BEFORE THE DEPARTMENT OF TRANSPORTATION WASHINGTON, D.C.

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

ANSWER OF US AIRWAYS, INC.

Communications with respect to this document should be address ed to:

Howard Kass Vice President, Legal a nd Government Affairs Benjamin T. Slocum Director, Legal and Government Affairs US Airways, Inc. 1401 H Street, NW, Suite 1075 Washington, DC 20005 (202) 326-5153 howard.kass@usairways.com benjamin.slocum@usairways.com

DATED: May 3, 2013- i - TABLE OF CONTENTS

Overview ............................................................................................................ 1

I. Introduction ............................................................................................. 2 II. This Proceeding IS About Mar ket Structure, and the Analysis is the Same Whether US Airways and American Are Considered Separately or Together ...................................................... 3 A. Department Precedent Requires US Airways and American to be Treated as Separate Carriers ............................ 3 B. Even Treating US Airway s and American as a Single Carrier Does Not Change the Correct Outcome of this Proceeding ................................................................................... 4 C. Under Delta’s Concept of Market Structure, Which the Department Previously Rejected, Competition is Reduced, Not Enhanced .............................................................. 6 III. Whether US Airways and American are Treated Separately or Not, Delta’s Service Proposal Would Serve to Eliminate Competition, Not Enhance It .................................................................. 8 A. Charlotte is a Connecting Hub that Competes With Atlanta, Whether as Part of US Airways, or Part of New American ....................................................................................... 8 B. JFK Serves Primarily Local Traffic, While Philadelphia is a Connecting Hub that Provides an Alternative Gateway to Newark and Washington-Dulles for Connecting Passengers ................................................................................. 12 C. The Gateway Analysis Re mains Identical, even if US Airways and American are Treated as a Single Company ..... 15 IV. Beyond Delta’s Flawed View of Market Structure, Delta’s Application Contains Numerous Infirmities ....................................... 15 A. Delta Negotiated Away its Detroit-Sao Paulo Frequencies to Obtain New York-LaGuardia Slots which It Considered More Valuable ..................................................... 16 B. Delta Warehouses Unrestricted Brazil Frequencies and has Advantages in Sao Paulo Other Carriers Do Not ............. 17Answer of US Airways, Inc. Docket DOT-OST-2013-0072 May 3, 2013 C. Delta Proposes Service Using its Smallest Widebody Aircraft of Any Carrier in this Proceeding, and Indeed, in its Own Fleet ............................................................................... 18 D. Among Gateway Cities with a Single Daily Flight to/from Sao Paulo, Atlanta and Detroit Have Relatively Low Local Demand ............................................................................. 21 E. US Airways Will Offer A bundant Intra-Brazil Codeshare Service ........................................................................................ 22 V. Conclusion ................................................................................................... 24BEFORE THE DEPARTMENT OF TRANSPORTATION WASHINGTON, D.C.

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

ANSWER OF US AIRWAYS, INC. Pursuant to Subpart C of the Department of Transpor tation’s (“Department”)

Rules of Practice and the D epartment’s April 12, 2013, Order Instituting Proceeding (“Instituting Order”), US Airways, Inc. submits this Answer to the competing applications of Delta Air Lines, Inc. and Am erican Airlines, Inc. for unrestricted frequencies authorizing servic e to Sao Paulo, Brazil. 1

Overview This pleading responds to the applicat ions and supplements submitted in this proceeding by the other applicants, in furt her support of US Airways’ request for 14 unrestricted Brazil frequencies available fo r use beginning October 1, 2014. US Airways will use seven of these frequencies to continue to benefit consumers flying on its new Charlotte-Sao Paulo service, which will commence June 8, 2013, using frequencies leased temporarily from United. The other seven frequencies will be

used to institute Sao Paulo service from US Airways’ Philadelphia hub, a new gateway to Brazil in the Northeastern United States.

