BEFORE THE OFFICE OF THE SECRETARY DEPARTMENT OF TRANSPORTATION

WASHINGTON, D.C.

_____________________________________ ) Applications of ) ) SOUTHWEST AIRLINES CO. ) JETBLUE AIRWAYS CORP. ) Docket DOT - OST - 2000 - 7182 US AIRWAYS, INC. ) ) For Inside Perimeter Slot Exemptions ) pursuant to 49 U.S.C. § 41718(b) )

_____________________________________ )
ANSWER OF SOUTHWEST AIRLINES CO.

Communication with respect to this document should be addressed to:

Ron Ricks Robert W. Kneisley Executive Vice President
-- Associate General Counsel Chief Legal and Regulatory Officer Leslie C. Abbott Madeleine Johnson Senior Attorney Vice President General Counsel SOUTH WEST AIRLINES CO. SOUTHWEST AIRLINES CO. 1901 L Street, NW 2702 Love Field Drive Suite 640 Dallas, TX 75235
- 1611 Washington, DC 20036 bob.kneisley@wnco.com (202) 263
- 6284

December 19, 20121 BEFORE THE OFFICE OF THE SECRETARY DEPARTMENT OF TRANSPORTATION

W ASHINGTON, D.C.

_ ____________________________________ ) Applications of ) ) SOUTHWEST AIRLINES CO. ) JETBLUE AIRWAYS CORP. ) Docket DOT - OST - 2000 - 7182 US AIRWAYS, INC. ) ) For Inside Perimeter Slot Exemptions ) pursuant to 49 U.S.C. § 41718(b) )

_____________________________________ )
ANSWER OF SOUTHWEST AIRLINES CO.
On November 13, 2012, the Department of Transportation (“ DOT ” or

“ Department ” ) established a slot ex emption pro ceeding pursuant to 49 U.S.C. § 41718(b) request ing applications from carriers for two AIR
- 21 slot exemptions prev iously held by Spirit Airlines. These slot exemptions authorize service to a medium hub or smaller airport within the 1,250
- mile p erimeter established for civil operations at Ronald Reagan Washington National Airport (DCA) under Title 49 U.S.C. § 49109. Southwest Airlines , JetBlue Airways, and US Airways filed responsive applications. 1 Southwest, a limited incumbent carrier at DCA , proposes to initiate large
jet, low
- fare service between DCA and Houston Hobby Airport (HOU) , in direct competition with United Airlines’ monopoly between Houston Intercontinental Airport (IAH) and DCA, one of DCA’s largest and most over
- priced monopoly markets

.

1 Common names of airlines are used.2

A review of the key aspects of each carrier’s application makes clear that Southwest’s service proposal for DCA
- HOU is materially superior to those of both JetBlue to serve Jacksonville (JAX) and US Airways to serve Oklahoma City (OKC): 2

Southwe st HOU JetBlue

JAX US Airways

OKC 1. Number of AIR - 21 criteria satisfied (maximum of four ) 3 3 2 1 2. Proposed aircraft type and size B737
- 700 143 seats A320

150 seats E
- 190 (RJ)

99 seats 3. Total new passengers generated annually 4 105,382 69,315 8 ,919 4. A nnual consumer fare s avings 5 $19.1 M illion $10.4

M illion $0

5. Proposed DCA nonstop fare and fare per mile 6 $207 17.0¢ $141

22.2¢ $270

23.3 ¢

6. Connecting and one - stop cities to be served 7 11 1 0

7. Current DCA slots held by applicant 8 30 3 6 472

2 Southwest retained the Campbell
- Hill Aviation Group , LLC to perform economic analysis of its DCA
HOU proposal , as set forth in Southwest’s Applicat ion. Campbell
- Hill has also estimated fare s , traffic and consumer benefits for JetBlue ( Appendix 2 & Appendix 3 ) and US Airways ( Exhibit R
- 20 and Appendix 1 ) based on information contained in each of those carriers ’ application s
. 3 Exhibit WN
- R
- 1

. Applica nts are only able to satisfy a maximum of four of the five AIR
- 21 criteria because providing “competitive nonstop air transportation on a monopoly nonstop route to DCA,” is mutually exclusive with providing nonstop DCA service to a community “without exist ing nonstop air transportation to DCA.” 4 Exhibit WN
- R
- 2 5 Exhibit WN
- R
- 3 6 Exhibit WN
- R
- 4 7 Exhibit WN
- R
- 5 8 Exhibit WN
- R
- 63

When scored against the AIR
- 21 selection criteria as well as considered side
- by
side for substance and public benefits, Southwest’s proposal stands out as by far the strongest and most beneficial to consumers. JetBlue proposes service to JAX, a m arket that is already well
- served with nonstop service from DCA today in relation to its size. Moreover, current average fares in the DCA
- JAX market are only slightly above the DCA average for routes of the same distance, whereas fares between DCA and Hou ston average 44% above the DCA average for the same distance. US Airways proposes high fare, small aircraft service to OKC. Its proposal meets only one AIR
- 21 factor , and because US Airways proposes no fare savings its traffic stimulation is negligible. Southwest has provided detailed economic analysis and forecasts to the Department and the parties that estimate the public benefits of its proposed DCA
- HOU service. These analyses demonstrate that Southwest’s proposal will generate over $19 million in annual consumer savings for local DCA
- Houston passengers while stimulating the markets by an additional 105,000 annual passengers. 9 With service on its 143
- seat B737
- 700 aircraft, Southwest forecasts that it will carry over 88,000 passengers between HOU and DCA in the first normalized year. 10 By contrast, n either JetBlue nor US Airways provided economic analysis or traffic forecasts rel evant to the DOT’s evaluation, which renders their claims of public benefits impossible to substanti ate and therefore unp ersuasive. In any case, t he large public benefits and consumer savings that are fully explained and documented in Southwest’s proposal dwarf any reasonable estimate of benefits that JetBlue or US Airways c ould conceivably generate.

