has treated LGA-BOS as a retained route for US Airways. The August 12, 2009 press release also stated that US 

Airways would maintain its monopoly LGA-PIT services along with Wilmington, North Carolina service. Current 

schedules show 10 daily round trips (Appendix-2), which is a level that makes little economic sense going forward 

since it would deteriorate the carrier's hub schedules. 

* With or without the FAA proposed carve-outs. 

' See Appendix-2. 
shown by market in Appendix-3. At DCA Delta serves its seven hubs with a total of 43 daily 

departures.* It could add three trips among these seven hubs and drop the DCA-LGA Shuttle 

route, or it could preserve the Shuttle by removing 12 roundtrips from its current DCA-Delta hub 

schedules. Delta stated publically on August 12, 2009 that it would continue DCA-LGA service. 

Of course there is no guarantee that Delta will maintain service in any particular market, and we 

believe that Delta's future services at LGA and DCA will be driven by the economic incentives it 

faces at the time rather than the public statements it is making now. Delta would have to 

deteriorate its current hub services to accommodate the DCA-LGA Shuttle. CAC believes that 

the remainder of Delta's DCA service will be dropped, and this includes at least three markets in 

competition with US Airways, as shown in Table 2. 

Table 2 

DCA Overlap Markets That Delta Will Likelv Abandon 

OAG Daily Departures - Feb, 17, 2010 

Delta 

After 

US Airways Current Slot Swap 

Boston 15 7 0 

Indianapolis 4 2 0 

Huntsville 4 2 0 

The current OAG schedule (Appendix-3) shows an additional five DCA markets that 

Delta probably will abandon, leaving one less competitor in those markets. When the current 

schedules are examined in light of the slots remaining with each carrier (after the proposed swap) 

CAC has concluded that the carriers would only be able to maintain service to their hubs and 

possibly competitive service in the LGA Shuttle markets. 

CAC examined the slot swap proposal against each carrier's current schedules, and 

evaluated their options using rational airline economic behavior to reconfigure their remaining 

46 or 47 daily departures at the airports where they would give up slots. Upon doing so it 

becomes clear that the slot transaction would enable Delta and US Airways to divide DCA and 

LGA markets between themselves, lessen competition in the process, and create dominant 

ALT (16), CVG (4), DTW (8), MEM (3), MSP (6), JFK (5), and SLC (1). 

7 
positions at each of the airports separately. The FAA is correct in observing that "The 

competitive harm resulting from this transaction as proposed would occur not just at the city-pair 

level, but at the network or airport level as well, especially given our conclusion that alternative 

airports are not perfect substitutes for service at DCA and LGA."^ 

An examination of Appendices 2 and 3 reveals that while Delta and US Airways 

currently overlap in six LGA markets, there would be at most two overlapping segments left 

after the proposed transaction"^. At DCA there are five overlapping markets today and posttransaction CAC believes there would be at most only two" . Based on CAC's experience and 

knowledge of airline economics and scheduling practices, it does not believe that US Airways would 

remain in the LGA-BOS market, or that Delta would continue to serve DCA-BOS especially if it 

continues DCA-LGA service. Consequently, CAC expects that DL-US head-to-head competition 

would be lost in seven important markets as a result of this transaction. If US Airways 

withdraws from LGA-BOS the count would increase to eight. 

4.0 Larger Slot Carve-Outs at Both LGA and DCA are Essential to Mitigate the 

Anticompetitive Effects of the Delta/US Airways Transaction 

Currently there are 560 pairs of slots in total at LGA, and 417 at DCA, operated by 

scheduled air carriers and commuters (Appendix-1). The slot trade proposed by Delta and US 

Airways would increase the concentration of slots operated by the dominant carriers at each 

airport to anti-competitive levels, and a significant carve-out of slots at both airports is essential 

to offset these anti-competitive effects. The FAA's proposed carve-outs are unquestionably 

justified as far as they go, but are insufficient to mitigate the anti-competitive consequences of 

the transaction except in a very few markets. 