1 Common names of carriers are used.Answer of US Airways, Inc. Docket DOT-OST-2013-0072 May 3, 2013

- 2 - This pleading is organized into five sections that, taken as a whole, demonstrate why the Department should a llocate 14 frequencies to US Airways before awarding frequencies to others. Following an Intr oduction in Section I,

Section II shows that “market structure” 2 , properly applied, supports the grant of the 14 frequencies requested by US Airways. Section III demonstrates that Delta’s proposal would reduce, not enh ance, competition. Secti on IV explains the myriad additional reasons why US Airways shoul d be granted frequencies before others. Finally, Section V summarizes the public inte rest benefits that wil l result from an award of fourteen frequencies to US Airways.

I. Introduction Approval of US Airways’ application fo r 14 Sao Paulo frequencies available in 2014 will unquestionably best achieve the goal s established in the Department’s Instituting Order. US Airways’ application provides for new service to Sao Paulo that gives travelers and shippers the maximum com petitive benefits of any carrier in this proceeding. Specifically, US Airways is the only applicant in this proceeding proposing service to Sao Paulo with th is unique combinati on of benefits:

 From two new U.S. gatewa ys—Charlotte and Philadelphia;

 As a new entrant applicant;

 With the largest aircraft in this Proceeding; and

2 The term “market structure” is us ed by the Department in the Instit uting Order, at p.3. US Airways uses the term “market structure” herein out of conveni ence, only for the purposes of this proceeding. US Airways is not taking a position in this proc eeding regarding the definit ion of any potentially relevant antitrust market.Answer of US Airways, Inc. Docket DOT-OST-2013-0072 May 3, 2013

- 3 -  With a demonstrated and unequaled co mmitment to commencing Sao Paulo service through efforts made over a per iod of years, including unprecedented commercial agreements. 3

Each of these considerations is in dividually important enough to justify selection of US Airways for a full aw ard of 14 frequencies. However, the Department can achieve all of these important and valuable benefits by granting US Airways’ full request, truly maximizing the public benefits generated by those frequencies. II. This Proceeding IS About Market St ructure, and the Analysis is the Same Whether US Airways and American Are Considered Separately or Together

Delta is correct—this is a unique proceeding that revolves around market structure. However, while Delta correctly identifies t he essence of the proceeding, its application of this concept to this case is deeply flawed. A. Department Precedent Requires US Ai rways and American to be Treated as Separate Carriers

US Airways is applying for 14 frequencies as a carrier that is also pursuing a merger with another applicant. However, Delt a’s view that this somehow disqualifies US Airways from an award, or should limit any award m ade to it, is fundamentally wrong. Department precedent requires US Airways be treated as a standalone carrier regardless of its mer ger intentions. For exampl e, the Department treated United and Continental as separate entit ies when deciding gr ants of antitrust immunity and when allocating Haneda slots, even after their merger had closed.

3 Indeed, the tribulations of US Ai rways in starting Charlotte-Sao Paul o service are well-known at the Department and well-covered in US Airways’ Supplement (p.5).Answer of US Airways, Inc. Docket DOT-OST-2013-0072 May 3, 2013

- 4 - In tentatively approving ant itrust immunity for ANA, United and Continental, the Department stated that fo r “the purpose of our analysis, we have considered United and Continental to be separate entities. ” 4 This was despite the Department’s finding that the carriers had co mpleted substantially all of the steps necessary to merge—far more than have been completed by US Airways and

American. 5 The Department’s Final Order affirmed that United and Continental must be treated separately. 6 The Department’s Show Caus e and Final Orders in the 2010 U.S.-Haneda Combination Services Allocation Proceeding , similarly analyzed the applications of

United and Conti nental independently. 7 The same treatment must be accorded US Airways and American, and the two carriers’ service proposals evaluated individually when allocating the available unr estricted Brazil frequencies. B. Even Treating US Airways and Am erican as a Single Carrier Does Not Change the Correct Outcome of this Proceeding Even if the Department accepted Delta’ s theory to treat US Airways and American as a single-entity, the corre ct outcome of t he Proceeding remains unchanged. In its Supplement, US Airwa ys set forth a hierarchy focused on

4 U.S.-Japan Alliance Case , Order 2010-10-4, October 6, 2010, fn.3 (emphasis added)

5 Id. (“This exemption is contingent upon Cont inental and United remaining separate and independently operated corporations pending the Department’s action on the air carriers’ de facto route transfer application. The shareholders approved the merger on September 17, 2010, and it closed on October 1, 2010. ”) (emphasis added) Thus, even though United and Continental had closed their merger, the Department neverthel ess evaluated them as separate entities.