9 See Exhibits WN
- 117 and WN
- 121. 10 See Exhibit WN
- 117. Includes zero fare passengers in all onboard passenger comparisons in th is Answer

.4

I. Southwest’s HOU Servic e Will Stimulate Vastly More Traffic and Produce Millions More in Annual Consumer Benefits than JetBlue’s JAX Proposal
. Houston suffers from dramatically higher DCA nonstop fares than Jacksonville. United currently charges monopoly fares in the DCA
- Houst on nonstop market that average 44% more than the DCA average fare for that distance (Exhibit WN
- R
- 7 ). On the other hand , the average nonstop fare in DCA
- JAX by the incumbent carrier is only 5% above the DCA average fare for that distance (Exhibit WN
- R
- 7 ). Because the monopoly fare in the DCA
- Houston market is so much higher than in the DCA
- JAX market, Southwest’s proposal will lower fares to a much greater extent

– and in turn will stimulate 52% more traffic than JetBlue (Exhibit WN
- R
- 8 )

. In the first no rmalized year of service Campbell
- Hill estimates that Southwest will stimulate traffic by more than 105, 000 new passengers (Exhib it WN
- R
- 8 ). In comparison, JetBlue’s fare proposal would generate approximately 69, 000 new passengers , 34% less than Southwest (Exhibit WN
- R
- 8 ). In terms of its own traffic, Southwest will carry 88,392 local DCA passengers in the first normalized year

. B ased on JetBlue’s stated assumptions, Campbell

- Hill estimates that it would carry 67,104 local on
- board DCA passengers. 11 Sout hwest will therefore carry 32% more passengers in the DCA local market than JetBlue (Exhibit WN
- R
- 9 ). Most significant to this proceeding, Campbell
- H ill estimates that Southwest will generate annual consumer benefits (fare savings) of $19.1 million for D CA
- HOU local O&D passengers (Exhibit WN
- 105). T he se passenger benefits would be $ 8.7 million , or

11 Campbell
- Hill estimates that with a 30% fare reduction and 50% traffic response ( undocumented assumptions from JetBlue ’s Application) , it will carry a total of 67,104 passengers and produce a load factor of 61%.5

84 % more , than JetBlue’s expected benefits (Exhibit WN
- R
- 1 0 ). JetBlue’s A pplication suggests there may be some one
- stop flow traffic in the DCA
- SJU market av ailable to support its DCA
- JAX proposal. However, this is unlikely since JetBlue already serves San Juan nonstop from DCA (Exhibit WN
- R
- 1 1 ). In contrast, Southwest would provide
one - stop, same plane through service to Albuquerque, New Mexico (ABQ), a bey ond perimeter city without current nonstop service to DCA

. 12 In addition, Southwest would provide convenient connecting service to ten additional cities in four states , only two of which have nonstop access to DCA today. Clearly the consumer benefits of S outhwest’s HOU proposal are far greater than those of JetBlue ’s JAX proposal

. II. Houston Currently Has Less Nonstop DCA Service t han JAX B ased on Population and Suffers f rom Vastly Higher Fares, Making HOU Much More Deserving of New DCA Service. Southwes t’s proposal is also far superior to JetBlue’s based on a comparison of the two markets

. First, the Greater Houston region is huge, with a metropolitan population of 6.1 million residents

– the 9 th largest in the United States. 13 By comparison, the Jackso nville metropolitan area has 1.4 million residents

– 41 st largest in the U.S. 14 Second, despite its size, th e Washington
- Houston market has fewer flights and seat s by a wide margin than Jacksonville in relation to the respective populations of Houston and Jacksonville ( Exhibit WN
- R
- 12 ). Specifically, Houston has 125% more residents per D CA aircraft departure than JAX. Similarly, Houston has 41% more residents p er DCA seat departure than JAX. Therefore, Southwest’s proposed service

12 Service would begin in 20 13; the consumer benefits from the ABQ one
- stop service will be significant but are not included in Campbell
- Hill’s public benefits calculation. 13 U.S. Census Bureau statistics (201 0 ). 14 Id

.6

would benefit a signifi cantly larger population and one that is more disadvantaged in terms of nonstop access to DCA than JetBlue’s proposed service. Furthermore, even though high monopoly fares in the DCA
- Houston market have undoubtedly suppressed demand, that market is still more than twice the size of the DCA
- JAX market (Exhibit WN
- R
- 13 ). Southwest’s service to Houston will therefore best leverage the two slot exemptions at issue for the benefit of the traveling public by
serv ing a much larger market with greater unmet need s than JetBlue’s proposal. III. Southwest’s DCA - HOU Service Proposal is Far Superior to US Airways’ High - Fare, Small Aircraft Proposal to Serve OKC. US Airways ’ proposal for DCA
- OKC regional jet service meets only one of the four relevant AIR
- 21 criteria