As shown in Exhibits 1, 2, 5 and Appendix-1, Delta currently operates 138 slot pairs at 

LGA, or 25% of the total 560 slot pairs. The carriers have proposed that US Airways would 

transfer a total of 140 slot pairs to Delta. Delta's share would then be 50% of the airport total. 

The FAA has proposed to carve-out 20 pairs for sale to other qualifying carriers, including 

Southwest Airlines. The FAA's proposed carve-out represents just 4% of the LGA total slots. If 

FAA, Solicitation of Comments, pages 15-16. 

'" LGA-DCA, and LGA-BOS assuming US Airways remains in the market. 

" DCA-LGA and DCA-DTW. . 
made final, it would reduce Delta's post-transaction share from 50% to a still-dominant 46% 

(Exhibit 1). 

Under the FAA's proposed LGA carve-out of 20 slot pairs, a competitive response by 

other airlines could only be mounted in at most three or four of the 76 non-stop LGA markets 

that are served today.'^ This is because effective competition in mainline-sized markets in New 

York requires high frequency of service during the operating day. The FAA must agree since its 

Solicitation of Comments proposes to allocate the carved-out slots in bundles that spread those 

slots fairly evenly during the day. This supports the conclusion that the acquiring carrier(s) 

would likely serve only a few high-density LGA markets with a high enough frequency of 

service on a nonstop basis to be competitive with Delta and other incumbents.'^ On the other 

hand, if the slots were scattered among several new acquirers with a low frequency of service in 

multiple LGA markets, the result would be very weak competition to the incumbents, benefiting 

a very small percentage of LGA passengers. Such an outcome would not be the highest and best 

use of the divested slots for the traveling public 

A more meaningful and sustainable competitive response to the Delta/US Airways 

proposal requires a larger carve-out at LGA, something on the order of 40 to 50 pairs of slots in 

CAC's judgment. For new competitive mainline services at LGA to be effective for the 

consumer, carriers would likely schedule between three (low traffic density markets) and 10 

(high traffic density markets) round trips. If 50 slot pairs were carved out, it is reasonable to 

assume the acquiring carriers would schedule an average of five round trips per day in 10 

mainline markets. With fewer than 50 total pairs, the acquiring carrier(s) would likely 

concentrate their new services in fewer markets with an average of more than five round trips per 

day. Marketing and operating efficiencies are greater with higher levels of frequency. So the 

fewer the available slots, the greater is the likelihood of concentration in the largest markets with 

the maximum sustainable frequency. Conversely, the greater the number of slots available, the 

greater the number of markets served and the smaller the average size of market served with 

carve-out slots. 

A carve-out of 50 slots pairs at LGA will inject meaningful low fare competition and 

result in significant consumer benefits. And, it should be noted that a 50 slot pair carve-out at 

'^ 56 of the 76 total non-stop markets are served by Delta or US Airways, or both. 

'^ Of course a low-fare carrier acquiring carved-out slots would provide additional benefits to connecting passengers 

beyond the nonstop segment. 
LGA would reduce Delta's overall share of LGA slots by only 9%; it is, however, 36% of the 

140-pair transfer requested by the applicants, which is close to the FAA's proposed carve-out 

percentage at DCA (33%). 

The proposed trade at DCA is smaller, and so is the FAA's proposed carve-out. But the 

problems of an anti-competitive outcome are the same. As shown in Exhibits 3 through 5 and 

Appendix-1, US Airways currently operates 194 of the DCA slot pairs, or 47%. The proposed 

transaction contemplates that Delta will transfer 42 slot pairs to US Airways, raising US 

Airways' prospective slot share at DCA to 57%. The FAA's proposed carve-out of 14 slot pairs 

would do little to mitigate the anti-competitive consequences of the DL/US transaction. 

Fourteen pairs represent only 4% of the total DCA slots, so it would not reduce US Airways' 

post-transaction share significantly, nor its market dominance (Exhibit 3). Realistically, with 

only 14 pairs of slots available to other carriers, including Southwest, meaningful competition 

could be provided in at most two or three of DCA's 72 non-stop markets. The DCA carve-out 

should be increased to at least 20 slot pairs so that new effective low fare competition can be 

provided in four or five mainline markets. This is still small in relation to the total DCA service 

profile, but it is almost 50% of the proponents' request for transfer (42 slot pairs). 