6 U.S.-Japan Alliance Case , Order 2010-11-10, November 10, 2010, fn3 (“ In conducting our analysis, we considered United and Continental to be separate entities ...the Department’s pendent lite exemption...is contingent upon Conti nental and United remaining separate and independently operated corporations pending the Department’s action on the air carriers’ de facto route transfer application.”)(emphasis added).

7 Order 2010-5-7, May 7, 2010; Order 2010-7-2, July 6, 2010.Answer of US Airways, Inc. Docket DOT-OST-2013-0072 May 3, 2013

- 5 - maximizing consumer benefits bas ed on the gateway being proposed. 8 As shown in Figure 1, the highest priority is preserving current service that is in danger of being

lost and which the ca rrier has not abandoned. 9

Figure 1: Preserving Existing Gateways and Adding New Gateways Provides the Most Consumer Benefits While Purely Duplicative Service Yields the Fewest Benefits

** Does not include instances where the carrier knowingly bargained away operating frequencies US Airways and American have each pr oposed new gateways that would introduce new Brazil service options to more consumers and communities than

Delta’s same-carrier-at-t he-same-gateway service. Simply put, each and every gateway proposed by US Airways and American would generate more public benefits than any proposed Delta service. Accordingly, under the market structure

8 See Supplement of US Airways, Inc. to App lication for an Exemption and Frequency Allocation , Docket DOT-OST-2013-0072, April 24, 2013, pp.16-20.

9 This is consistent with Department precedent that recognizes the importance of existing services to the communities served by them, in awarding limited-entry operating rights. See, e.g, Order 2012-7- 26, July 24, 2012, p.17 (awarding DCA slots to US Airways for the continuation of Jackson, MSWashington, D.C., service, and fi nding that “Jackson would face significant adverse economic consequences if nonstop DCA service were not main tained, with adverse effects felt throughout the State of Mississippi.”). The adv erse effect on Charlotte of lo sing Sao Paulo service would be significantly greater.Answer of US Airways, Inc. Docket DOT-OST-2013-0072 May 3, 2013

- 6 - described by US Airways – regardless of whether or not US Airways and American are considered a single carrier – both carri ers should be fully granted their requests for 14 frequencies each before Delta is awarded any additional service. C. Under Delta’s Concept of Market Structure, Which the Department Previously Rejected, Competition is Reduced, Not Enhanced The Department’s Instituting Or der states it will consider “ the effects on the overall competitive environment, including the effects on market structure....” 10 Delta echoes the Department’s statements: “Delta believes that market structure considerations should be gi ven greater decisional significance than individual gateway attributes in this case.” 11 This is exactly the reason Delta’s application should fail in its entirety – because this Proceeding is all about market structure – and market structure entirely consists of the individual gateway attributes Delta is so quick to discount. Delta wrongly ascribes a narrow meaning to market structur e. Delta counts and recounts frequencies in copious detail, focusing only on absolute frequency parity. 12 However, Delta’s purely duplicative se rvice proposal offers so few benefits that striving for symmetry would negate t he Department’s goal of maximizing the benefits flowing from these limited entry ri ghts. Under Delta’s model of market structure, the seven frequencies needed for Charlotte-Sao Paulo service would

instead be allocated to Delt a at Atlanta for a second da ily flight that duplicates existing service.