. F urther and not surprisingly , US Airways concedes that it does not i ntend to reduce fares. Therefore, its high
- fare, small aircraft proposal will produce only minimal competitive benefits and no low fares. Consistent with US Airways’ business model for DC A, it propo ses service with a 99
- seat regional jet ( RJ )

. Southwest, on the other hand, proposes to use a 143
- seat B737
- 700 mainline aircraft that will provide 44% more seat capacity than US Airways (Exhibit WN
- R
- 14 ). Spirit had operated a 145
- seat A319 w ith the slot exemption s at issue in this proceeding (DCA
- FLL), so US Airways ’ proposal would eliminate 32% of the seat capacity previously operated by Spirit (Exhibit WN
- R
- 15 ). T he US Airways proposal offers no savings whatsoever from the prevailing
aver age one - way fare in the DCA
- OKC market of $27 0 15 and no corresponding consumer benefits (Exhibit WN
- R
- 16 ). In contrast, Southwest proposes to reduce the

15 E xcludes all taxes and government charges but includes avera ge per - person checked baggage and rebooking/change fees based on DOT Form
- 41 data.7

average nonstop, one
- way fare in the DCA
- Houston market from $334 to $207 , a 38% fare reduction for con sumers
. As shown in Exhibit WN
- R
- 17 , Southwest’s proposal will produce over $19 mil lion per year in fare savings to consumers, compared to zero fa re savings for US Airways

. US Airways’ high fare proposal in this case is entirely consistent with its gener al patte rn of monopoly pricing at DCA. Exhibit WN
- R
- 18 plots US Airways ’ average fare s in each of its DCA monopoly markets again st Southwest’s BWI fare curve. As shown, a ll of US Airways’ monopoly fares are higher tha n the Southwest fare curve , and some of them are more than double Southwest’s BWI fares

. It is not surprising, therefore, that US Airways would seek to provide monopoly RJ service on yet another DCA route and charge consumers its prevailing high fares. IV. Southwest’s Low - F are, Large Aircraft P roposal W ill Stimulate Over Five Times More New Traffic than US Airways ’ High - Fare, Small Aircraft P roposal
. Unlike US Airways and JetBlue, Southwest prepared a detailed traffic forecast for this proceeding. Because t he other applicants did not do so , Campbell
- Hill combined their stated assumptions with the model it used to derive Southwest’s forecasts, in order to estimate the traffic and benefits from the proposals and compare them to Southwest on an applies
- to
- apples basis

. Because US Airways propos es no reduction in fares and service with only a small air craft , Campbell
- Hill estimates that it will achieve traffic stimulation of only 8,919 annual passengers , less than 9% of So uthwest’s traffic stimulation in the DCA
- HOU market of 105,382 annual passe ngers (Exhibit WN
- R
- 19 ). 16

16 In the Department’s most recent inside
- perimeter slot exemption proceeding, Southwest submitted an application to serve DCA
- OKC with a low
- fare, large aircraft proposal t hat would have produced 54,834 annual new passengers and $8.2 million in fare savings. See Application of Southwest Airlines Co., filed in this docket on March 5, 2012

. In contrast, US Airways now offers no fare savings and only small aircraft (RJ) service to serve the same city pair.8

Furthermore, Southwest will carry 88,392 passengers onboard its DCA
- HOU flights, while US Airways’ proposal assumes it will carry only 56,000 passengers (Exhibit WN
- R
- 20 ). However, this figure significantly overstates the numb er of local DCA passengers US Airways would likely carry . That is because , on average, 37% of US Airways ’ DCA traffic consists of connecting or through passengers who are merely transiting DCA on their way to or from a different airport (Exhibit WN
- R
- 20 )

. This means that only 63%, or 35,280 , of US Airways’ total OKC
- DCA passengers would actually be DCA O&D s. The other 37%, or 20,720 passengers , that US Airways would carry from OKC would only be passing through DCA on their way to other destinations. In contrast, a ll of S outhwest’s 88,392 passengers will be local to and from DCA (Exhibit WN
- R
- 20 ). Finally, US Airways ’ reference to a “ conditional ” OKC
- CLT roundtrip is totally irrelevant to this case. US Airways has been free to initiate service between OKC and CLT at any time, but has not done so. Moreover, due to the geographic location of OKC and CLT, any future OKC
- CLT service would produce no traffic to support the DCA
OKC route (Exhibit WN
- R
- 2 1 ). Thus , US Airways’ suggestion of a possible OKC
- CLT service has nothing whatsoever to do with this proceeding

. V. US Airways Wastes an Enormous Amount of Scarce Capacity at DCA, and Does Not Need or Deserve Slot Exemptions. US Airways has a massive holding of 472 DCA slo ts , constituting 54 .3 % of the airp ort ’s total

. It does not need , or deserve, an allocation of valuable A IR
- 21 slot exemptions to operate DCA
- OKC service. To the contrary, if US Airways really wants to serve the OKC
- DCA market, it can easily do so with its existing cache of slots. Not on ly9

could US Airways serve this route using a mere 0.4% of its holdings (Exhibit WN
- R
- 2 2 ) but it operates many high frequency RJ routes that could easily be converted to larger jet service with slightly fewer flights to free up numerous slot pair s without i mpacting its market share or product offering