The FAA's Solicitation of Comments^^ states clearly that its own analysis of the three 

New York/Newark area airports demonstrates that they are not effective substitutes for one 

another. FAA drew the same conclusion from its analysis of inter-airport fare competition (or 

lack thereof) in the three Washington/Baltimore area airports. CAC agrees with the Agency's 

competitive fare analyses and the conclusions it reached. 

In both multi-airport regions, slot capacity at LGA and DCA has been tightly regulated 

since 1969 by the High Density Rule. Since the implementation of "Buy-Sell" in 1984, airlines 

at both airports have paid millions of dollars to acquire small numbers of slots from each other; 

and these multi-million dollar slot transactions took place during years when there was plenty of 

free capacity available at other airports in the same region - EWR and JFK in the case of New 

York/Newark, and BWI and IAD in the Washington/Baltimore region. Why then have carriers 

paid so much for access to LGA and DCA? The reason is that it has been the only way to 

compete effectively for the separate pockets of high density population that LGA and DCA serve 

within a geographically large and diverse region. Indeed, all the legacy airlines recognize this, as 

''* See FAA, Solicitation of Comments, pages 14-15. 

10 
they have insisted on serving all three Washington/Baltimore area airports as well as all three 

New York City-area airports (with the exception of Continental at JFK) in order to reach the 

separate pools of passengers within those broad areas. The only way to inject effective 

competition into such a broad regional marketplace is to assure effective access to all airports 

within that region, as no single airport can effectively serve the entire market. . Therefore, 

effective access by low-fare carriers to LGA and DCA direcfly is the only way to discipline 

pricing at those airports. It is also the only way to make efficient use of the scarce public 

resources that LGA and DCA slots represent. 

One of the FAA's objectives in establishing carve-out slots is to..."counterbalance the 

potential harm to consumers."'^ Its proposed carve-outs are a step in the right direction but 

should be enlarged as suggested above to provide meaningful competitive relief and protect 

consumers from supra-competitive fares. 

5.0 The Most Pro-Competitive Outcome for FAA's Modest Carve-Outs Is For All the 

Slots To Be Acquired By A Single Low-Fare Carrier 

Unless the FAA increases the carve-outs as recommended above, the best outcome for 

consumers would be achieved if one qualifying low fare carrier is able to acquire all 20 slot pairs 

at LGA and all 14 at DCA. If the slots were scattered among several carriers they will not 

provide any one carrier sufficient mass to operate enough frequency in multiple markets, and 

thereby operate efficiently with low unit costs. Furthermore, because of the sheer size of the 

large LGA and DCA local markets, an airline with only a token presence at either airport cannot 

afford to market efficiently'^. As a consequence, that carrier could fail, as AirTran and Spirit 

have done in DCA and LGA markets in the recent past'^. Conversely, if it tries to mount an 

effective marketing campaign it cannot achieve its low cost structure and price its services 

consistent with the rest of its system. On the other hand, the more slots that a qualifying carrier 

can acquire, the more efficiently it can schedule the new services to integrate optimally with its 

'^ See FAA, Solicitation of Comments, page 1. 

'* For example, a single page advertisement in the New York Times costs $151,000 for a mid-week placement. With 

only 500 or 1,000 seat-departures per day, this cost is difficult to justify. 

" Between May, 1998 and February, 2009 AirTran withdrew from LGA-PIT, LGA-ROC, LGA-SRQ, LGA-TYS, 

DCA-FLL and DCA-PBI. Between January, 2001 and January, 2007 Spirit withdrew from LGA-PBI, LGA-RSW, 

DCA-DTW, DCA-MLB and DCA-MYR. 

11 
system network, and the greater the consumer benefits that can be achieved through low costs 

and competitive flight schedules. 