10 Instituting Order , p.3.

11 Application Supplement of Delta Air Lines, Inc. , April 24, 2013. p.4.

12 See, Exhibits DL-101, DL-104, DL-105, DL-205, and DL-304.Answer of US Airways, Inc. Docket DOT-OST-2013-0072 May 3, 2013

- 7 - The Department long ago rejected the na rrow analysis of market structure proposed by Delta, and determined the public interest is best served by creating a broadly competitive market st ructure that takes into a ccount the overall level of competition when awarding servic e on limited-entry routes: Market structure encompasses the im pact that a route will have on the overall level of competit ion in a particular market. In order to evaluate this issue, the Department looks at potential intergateway competition—the competitive effect of the proposed service on flights offered to the same de stination at possible alternative gateways . We also examine the degree to which each applicant might increase competition with existing serv ices at the same gateway. 13 The Department has repeatedly acknow ledged the critical importance of competing connecting service in limited-entry route cases, su ch as this one. In the 1990 U.S.-Japan Gateways Proceeding , the Department rejected Northwest’s arguments against Chicago-Tokyo service, which claimed new Chicago-Tokyo service was unnecessary, partly because connec ting traffic was already well-served over existing gateways. In rejecting Northwest’s ar gument, the Department found that the other gateways available to connect passengers were also Northwest gateways. Thus, connecting passengers still had no service alternative to

Northwest. 14 The arguments Northwest made agai nst Chicago-Tokyo are the same arguments Delta makes against Charlotte-S ao Paulo service in this case.

13 Procedures and Criteria for Selecting Carriers for Limited-Entry Markets , 51 Fed.Reg. 43181, December 1, 1986 (emphasis added).

14 Order 90-10-15, October 12, 1990, p.13 (“We find that several of Northwest’s points confirm rather than reduce the need for additional Chicago service. While connecting passengers indeed have a number of options available to them, the three mo st obvious gateways for t he region—Chicago itself, Detroit, and Minneapolis/St. Paul—are all Northwest gatew ays. At the latter two, Northwest provides the only scheduled nonstop transpacific service; at Chicago it provides the only such U.S.-flag service.”) (emphasis in original).Answer of US Airways, Inc. Docket DOT-OST-2013-0072 May 3, 2013

- 8 - Specifically, Delta seeks to limit connec ting Sao Paulo passengers to its Atlanta gateway by denying frequencies to Charlotte. US Airways agrees fully with the D epartment’s Institut ing Order—market

structure between the U.S. and Brazil is of paramount importance and should be considered carefully by the Department in awarding frequencies. However, as the Department has found previously, in the context of this ca se, market structure must

mean the broader overall effe ct of the Department’s frequency allocations on communities and consumer welfare, and how best to maximize t he benefits flowing to consumers, communities and businesse s throughout the Unit ed States from its frequency awards. The contrast between US Airways’ and De lta’s views of market structure is stark. US Airways’ proposal offers more benefits for consumers and communities than Delta’s repetitive servic e proposal which is nothing mo re than additional service in Atlanta; another frequency at already well-served New Yo rk (JFK), in order to serve local New York passengers; and a pl ea to have the Department bail Delta out after voluntarily bargaining aw ay its Detroit frequencies. III. Whether US Airways and American are Treated Separately or Not, Delta’s Service Proposal Would Ser ve to Eliminate Competition, Not Enhance It A. Charlotte is a Connecting Hub that Competes With Atlanta, Whether as Part of US Airways, or Part of New American The frequencies American operates in Mi ami today are primarily used to serve the large amount of Sout h Florida-Sao Paulo local tra ffic. Delta argues Miami is not a major gateway for connecting traffic between Brazil and beyond-gateway interior U.S. points, by s howing that Miami offers Sao Paulo connecting service toAnswer of US Airways, Inc. Docket DOT-OST-2013-0072 May 3, 2013

- 9 - only 50 communities—less than half the connecting service available over

Charlotte. 15 The small number of c onnecting points for an air port with so much Latin American service proves that Miami serves predominantly local traffic, and would not serve as a connecting hub alte rnative to Atlanta. In contrast to Miami, US Airways’ C harlotte operation is designed to maximize connecting service with a broad, behind-gatewa y network that covers much of the

eastern half of the United St ates, and will provide 71 cities in the Eastern United

States 16 convenient connecting service to/from Sao Paulo. The Department has stressed the importance of this type of behind-gateway compet ition, stati ng that “[a] carrier’s ability to attract traffic in behind- gateway markets is a crucial consideration in deciding the degree to which it will be an effective competitor, either with services offered at another gateway or with the ot her carriers operating at its own gateway.” 17