. US Airways has been a major incumbent carrier at DCA for several decades. Over time it has increased its position of dominance through mergers , slot trades and t he acquisition of slot exemptions. This ever
- increasing accumulation of slots , boosted especially by its DCA/LGA “slot swap” with Delta Airlines in 2011, has enabled US Airways to convert DCA into a hub, making it even more difficult for other carriers to provide meaningful competition. DCA is a vi tal airport within the national aviation system, yet t he slot regime has sheltered US Airways from competition by other carriers . More seriously , it has permitted US Airways to squander hundreds of slots by operating a defensive hub for connecting passeng ers and by usi ng undersized airplanes to operate slots in this critical aviation market

. This transparent “slot sitting” wastes valuable public assets , inhibits effective competition, and imposes artificially high fares
on consumers
. These trends and th e harmful consequ ences to the public can be seen graphically. Exhibit WN
- R
- 2 3 shows the trend in US Airways average aircraft size since the year 2000 , during which the average number of seats per departure operated by US Airways at DCA has declined by 15% , to a dismal average of only 77 seats

. This is lower than the average aircraft size operated by every other airline at every other do mestic hub (Exhibit WN
- R
- 24 ). Even US Airways’ average aircraft size for its “Air10

Carrier Slots” 17 is only 86 seats (Ex hibit WN
- R
- 25 )

. By contrast, Southwest is proposing to use a 143
- seat aircraft in this proceeding, significantly larger than US Airways’ average aircraft at DCA. It is easy to calculate the degree of slot wastage that is embedded in the current US Airwa ys scheduling practices. Exhibit WN
- R
- 2 6 shows that 48 equivalent C ommuter S lots are utilized to carry connecting passengers through the DCA hub. 18 These passengers only change planes; they have no other reason to be in Washington DC ; and they receive no bene fit from having access to DCA ; yet they consume valuable capacity at DCA. Congress created slot exemptions at DCA for the stated purpose of providing greater access to passengers who actually desire to fly to or from DCA , not connect through the airpo rt to other destinations

. Since 37% of US Airways ’ DCA traffic is connecting, that amounts to 127 A ir C arrier S lots that are wasted on connecting passengers. 19 In addition, because there is no practical constraint on “A ir C arrier ” aircraft sizes, US Airwa ys wastes additional capacity using numerous small regional/commuter airc raft instead of mainline jets for its A ir C arrier S lots

. If US Airways’ average seat size for its A ir C arrier operations were the same as Southwest proposes in this case (143 seats), US Airways could operate the same aggregate A ir C arrier sea t capacity with 85 fewer slots. Adding the components together shows that US Airways’ current schedule wastes the equivalent of 260 slots. This is a shocking 55% of US Airways’ entire pool of 47 2 slots (Exhibit WN
- R
- 2 6 ).

17 Unlike Commuter Slots, which are limited to aircraft of 76 seats or less, Air Carrier Slots are authorized for use by aircraft of any size. 18 37% x 130 Commuter S lots held by US

. 19 37% x 342 Air C arrier S lots.11

Given th is severe (and growing) problem of underutilization of DCA slots, the Department should take whatever opportunities are available to rect ify this unfortunate situation. Awarding slot exemptions in a way that will injec t vigorous and sustained low
fare competition at DCA with efficient large
- aircraft flights

– such as Southwest is proposing in this case for HOU
- DCA

– would be a small but important step toward achieving this critical public policy goal. Above all, t he De partment should avoid making the DCA slot underutilization problem even worse by awarding rare slot exemptions to the dominant carrier that is primarily responsible for the underutilization problem in the first place. CONCLUSION For the reasons given abo ve and in Southwest’s Application , we urge the Department to grant the two slot exemptions at issue in this proceeding to Southwest Airlines to enable it to initiate large jet, low
- fare serv ice between DCA and HOU. G rant ing Southwest’s Application will no t only best fulfill the AIR
- 21 criteria but will have by far the greatest impact on competition , generate the most public benefits, and produce the most efficient use of scarce DCA slot exemptions

.
Respectfully submitted,

_________________ _________ Robert W. Kneisley Washington DC December 19, 2012CERTIFICATE OF SERVI CE

I hereby certify that on December 19 , 2012, a copy of the foregoing was served via e
- mail or U.S. mail on the following persons: msinick@ssd.com (Alaska Airlines) francis.heil@aa.com (American Airlines) robert.wirick@aa.com (American Airlines) sascha.vanderbellen@delta.com (Delta Air Lines) robert.cohn@hoganlovells.com ( Counsel for Frontier Airlines) patrick.rizzi@hoganlovells.com ( Counsel for Frontier Airlines ) robert.l and@jetblue.com (JetBlue Airways) jhill@dowlohnes.com ( Counsel for JetBlue Airways) perkmann@dowlohnes.com (Counsel for JetBlue Airways) dkirstein@yklaw.com ( Counsel for Spirit Airlines) jyoung@yklaw.com (

Counsel for Spirit Airlines) John.Fredericksen@suncountry.com (Sun Country Airlines) dan.weiss@united.com (United Air Lines) howard_kass@usairways.com (US Airways) Benjamin.slocum@usairways.com (US Airw ays) pmurphy@lopmurphy.com ( Counsel for USA3000) barbara.russell@virginamerica.com (Virgin America) jegillick@zsrlaw. com (