While the limited carve-outs proposed by the FAA cannot possibly discipline all the 

potential anti-competitive behavior of a dominant Delta at LGA or US Airways at DCA, the best 

option under that proposal would be for all those slots to be concentrated in the hands of a single, 

strong, low-fare competitor. A single carrier would have the flexibility to use the limited number 

of available slots to its best competitive advantage on three or four routes at LGA and two routes 

at DCA. Splitting the slots among two or more carriers will, as noted earlier, only dilute the 

impact of the new service vis-a-vis the incumbents and provide few competitive benefits to the 

public. This need for concentrating the slots with a single carrier could be avoided if the FAA 

decided upon much larger carve-outs, especially at LGA. 

If the FAA does not increase the carve-outs the airline consumer and the public interest 

will be best served if Southwest Airlines acquires most if not all available slots. Southwest is by 

far the most successful low fare carrier among all qualifying buyers, having been profitable for 

38 consecutive years. It has the financial strength and staying power to muscle its way into a 

few markets at LGA and DCA. Southwest has a history of entering markets aggressively and 

expanding its low fare services, not contracting or abandoning markets. Other qualifying carriers 

have a checkered history with new market entry when faced with competition from dominant 

incumbent carriers. Finally, Southwest can make the best use of the slots by leveraging its 

extensive domestic network which includes over 3,000 flights per day to 68 cities using a fleet of 

over 500 B737 aircraft. No other carrier can leverage 20 slot pairs at LGA and 14 pairs at DCA 

with the same efficiency, sustained low fares, and other consumer benefits, as Southwest 

Airlines. 

6.0 Under The FAA's Proposed Carve-Outs, Southwest's Service Would Produce 

Approximately $193 Million Of Annual Fare Savings 

Throughout its history, Southwest's low-fare services have generated billions of dollars 

of fare savings for passengers. This has been true across America in very large markets, medium 

sized markets, and small markets. It has also been true regardless of the number of competitors 

in a Southwest market. Assuming that Southwest acquires 20 pairs of slots at LGA and 14 pairs 

at DCA, CAC has estimated the amount of annual passenger fare savings by comparing 

12 
Southwest's calculated fare, based upon its system yield curve (Exhibit 6 and Appendix 4), with 

Delta's fares at LGA and US Airways' fares at DCA from Appendices 5 and 6. If equations for 

the DL and US system yield curves are used to estimate fare savings, instead of the local DL-LGA and 

US-DCA yield curves (Appendix-5 and Appendix-6), the savings are even greater - Southwest Airlines 

passengers would save $120 million at LGA and $85 million at DCA, for a total of $205 million. To err 

1 R 

on the conservative side, CAC eliminated all non-stop markets under 250 miles. All yield 

curves for Delta and US Airways include a fee of $25 per passenger for one checked bag. 

6.1 Southwest's Service At LGA Would Save Passengers $84 Million Annually 

The average non-stop distance of all Delta LGA flights over 250 miles is 838 miles. The 

estimated Delta one-way fare in these markets is $145 (derived from Appendix-5). Today, all 

the legacy carriers charge extra fees for checked baggage. Southwest does not charge for the 

first or second bag. It is reasonable to assume that the average Delta passenger at LGA travelling 

an average distance of 838 miles checks one bag per trip. This adds $25' to the average fare. 

The total equivalent fare on Delta is therefore $170 (Exhibit 7). On Southwest the calculated 

fare is $114 for a trip of 838 miles (from Appendix-4) and no adjustment needs to be made for 

baggage fees. Thus, it can be expected that Southwest's average fare at LGA would be 

approximately 33% lower than what Delta charges for passenger travel plus one checked bag 

(Exhibit 7). 

With 20 slot pairs (40 daily flights) at LGA, Southwest would operate 2,000,200 one-way 

seats^'' and carry 1,500,150 passengers assuming an average load factor of 75%. At an average 

fare of $114, Southwest's passenger revenue will be $171.0 million. Delta, on the other hand, 

would charge $255.0 million to carry the same 1,500,150 passengers (Exhibit 8). The savings by 

LGA passengers on Southwest Airlines will be $84.0 million. 

'* CAC does not expect that Southwest Airlines would serve the Shuttle markets or any others under 250 miles if the 

FAA's proposed carve-outs are the only slots it could acquire. 