Delta contends that “New American”, a ssuming it is created, should simply move seven frequencies from Miami to Char lotte. However, Delta’s suggestion is designed only with Delta’s self-interest in mind. Charlotte provides an attractive alternative to Atlanta as a connecting hub, and if it does not receive an award of frequencies to continue Sao Paulo service, At lanta will be left as the only one-stop

15 Application Supplement of Delta Air Lines, Inc., Docket DOT-OST-2013-0072, April 24, 2013, Exhibit DL-206.

16 Includes AL, CT, FL (excluding South Florida), GA, KY, MA, MD, MS, NC, NH, NJ, NY, OH, PA, RI, SC, TN, VA, and WV.

17 U.S.-Australia Service Proceeding , Order 89-10-2, September 25, 1989, p.40. Similarly in the United States-United Kingdom Regional Airport Case , Judge Kolko wrote “[b]ehind traffic, by its very nature, promotes competition by providing gateway alternatives fo r interior passengers and shippers” and that the “Department recently not ed that additional routing options are ‘the material of which a more competitive environment is made’.” (R.D. of Administrative Law Judge Burton S. Kolko, Docket 47090, December 14, 1990, p.54).Answer of US Airways, Inc. Docket DOT-OST-2013-0072 May 3, 2013

- 10 - alternative to Sao Paulo in the Southeastern U.S. for many cons umers from the 14 cities shown in Figure 2(a). 18

Figure 2(a): Without an Awar d of Frequencies to Charlo tte, Atlanta is the Only

Southeastern Gateway Option for Sao Paulo Travelers Connecting from 14 Eastern U.S. Cities

ABE Allentown, PA ILM Wilmington, NC AGS Augusta GA MHT Manchester, NH AVL Asheville, NC MLB Melbourne, FL AVP Scranton, PA MYR Myrtle Beach, SC DAB Daytona Beach, FL OAJ Jacksonville, NC EWN New Bern, NC PHF Newport News, VA HPN White Plains, NY VPS Valparaiso, FL

Communities shown receive nonstop service to Atlanta and Charlotte; but not to Miami or Washington-Dulles. Source: August 2013 OAG Schedules for AA: MIA, DL: ATL, US: CLT, UA: IAD, South Florida cities excluded Similarly, without an award of frequenc ies for Charlotte-Sao Paulo service, connecting passengers from 13 communities in the Eastern Un ited States will be deprived of a third one-stop option for Sao P aulo service via an Southeastern U.S. gateway, as shown in Figure 2(b).

18 The Department has more than sufficient frequencies available for allocation to ensure that Charlotte-Sao Paulo service is not lost.Answer of US Airways, Inc. Docket DOT-OST-2013-0072 May 3, 2013

- 11 - Figure 2(b): Charlotte-Sao Paulo Service Provides a Third Southeastern U.S. Gateway Option for Traveler s in 13 Eastern U.S. Cities

ALB Albany, NY PVD Providence, RI BUF Buffalo, NY PWM Portland, ME CAE Columbia, SC ROA Roanoke, VA CHO Charlottesville, VA ROC Rochester, NY FAY Fayetteville, NC SAV Savannah, GA GSP Greenville, SC SYR Syracuse, NY MDT Harrisburg, PA

Communities shown receive nonstop service to each of Atlanta, Charlotte, and Washington-Dulles; but not to Miami. Source: August 2013 OAG Schedules for AA: MIA, DL: ATL, US: CLT, UA: IAD, South Florida cities excluded Not awarding frequencies to Charlotte so it can compete with Atlanta for Sao Paulo travelers would have a damaging effect on ma rket structure that is severe and lasting. Awarding Delta a second daily f light to Atlanta would make the harm to

consumers even worse. In total, US Airways’ request for sev en frequencies to maintain Charlotte-Sao

Paulo service will benefit 97 U.S. cities with Northbound connecting service, 87 U.S.