Counsel for Virgin America) susan.kurland@dot.gov todd.homan@dot.gov r obert

. letteney@dot.g ov J ames. dann@dot.gov esta.rosenberg@dot.gov brian.ctr.meehan@faa.gov Mario C. Diaz Director of Aviation Houston Airport System 16930 JFK Boulevard Houston, Texas 770 32 John Potter President and CEO Metropolitan Washington Airport s Authority 1 Aviation Circle Washington, DC 20001 info@airlineinfo.com

__________________________ Leslie C. AbbottNumber of AIR - 21

Criteria Met 

# Southwest's DCA - HOU Proposal Satisfies More AIR - 21 Criteria than Either JetBlue at JAX or US Airways at OKC Docket OST

- 2000 - 7182 Exhibit WN - R - 1

• Limited Incumbent • Community w/o Nonstop Service

• Monopoly Route

• Maximum Competitive Benefits • Limited Incumbent

• Monopoly Route AIR - 21 Criteria Satisfied1 / From Southwest Application at Appendix 1, Column L 2 / From Exhibit WN
- R
- 8 3/ From Exhibit WN
- R
- 19 Newly Stimulated Passengers



# Southwest's DCA - HOU Proposal Will Stimulate Far More New Passengers than Either JetBlue at JAX or US Airways at OKC

1 Docket OST - 2000 - 7182 Exhibit WN - R - 2

3 21/ Fared passengers only. 2/ From Southwest Application at Appendix 1, Column O 3/ From Exhibit WN
- R
- 10 4/ From Exhibit WN
- R
- 17 Annual Consumer Fare Savings 1 (Millions) 

# Southwest's DCA - HOU Proposal Will Produce Far More Consumer Fare Savings than Either JetBlue at JAX or US Airways at OKC

2 3 Docket OST - 2000 - 7182 Exhibit WN - R - 3

4 $19.1 Million

$10.4 Million



### $01/ Southwest Application. $207 ave. fare / 1,218 miles. 2/ Appendix 2. Calculated assuming a 30% fare reduction (JetBlue Application at page 11). $140.56 ave. fare / 634 miles. 3/ Appendix 1. $270.01 ave. fare / 1,158 miles. Fare per Mile (cents) 

## Southwest Proposes the Lowest Fare per Mile of All Applicants

1 2 Docket OST - 2000 - 7182 Exhibit WN - R - 4

3 (Estimated by Campbell - Hill) (Estimated by Campbell - Hill)

## Southwest Will Provide One - Stop Connecting Services to

Many Other Markets While JetBlue and US Airways Would Not

Minimum Connect time = 25 minutes, Maximum Connect time = 3 hours. Source: Innovata Schedules for the week of December 14 h , 2012. Docket OST - 2000 - 7182 Exhibit WN - R - 5

DCA Nonstop Route 1 1 1 Roundtrip Connections 10 0 0 DCA One - Stop Route 1 1 0 WN B6 US



## JetBlue US Airways Southwest

## Southwest Has the Fewest DCA Slots of Any Applicant Docket OST

- 2000 - 7182 Exhibit WN - R - 6

472

Note: Totals include slot exemptions. Source: FAA Slot Reports, Current and Future, dated 10
- 25
- 2012 and Innovata Schedule data.

472 DCA SlotsNonstop Miles

Q2 2012 Fare for Nonstop Passengers /1

1/ Curve derived from all nonstop passengers in DCA nonstop markets with 50 or more fared passengers per day each way. Fares are derived from a yield curve with the following equation: Yield (cents) = 5,289.5 (miles)
- .788 , R 2 =0.79

. Note: Fared passengers only. Excludes all taxes and government charges. Includes estimated checked baggage and rebooking/change fees. Source: U.S. DOT, O&D Survey and Schedule data, YE Q2 2012, via Diio, LLC. United’s DCA - Houston Ave. Fare ($343) +44%

DCA - JAX Ave. Fare ($218) +5% Docket OST - 2000 - 7182 Exhibit WN - R - 7

Note: This curve uses Q2 2012 to reflect the monopoly pricing in the DCA - JAX market since DL left the market in January 2012. E xhibit WN - 101 in Southwest’s Application used YE Q2 2012 data (UA’s premium over DCA average fares using YE Q2 2012 was 43%) 

## DCA - Houston Passengers Suffer From Very High Monopoly Prices While DCA - JAX Fares Are Close to Average DCA Levels

DCA Average Nonstop Fare+52%

1/ Fared passengers only. 2/ From Southwest Application at Appendix 1, Column L 3/ On page 11 of its Application JetBlue assumes that DCA
- JAX traffic would increase by 50% with its service. Campbell
- Hill used this B6 assumption only for purposes of this exhibit. See Appendix 2, attached for the calculation. Source : US DOT O&D Survey YE Q2 2012; US DOT Form 41, via Diio, LLC. Newly Stimulated Passengers 1



## Southwest’s DCA - HOU Proposal Will Stimulate 52% More New Passengers Than JetBlue’s DCA - JAX Proposal

2 Docket OST - 2000 - 7182 Exhibit WN - R - 8

3 (Estimated by Campbell - Hill)1/ Southwest’s Application, Exhibit WN

- 105. Includes zero fare passengers calculated at Southwest’s system average (1.087 x 81,317 fared passengers). 2/ Estimated by Campbell
- Hill using JetBlue’s assumed traffic stimulation of 50% ( page 11 of JetBlue’s Application). See Appendix 3 for calculation details. Local Onboard Passengers 