" Delta's current charge for one checked bag. US Airways' charge is the same. 

^° Utilizing the 137-seat B737-700. 

13 
6.2 Southwest's Service at DCA Would Save Passengers $109 Million Annually 

US Airways is a very high fare carrier at DCA. In fact. Exhibit 6 shows quite 

conclusively how much higher US Airways' DCA fare structure is compared even to Delta's 

fares at LGA. Southwest's fares would be dramatically lower at both airports. 

US Airways currently operates 47% of the DCA slots, and it seeks by this transaction to 

increase its dominance to a 57% share (Exhibit 3). With the current lack of competition to US 

Airways at DCA, it is not surprising that US Airways' average fare in DCA markets over 250 

miles is $188, while Southwest's system yield formula produces an average fare on Southwest of 

$109 at the same average trip length of 711 miles (Exhibit 9). As in the case of Delta at LGA, it 

is reasonable to assume that the average US Airways passenger travelling an average of 711 

miles will pay $25 for one checked bag. When the bag fee is added to the underlying fare, US 

Airways total passenger cost is $213, while Southwest's would be $109, or 49% less (Exhibit 9). 

If Southwest were to acquire 14 pairs of slots at DCA to inaugurate its first ever service 

at DCA, it would operate approximately 1,400,140 annual seats and carry 1,050,105 one-way 

passengers at a 75% load factor. As shown in Exhibit 10, Southwest's total passenger revenue 

would be $114.5 million annually, while US Airways would charge $223.7 million to carry the 

same 1,050,150 passengers. This passenger travel cost savings on Southwest would amount to 

$109.2 million annually (Exhibit 10). 

7.0 Southwest Would Make Much More Efficient Use of Carved-Out Slots Than Delta 

or US Airways 

Slots at both DCA and LGA are valuable and scarce public assets that should be put to 

their most efficient use by the carriers that have been given the rights to operate them. Yet both 

Delta and US Airways are highly inefficient users of their slots. If Southwest Airlines were to 

acquire the slots that the FAA carves out, it would make far better utilization of these scarce 

public assets. 

14 
7.1 Delta Is an Inefficient User of LGA Slots 

An examination of Delta's current LaGuardia schedule reveals that in all markets over 

250 miles served by Delta, the carrier's average seats per departure is only 105. This is because 

only 53% of its departures are with mainline aircraft while 47% are with regional jets (RJ's) and 

turbo-props (Exhibit 11 and Appendix-7). Southwest operating 20 daily pairs of LGA slots with 

137-seat aircraft will produce 30%, or 467,200 more seats than Delta and carry 350,000 more 

passengers per year (Exhibit 12). 

Analysis of Delta's LGA schedule over the past 10 years reveals that for all markets over 

250 miles served by Delta, its average aircraft size declined precipitously from 126 in 2000 to 

105 seats currently (Exhibit 13). Despite the carrier's public statements, there is considerable 

doubt that if the slot transfer is approved Delta will make more efficient use of its cache of LGA 

slots and increase its proportion of mainline flights. In fact, if it converts LGA into a Delta 

"rolling hub," as it has publicly stated it will, then Delta cannot realistically convert its LGA 

9 1 

service into a predominantly mainline operation. Hubs require a large number of RJ and turboprop services because they are essential to feeding the hub. This is demonstrated by Delta's 

own hubs in Atlanta, Cincinnati and Salt Lake City. At Atlanta 50% of all Delta departures are 

RJs or turbo-props. At Cincinnati, RJs and turbo-props account for 84% of all Delta departures, 

and at Salt Lake City the commuter aircraft percentage is 75%^^. Consequently, if LaGuardia 

were to become a Delta hub, it is likely that its percentage of operations flown by RJ's and turboprops would actually increase beyond the current 47%. 

There is a further question about "hubbing" that is of great public concern. With scarce 

capacity available to serve a large metropolitan population, it is not in the public interest, or in 

the interest of New York, to allocate 40% or more of the dominant LGA carrier's capacity to 

accommodating connecting passengers who have no need or desire to be at LGA and are only 

passing through the airport. CAC recognizes that this condition exists at O'Hare today and that 

the FAA has tried to mitigate its anti-competitive consequences^^ by giving special treatment to 

new entrant carriers when a few slots can be made available. The result of this initiative. 