cities communities with southbound connections, and an estimated 120,000 connecting passengers annually. US Airways will connect 57 communities in the United States to Sao Paulo not served by American through Miami. Ultimately, Charlotte could provide one world with its first Sao Paulo connecting hub in the same region as Atlanta and Washington-Dulles.Answer of US Airways, Inc. Docket DOT-OST-2013-0072 May 3, 2013

- 12 - B. JFK Serves Primarily Local Traffi c, While Philadelphia is a Connecting Hub that Provides an Alternative Gateway to Newark and WashingtonDulles for Connecting Passengers

The selection hierarchy set forth by US Airways suggests that the next highest use for the available frequencies would be for new gateways. Indeed, Department precedent acknowledges that consumers and competition benefit when new gateways are authorized, as discu ssed in Section II, C, above. US Airways has previously described how JFK is designed to serve local New York traffic, but infrastructure constraints at JFK make it ill-suited to serve as a largescale connecting hub for any carrier. 19 Delta has admitted this – the slot transaction Delta completed with US Airw ays at LaGuardia enabled Delt a to achieve at two New York City airports the connecting services it could not achieve at JFK alone. 20

Delta’s Exhibits DL-306 and DL-307 in this proceeding also demonstrate this fact, showing that Delta offers mo re international routes at JFK than domestic routes in

the eastern half of the United States. 21 Philadelphia, on the other hand, is a superb connecting hub that is designed and scheduled to support international services (it is US Airways’ primary Trans-

19 See, e.g., Joint Application of American, US Airways, American Eagle, PSA, and Piedmont for Approval of the Transfer of International Rout e Authorities, April 17, 2013, Docket DOT-OST-2013- 0082, p.29. See also, Supplement of US Airways, In c. to Application for an Exemption and Frequency Allocation , Docket DOT-OST-2013-0072, Ap ril 24, 2013, pp.18, fn 21.

20 See also New York/Newark-Cancun Combination Service Proceeding , Order 2006-6-25, June 21, 2006, p.8 (“Delta states...the New York-Cancun market is largely a local market.”).

21 As a practical matter, the realistic number of Delta’ s JFK-Sao Paulo connections is significantly less than Delta represents. Many of the connections Delt a claims in Exhibit DL-307 require travelers to overfly existing gateways at Atlanta, Chicago, Detroit, and Washington-Dul les, among others; and many others involve significant backhaul to JFK fr om points south of New York that could be better served by Charlotte and Philadelphia.Answer of US Airways, Inc. Docket DOT-OST-2013-0072 May 3, 2013

- 13 - Atlantic hub) by maximizing connections with a broad, behind-gateway network throughout the eastern half of the United St ates. With over 450 daily flights and service to 117 communities, it is the lar gest hub in the United St ates without service

to Brazil.

Just as Charlotte benefits consumers vis-a-vis Atlanta, an award of frequencies for Philadelphia-Sao Paulo serv ice will generate similar benefits for consumers, communities and co mpetition. Philadelphia’s location in the Northeast United States makes it an attractive opt ion for connecting travelers throughout the

Eastern United States whose only choice for Brazil serv ice from the Northeast might

be on United via either Newark or Washi ngton-Dulles. An award to Philadelphia provides important market structure benefits by offeri ng connecting consumers an alternative gateway to those used by United. Indeed, without an award of frequencies for Philadelphia-Sao Paulo servic e, connecting passengers from the 12

Mid-Atlantic and Northeastern cities shown in Figure 3 would have United service via Newark or Washington-Dulles hubs as t heir only Northeastern U.S. option for onestop air travel to Sao Paulo.Answer of US Airways, Inc. Docket DOT-OST-2013-0072 May 3, 2013

- 14 -

Figure 3: Without an Award of Frequencies to Philadelphia, United’s Newark and Washington-Dulles Hubs are the Only Northeast U.S. Gateways for Sao Paulo Travelers Connecting fr om 12 Eastern U.S. Cities

ALB Albany, NY MDT Harrisburg, PA AVP Scranton, PA MHT Manchester, NH BDL Hartford, CT PVD Providence, RI BGM Binghamton, NY PWM Portland, ME CHO Charlottesville, VA ROA Roanoke, VA