## Southwest Will Carry 32% More

DCA Local Passengers Than JetBlue

1 2 +32% Docket OST - 2000 - 7182 Exhibit WN - R - 9

(Estimated by Campbell - Hill)+84%

1/ Fared passengers only. 2/ From Southwest Application at Appendix 1, Column O 3/ See Appendix 2 attached. Campbell
- Hill used the unsupported B6 fare and stimulation assumptions (30% drop in fares, 50% incre ase in passengers) from page 11 of its application solely for purposes of this exhibit. Source : US DOT O&D Survey YE Q2 2012; US DOT Form 41, via Diio, LLC. Annual Consumer Fare Savings 1 (Millions) 

# Southwest’s DCA - HOU Proposal Will Produce Nearly Twice

The Consumer Savings As JetBlue’s DCA - JAX Proposal

2 3 Docket OST

- 2000 - 7182 Exhibit WN - R - 10

$19.1 Million

$10.4 Million

# JetBlue’s Continuing Service to SJU Will be of Little Benefit Since It Already Offers Nonstop Service to SJU From both DCA and JAX

Current B6 Route Proposed B6 Route Docket OST - 2000 - 7182 Exhibit WN - R - 11

## Houston is Significantly Underserved From DCA Relative to Jacksonville

+125%

Source : U.S. 2010 Census; Innovata Schedule December 14, 2012. 

### Population per Daily DCA Aircraft Departure Docket OST - 2000 - 7182 Exhibit WN - R - 12

2010 Population: 6,082,028 1,350,198 Current Daily Departures : 8 4 +41% 

### Population per Daily DCA Seat - Departure

2010 Population: 6,082,028 1,350,198 Current Daily Seat - Departures : 990 309+105%

Source: U.S. DOT, O&D Survey, via Diio, LLC. Fared O&D Passengers (YE Q2 2012) 

# The DCA - Houston Market is 105% Larger Than the DCA - JAX Market Docket OST

- 2000 - 7182 Exhibit WN - R - 13+44%

1/ From Southwest Application, page 2. 2/ From US Airways Application, page 2. Proposed Aircraft Size (Seats) 

# Southwest Will Operate 44% More Seats Per Slot Than US Airways

1 2 B737 - 700 E190 Docket OST - 2000 - 7182 Exhibit WN - R - 14

## Southwest’s Proposed 143 - Seat B737 - 700

Will Maintain DCA Seat Capacity While US Airways Would Decrease DCA Capacity by 32% for the Slots at Issue

Source: Innovata Schedule data from NK ( NK last operated August 2012 so August 17, 2012 was used for NK ). Southwest and US Airways aircraft sizes are provided in their applications. Mainline Aircraft (A319) Regional Jet (E190) Aircraft Size (Seats)

Mainline Aircraft (B737) Docket OST - 2000 - 7182 Exhibit WN - R - 15

- 32%Average Fare

% WN Lower: - 38% Docket OST - 2000 - 7182 Exhibit WN - R - 16

% US Lower: 0% Southwest DCA - Houston Proposal 1 UA Fare Before WN Nonstop Proposed

WN Fare US Airways DCA - OKC Proposal 2 Market Fare Before US Nonstop US

Fare

1/ From Southwest Application, Exhibit WN
- 103 and Appendix 1. 2/ From US Airways Application, page 3. US Airways indicates that its fares will be “competitive” with the high current fare s ( YE Q2 2012 Ave. = $270).



## Southwest’s Proposed Fares are 38% Below Current Nonstop Fares While US Airways is Proposing No Fare Decrease1/ Fared passengers only. 2/ From Southwest Application at Appendix 1, Column O 3/ Uses US Airways statement that fares will remain “competitive” with current fares and there will be no fare reductions (S ee page 3 of US Airways’ Application). See Appendix 1, Column O of this filing for the calculation. Source : US DOT O&D Survey YE Q2 2012; US DOT Form 41, via Diio, LLC. 

## Southwest’s Proposal Will Produce $19.1 Million Annual Consumer Savings

While US Airways’ Proposal Would Produce None

2 3 Annual Consumer Fare Savings 1 (Millions) Docket OST - 2000 - 7182 Exhibit WN - R - 17



### $19.1 Million



## $0Nonstop Miles

YE Q2 2012 Average Fare

1 / From US Airways Application, page 3. US Airways indicates that its fares will be “competitive” with the high current fares (Y E Q2 2012 Ave. = $270). 2/ Calculated from the following yield curve based on Southwest’s Yield in nonstop markets it serves from BWI : Yield (cents) = 1,767.2 (miles)
- .667 , R 2 =0.92. Source: U.S. DOT, O&D Survey and Schedule data, YE Q2 2012, via Diio, LLC. Docket OST - 2000 - 7182 Exhibit WN - R - 18 

## US Airways Charges Very High Fares In Its DCA Nonstop Monopoly Markets

WN at BWI 2 US DCA Nonstop Monopoly Markets

Note: Fared passengers only. Excludes all taxes and government charges. Includes estimated checked baggage and rebooking/change fee s . Includes all US nonstop monopoly routes with 50 or more roundtrips for YE Q2 2012. Proposed US OKC Fare 1 ($270)+96,463