^' See the August 24, 2009 letter to David Grizzle, FAA Chief Counsel, from Ben Hirst (Delta) and Stephen Johnson 

(US Airways). 

^^ Data from Official Airline Guide, schedules for February 2010 (February 2010 Max Edition). 

" See the FAA O'Hare Rule. 

15 
however, has been minimal. The FAA is now presented with a unique opportunity to level the 

playing field somewhat and to redress the highly inefficient use of scarce slots by Delta at LGA 

and US Airways at DCA. To accomplish this laudable goal a significantly greater number of slot 

carve-outs is required. 

7.2 US Airways Is an Inefficient User of DCA Slots 

Only 38% of US Airways' operations at DCA in markets over 250 miles are conducted 

with mainline aircraft; 62% are with RJ's and turboprops (Exhibit 14 and Appendix-8). This is a 

gross underutilization of scarce capacity at DCA, and the trend has worsened over the past 10 

years (Exhibit 15). Currently, US Airways averages only 92 seats per departure in markets over 

250 miles (Exhibit 15). In 2000 it averaged 99 seats per departure. Clearly US Airways could 

significantly increase its seat capacity at DCA if it wished to do so just by using the slots it has 

today more efficiently. A massive slot swap is not necessary for US Airways to accomplish this 

sorely-needed up-gauging of DCA flights. 

If Southwest were to acquire all 14 pairs of carved-out slots it would offer 1,400,140 

annual seats at DCA compared to 940,240 seats by US Airways (Exhibit 16). Southwest would 

achieve 49% greater efficiency (seats per flight) than US Airways (Exhibit 16),'^'* provide almost 

one half a million more seats, and carry 345,000 more passengers per year with 14 daily round 

trips. 

8.0 The FAA Carve-Out Proposal Must Provide Assurances of Effective Airport Access 

by Including Adequate Airport Facilities for the Carriers Acquiring Slots 

When the FAA finalizes its slot carve-out proposal it must address the critical needs of 

new slot acquirers for complementary gate, counter, baggage make-up and office facilities at 

both LGA and DCA. A new entrant or small incumbent like Southwest Airlines cannot utilize 

carved out slots if it cannot be assured of reasonably priced and competitively efficient gates and 

terminal facilities. Slots and gates/terminal space are inextricably tied together as essential 

requirements for new or expanded operations utilizing some or all of the carve-outs. 

^* 137 seats per flight (Southwest) vs. 92 seats per flight (US Airways). 

16 
To have a successful carve-out solution the FAA must require Delta and/or US Airways 

to include at least four gates closely clustered together at LGA and three gates similarly situated 

at DCA. Furthermore, a baggage make-up room and a reasonable amount of ticket counter and 

office space should be included in the carve-out package, and these ground facilities should be 

tied to the slots and priced by auction. 

9.0 A Pro-Competitive Outcome Requires a Simple Market-Based Auction 

The FAA has posited three alternative mechanisms for effecting the slot transfers. In all 

three instances, however. Delta and US Airways would be allowed to select their competitor(s), 

either directly via a private sale or indirectly by dictating the terms of sale or rejecting the 

highest bidder. As shown in Exhibits 8 and 10, if Southwest Airlines acquires 20 slot pairs at 

LGA and 14 pairs at DCA, the annual fare savings to passengers is estimated to be $193 million. 

This is $193 million less revenue to Delta and US Airways; and it may all come from yield 

dilution. 

In CAC's opinion, rational behavior by Delta and/or US Airways would be to reject a bid 

from Southwest Airlines, if they have a choice, even if Southwest bids much more than the next 

highest bidder. Delta and US Airways know that Southwest has enormous staying power, that it 

will adhere to its low-fare pricing strategy, and may try to expand over time if it can acquire 

additional slots. In fact, in order to prevent Southwest from acquiring slots, it could be 

economically rational for Delta and US Airways to give the slots for little or no money to a 

carrier they expected would maintain the current fare structure, or at least not reduce fares to the 

level they expect Southwest will charge. 