ITH Ithaca, NY SCE State College, PA

Communities shown receive service to Newark and/or Washington-Dulles, as well as Philadelphia; but not to New York-JFK. Source: August 2013 OAG Schedules for AA: JF K, DL: JFK, US: PHL, UA: EWR, UA: IAD US Airways’ Philadelphia hub will be an attr active alternative because it offers

service to more destinations in the United St ates than either Newark or WashingtonDulles. 22 Furthermore, as shown in Figure 4, Philadelphia connects more cities with Sao Paulo than either Newark or Washington-Dulles. Figure 4: More Communiti es Would Receive One-Stop Service to Sao Paulo via Philadelphia than via Either Newark or Washington-Dulles Number of Connecting Cities Philadelphia Washington-Dulles Newark Southbound 65 59 49 Northbound 61 54 46 Source: Innovata Friday June 14, 2013 Innovata Schedule as of March 4, 2013 This includes 36 Mid-Atlantic and Northeastern U.S. communities 23 US Airways’ Philadelphia-Sao Paulo service will connect to Brazil, as well as communities served

22 Philadelphia offers service to 83 U.S. destinat ions, while Newark offers service to 77 and Washington-Dulles offers service to 78. Source: OAG schedules for August 2013.

23 Includes: CT, KY, MA, MD, ME, NH, NY (exclu ding EWR, JFK, LGA), OH, PA, RI, VA, and VT.Answer of US Airways, Inc. Docket DOT-OST-2013-0072 May 3, 2013

- 15 - by US Airways from Philadelphia that would not receive Sao Paulo connecting service from any carrier. C. The Gateway Analysis Remains Identical, even if US Airways and American are Treated as a Single Company

That Charlotte and Philadelphia are strong connecting gateways that will provide alternatives to the hubs of Delta and United is true regardless of whether they are hubs for US Airways or for Ne w American. In light of this, and the Department’s previous decisions to consider market structure broadly, the best way to achieve maximum public benefits from the 28 frequencies available in this proceeding is to favor the proposal that generates benefit s by enhancing—not eliminating—competition. US Airways’ proposal to serve Charlotte-Sao Paulo and Philadelphia-Sao Paulo with se ven frequencies each achieves this crucial goal of enhancing competition, with new entry 24 and new gateways. IV. Beyond Delta’s Flawed View of Ma rket Structure, Delta’s Application Contains Numerous Infirmities. Delta requested 21 frequencies – three-quarte rs of the available unrestricted frequencies – in order to duplicate its existing services at Atlanta and New York, and replenish Detroit frequencies it freely bargai ned away less than two years ago.

24 The Department has long recognized the value of new entry and new gateways for service to Brazil. Only four years ago, the Department emphasized the importance of new entry and new gateways for U.S.-Brazil service, finding that US Airways’ proposal would best achieve the goal of increasing service options for travelers though t he establishment of a new gateway operated by a new entrant. See, e.g., 2009 U.S.-Brazil Combination Frequency Proceeding , Docket DOT-OST2009-0003, March 20, 2009, pp.7-8 (“[W]hen rights for U. S. air carriers become av ailable in restrictive markets, one of our primary goals has been to enhan ce competition by creating opportunities for new entrant carriers to gain market access...selection of US Airways allows us to take advantage of the newly available rights in the U.S.-Brazil market by introducing a new entrant carrier that would establish important new competiti on in the U.S.-Brazil market....”).Answer of US Airways, Inc. Docket DOT-OST-2013-0072 May 3, 2013

- 16 - Despite Delta’s self-serving assertion t hat its request “is more modest than it appears”, 25 its request for nearly all the ava ilable frequencies is consistent with Delta’s practice in other limited-entry select ion cases where it has sought all of the available operating rights. 26 A. Delta Negotiated Away its Detroit-Sao Paulo Frequencies to Obtain New York-LaGuardia Slots which It Considered More Valuable Delta’s request for seven frequencies fo r its Detroit-Sao Paulo service constitutes nothing less than a demand t hat the Department, US Airways and American fund Delta’s 2011 acquisition of LaG uardia slots by replenishing the Sao Paulo frequencies it used to purchase those slots from US Airways. Delta knew when it negotiated the transac tion that it would no longer have sufficient frequencies to operate Detroit-Sao Paulo service bey ond March 2015. It proceeded anyway.