1/ Fared passengers only. 2/ From Southwest Application at Appendix 1, Column L 3/ Estimated by Campbell
- Hill using the same model as used to calculate passengers stimulated by Southwest. See Appendix 1, C olumn L of this filing for the calculation. US Airways makes no estimate in its Application. Source : US DOT O&D Survey YE Q2 2012; US DOT Form 41, via Diio, LLC. Newly Stimulated Passengers 1 

## Southwest’s DCA - HOU Proposal Will Stimulate Over 105,000 New Passengers Compared to Less Than 9,000 for US Airways’ DCA - OKC Proposal

2 3 Docket OST

- 2000 - 7182 Exhibit WN - R - 19

(Estimated by Campbell - Hill)1/ From Exhibit WN
- 105 in Southwest’s Application . Includes zero fare passengers calculated at Southwest’s system average (1.087 x 81,317 fared passengers ). 2/ From page 3 of US Airways’ Application. Since not specified assumes US Airways’ number includes zero fare passengers . Local passengers are calculated by using the current (Q2 2012) US DCA average of 63% locals/37% connecting/thru

. 3/ From Exhibit WN
- 105 in Southwest’s Application 4/ From page 3 of US Airways’ Application. Projected Onboard Passengers 

## Southwest Will Carry 150% More

Local DCA Passengers Than US Airways

1 2
Estimated Load Factor: 86% 78 % 3 4 Docket OST - 2000 - 7182 Exhibit WN - R - 20

56,000

Local Passengers Connecting/Thru Pax +150%

# US Airways’ Possible OKC - CLT Service Is Irrelevant to its OKC - DCA Application

Source: Innovata Schedules for the week of December 10 th through the 16 th DCA - CLT Nonstop Weekly Departures 76 DCA - CLT Nonstop Weekly Seat - Departures 8,192 DCA - CLT Nonstop Distance 330 DCA - CLT Distance via OKC 2,099 Circuity 536% Docket OST - 2000 - 7182 Exhibit WN - R - 21



### Zero Flow Support

## US Airways Could Easily Serve DCA - OKC Today Without AIR - 21 Slot Exemptions 

# By Using One Slot Pair From its Huge DCA Portfolio

1/Assuming US operates the E
- 190. See US Airways Application at page 2. Source: FAA Slot Reports, Current and Future, dated 10
- 28
- 2012 and Innovata Schedules for the week of December 10 th through 16 th , 2012. 

### Slots


### December 2012 Weekly DCA Departures
December 2012 Weekly Seat - Departures 1 

### Current 472


### 1,578
119,615 Proposed



### OKC Service

2



### 7

693 OKC Service

As % of Current 

### Slots/Operations 0.4%



### 0.4%

0.6% Docket OST

- 2000 - 7182 Exhibit WN - R - 22

# US Airways Wastes Enormous DCA Operating Capacity

And the Trend Has Worsened Significantly In Recent Years Seats per Departure /1

1/ The data for 2001 uses mid
- May schedules because of the impact of 9/11 on the December schedule. All other years use the mid
- December schedule. Source : Innovata Schedules for mid
- December Fridays, 2000
- 2012 

### Down 12% 

### Since 2010

US RJ or Commuter Percent Of Departures US RJ or Commuter Percent Of Seats 39%

17% 45%

20% 59%

29% 57%

30% 54%

31% 55%

35% 57%

36% 60%

4 0 % 63%

44% 67%

50% 64%

46% 73%

55% 76%

59% Southwest B737 - 700 Aircraft Capacity - 143 Seats Docket OST - 2000 - 7182 Exhibit WN - R - 23

# US Airways’ Aircraft Size at DCA is Smaller

Than Any Carrier at Any Other Hub
Average Aircraft Size on Domestic Flights (Seats)

Source : Innovata Schedule Data, December 14, 2012. Docket OST - 2000 - 7182 Exhibit WN - R - 24

# The Average Size of Aircraft Used for US Airways’ Air Carrier Slots at DCA is Only 86 Seats

1/ From Innovata schedule data, December 14, 2012. 2/ From Innovata schedule data, December 14, 2012. Includes US aircraft with fewer than 76 seats only. 3/ From FAA Slot Reports As of October 25, 2012 (Current and Future) and Innovata schedule data. US Has 342 air carrier slots and 130 commuter slots. 4/ From FAA Slot Reports As of October 25, 2012 (Current and Future) and Innovata schedule data. US Has 342 air carrier slots and 130 commuter slots. 5/ (Line 1

– (Line 2 x Line 3) )/ (Line 4). Assumes that commuter slots are operated at the US’s commuter aircraft average aircraft size at DCA.



### 1. US Airways Average DCA Aircraft Size 77

2. US Airways Average DCA Commuter Aircraft Size 55

3. US Airways Commuter Slots as % of Total Slots 27.5%

4. US Airways Unrestricted Air Carrier Slots as % of Total Slots 72.5%

5. Average Aircraft Size for US Airways Air Carrier Slots 86 Docket OST

- 2000 - 7182 Exhibit WN - R - 251/ See page 2 for calculations. DCA Slots Wasted by US Airways Due to: /1 Docket OST - 2000 - 7182 Exhibit WN - R - 26 Page 1 of 2 