The FAA should not, therefore, construct any disposal mechanism where Delta or US 

Airways have any discretion to select the buyer(s) or any other role in determining the rules of 

sale. It should be a simple straightforward cash-only public auction managed by the FAA. Each 

bundle of slots with their associated gates and other ground facilities should be auctioned off to 

the highest bidder. This recommended procedure should be conducted separately for each of the 

two airport's slot and ground facilities package. 

^' This is a ratio of five daily departures and five arrivals per gate. While Southwest Airlines can achieve higher 

utilization at less delay-prone airports, it will need four more gates at LGA if it acquires 20 slot pairs. 

17 
Only in this way can fair opportunity be accorded all interested bidders; and only in this 

fashion will the public interest be best served. The auction process is the best market-based 

mechanism for maximizing consumer welfare in the allocation of scarce resources. The party 

willing to pay the most for a scarce resource will make the best use of it in a competitive 

marketplace. The Department of Justice has articulated this principle very well by stating "In 

most markets, resources used to produce a product have prices that act as a rationing mechanism. 

Use of a resource to produce a product is less profitable to firms as price rises, all else equal, and 

when resources are scarce and firms compete for the right to them, their prices begin to be bid 

up. Price rises until those valuing the resource the least drop out, and eventually the market 

clears when the quantity demanded is equal to the quantity supplied. In this way, scarce 

Oft 

resources are allocated by the price mechanism to the highest valued uses." The DOJ paper 

goes on to state that administrative methods of allocating scarce airport resources are unlikely to 

promote efficient airport usage or to promote competition. 

To achieve the desired public benefits, allocation of the LGA and DCA slot and terminal 

facility carve-outs must go to the highest bidder in a procedure where Delta and US Airways 

cannot select the buyers, dictate the terms of sale, or otherwise influence a transparent and 

competitive bidding process. Delta and US Airways should simply be required to sell each 

bundle of slots, gates and terminal facilities to the highest bidder at the winning price. 

00000000 0 

^* See U.S. Department of Justice, Economic Analysis Group Discussion Paper. Proposal For A Market-Based 

Solution to Airport Delav. October, 2007, page 9. 

18 
Attachment A 

Page 1 

Qualifications of Dr. Brian M. Campbell 

President, Campbell Aviation Consultants, LLC 

Dr. Campbell provides economic consulting services to passenger and cargo airlines, 

airports, and trade associations. He has served commercial aviation parties for the past 42 years, 

during which period he was also a co-founder and senior executive of two new entrant low-fare 

airlines. He has also testified as an economic witness in more than 75 cases before the CAB, 

DOT, the U.S. Congress, Federal courts, arbitration panels, the Canadian Transport Commission, 

the Parliament of Canada and the European Commission. 

From 1973 to 1975 he was Vice President of Simat, Helliesen and Eichner, Inc. After he 

returned full-time to the consulting business in 1986, Dr. Campbell was a founding partner of 

Leeper, Cambridge, and Campbell and subsequently The Campbell-Hill Aviation Group. 

Throughout his career. Dr. Campbell has been involved in numerous projects involving 

slots, services, fares and competition in complex multi-airport regions like New York/Newark, 

Washington/Baltimore and San Francisco/Oakland/San Jose. Some of these studies were 

conducted for airlines, and others were performed for airports or airport authorities. In the late 

1970's he prepared a study for the FAA which modeled the Washington/Baltimore airports 

system with the goal of testing a wide range of new potential operating rules and combinations of 

rules for DCA. 

Dr. Campbell has provided economic consulting services to a wide variety of airlines 

including scheduled and non-scheduled, passenger and express/cargo, domestic and 

international, commuter, legacy, low-fare, and start-up airlines. He has prepared business plans 

for start-ups and was a co-founder of two new airlines since 1978, including Midway Airlines, 

Inc. 

Dr. Campbell holds a Ph.D. degree in Business Administration from Columbia 

University; an MBA degree from the University of Western Ontario; and a Bachelor of 

Commerce degree from McGill University. 
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