# US Airways’ Current DCA Schedule Wastes 260 Slots or 55% of Its Total Slot Portfolio

175

85 260

# US Airways’ Current DCA Schedule Wastes 260 Slots or 55% of Its Total Slot Portfolio

Air Total Carrier Commuter
1. US Airways Slots /1 472 342 130 2. Percent US Connecting Traffic at DCA 37% 37% 37% 3. Slots Wasted on Connecting Traffic /2 175 127 48
4. Remaining Air Carrier Slots /3 215
5. US Average Aircraft Size (Seats) /4 86 6. Southwest Aircraft Size 143 7. US Slots Required at 143 Seats per Operation /5 130
8. Slots Wasted By Small Aircraft Size /6 85 9. Total Slots Wasted by US Airways /7 260 212 48

1/ From FAA Slot Reports dated 10
- 25
- 12 and Innovata Schedule data. 2/ Line 1 x Line 2 3/ Line 1

– Line 3 4/ From Exhibit WN
- R
- 25. 5/ (Line 4 x Line 5) / Line 6 6/ Line 4

– Line 7 7/ Line 3 + Line 8 Docket OST - 2000 - 7182 Exhibit WN - R - 26 Page 2 of 2

# Appendices

## Estimate of Consumer Surplus Benefits From

US Airways’ Proposed DCA
– OKC Nonstop Service Appendix 1

(A) Nonstop Miles (B) DCA fared passengers for YE Q2 2012 (C) Predicted Service stimulation from Campbell - Hill Aviation Group, QSI model . In the previous Air 21 case, it was estimated that with a 737 - 700 aircraft , WN’s stimulation of the DCA - OKC market would

have been 28.2%. (D) Average Fare for Fared Passengers (excludes passengers using frequent flier miles). Includes nonstop and connecting passenge rs. Uses YE Q2 2012 U.S. DOT Origin - Destination Passenger Survey

data via Diio, LLC. ( E) Average checked baggage and rebooking/cancellation fees per passenger derived by Campbell - Hill Aviation Group using DOT Form - 41 and DOT data (YE Q1 2012 ). YE Q1 2012 Fee data was used

because WN discontinued reporting FL separately in Q2 2012 Form 41 data. (F) Column D + Column E (G) US Airways indicated in its application that it will off fares that are “competitive with current OKC - Washington...fares”. Therefore, we assumed no fare change. (H) Column G
– Column F (I) Column H / Column F (J) Calculated using a price elasticity coefficient of - 1.2. - 1.2 is a standard price elasticity coefficient. See FAA Airport Benefit - Cost Analysis Guidance”, Office of Aviation Policy and Planning, Federal

Aviation Administration, December 15, 1999
. The arc elasticity formula is: Arc Ep = [(Q2 - Q1)/((Q1+Q2)/2)] / [(P2 - P1)/((P1+P2)/2)] , where Q1 = passengers before WN service, Q2 = Passengers after WN service, P1=Fare Before WN service, P2 = Fare After WN service. (K) Column B x (1+ Column C) x (1+ Column J) (L) Column K
– Column B (M) Column H x - 1 x Column B (N) Column H x Column L x 0.5 x - 1. This follows the consumer surplus method outlined by the FAA in “FAA Airport Benefit - Cost Analysis Guidance”, Office of Aviation Policy and Planning, Federal

Aviation Administration, December 15, 1999
. (O) Column M + Column N

## Estimate of Consumer Surplus Benefits From

JetBlue’ Proposed DCA
– JAX Nonstop Service (Using B6 Fare and Stimulation Assumptions) Appendix 2

(A) Nonstop Miles (B) DCA fared passengers for YE Q2 2012 (C) Average Fare for Fared Passengers (excludes passengers using frequent flier miles). Includes nonstop and connecting passenge rs. Uses YE Q2 2012 U.S. DOT Origin - Destination Passenger Survey

data via Diio, LLC. (D) Average checked baggage and rebooking/cancellation fees per passenger derived by Campbell - Hill Aviation Group using DOT Form - 41 and DOT data (YE Q1 2012 ). YE Q1 2012 Fee data was used

because WN discontinued reporting FL separately in Q2 2012 Form 41 data. (E) Column C + Column D (F) JetBlue indicated that it expects fares to fall by 30% (JetBlue Application at page 11) (G) Column F
– Column E (H) Column G / Column E (I) JetBlue indicated that it expects passengers to increase by 50% (JetBlue Application at page 11 ) (J) Column B x (1+ Column I) (K) Column J
– Column B (L) Column G x - 1 x Column B (M) Column G x Column K x 0.5 x - 1. This follows the consumer surplus method outlined by the FAA in “FAA Airport Benefit - Cost Analysis Guidance”, Office of Aviation Policy and Planning, Federal

Aviation Administration, December 15, 1999
. (N) Column L + Column M

## Estimate of JetBlue DCA - JAX Onboard Passengers Appendix 3

Comments
1. YE Q2 2012 O&D Passengers 138,629 Fared Passengers from Diio LLC
2. B6 Estimated Traffic Stimulation 50% Assumed by JetBlue in its Application, page 11. 3. Total Passengers After B6 207,944 Line 1 x (1+ Line 2)
4. Estimated B6 Share 31.3% Estimated Using Campbell
- Hill QSI Model.
5. Estimated B6 Passengers 65,086 Line 3 x Line 4 6. Adjustment to Include Zero Fared Passengers 1.031 Based on B6 system ratio of total O&D to fared O&D passengers
7. Estimated B6 Onboard Passengers 67,104 Line 5 x Line 6