Delta’s commitment to Detr oit-Sao Paulo service, and to its Detroit hub in general, is doubtful and the Department shou ld be wary of contrary statements. 27 If Delta were as concerned about maintaining its Detroit service and intergateway competition with Chicago as it now claims , it would not have freely exchanged its seven Detroit-Sao Paulo frequencies for LaG uardia slots and knowingly placed that service at risk. Furthermore, Delta’s abandonm ent of the Detroit-Sa o Paulo route is

25 Application Supplement of Delta Air Lines, Inc. , April 24, 2013. p.3

26 See, e.g., the 2010 U.S-Haneda Combination Services Allocation Proceeding , where Delta sought all four of the available slot pairs for its propos ed Seattle, Detroit, Los Angeles and Honolulu service. Order 2010-7-2, July 6, 2010.

27 Although Delta argues Michigan companies rely on Detr oit service, the fact is that Pennsylvania is home to more Fortune 500 companies (23) than Michigan (20), as shown in Annex A. North Carolina also boasts a substantial number of Fortune 500 companies, including the headquarters of Bank of America, one of the world’s largest banks, as shown in Annex B.Answer of US Airways, Inc. Docket DOT-OST-2013-0072 May 3, 2013

- 17 - consistent with Delta’s general lack of commitment to inte rnational flights at its Detroit hub. To assess Detroit’s importance to Delta and its val ue as a gateway and connecting point, the Department need only look back to July 2012, when Delta sought to move its Detroit-Haneda slots to Seattle after warehousing them unused for 11 of the preceding 20 months. 28 B. Delta Warehouses Unrestricted Brazil Frequencies and has Advantages in Sao Paulo Other Carriers Do Not

Detroit-Haneda is not the only limited- entry marketplace in which Delta warehouses operating rights. Despite its request for three-quarters of the unrestricted frequencies available in this case , Delta has failed to fully utilize the Sao Paulo frequencies it already holds. Delt a holds 23 Sao Paulo frequencies, yet operates only 21 of them to Sao Paulo. Exhibits DL-104 and DL-105 state that Delta is using these valuable frequencies for its Atlanta-Rio de Janeiro service which it could easily operate with ot her restricted frequencies. 29 Nor does it appear that Delta has operat ed any extra-section Brazil flights during peak seasons as it is permitted to do. In short, Delta has shown no interest in using rights it currently holds to expand it s Sao Paulo service. Delta already has available to it frequencies and extra-sections it could us e to add capacity in the

Atlanta-Sao Paulo a nd New York-Sao Paulo routes, but it prefers to use its Sao Paulo frequencies for other services t hat only require restricted frequencies.

28 See Motion of Delta Air Lines, Inc. , Docket DOT-OST-2010-0018, July 30, 2012.

29 While Delta is quick to complain about the sev en unrestricted frequencies it will lose, Delta omits the fact that it will re ceive back from US Airway s seven frequencies that can be used to serve any point in Brazil except Sao Paulo. Thus, Delta could use these frequencies to fund Atlanta-Rio de Janeiro, and put its additional unrestricted frequenci es to their highest and best use in Sao Paulo.Answer of US Airways, Inc. Docket DOT-OST-2013-0072 May 3, 2013

- 18 - Finally, in addition to its own frequency holdings, Delta benefits from the Sao Paulo frequency and slot holdings of its Br azilian partner, VRG Li nhas Aereas S.A. d/b/a GOL. Delta recently invested US$100 million in GOL, and now owns and controls a portion of that carrier. This provides Delta with wi de access to airport

facilities and slots not available to other ai rlines. Delta’s ownership interest in GOL also permits Delta to benefit economically from the frequencies available to Brazilian

carriers under the U.S.-Brazil Air Services Agreement. US Airway s receives no such benefits, as it has nothing more than an arm’s length codeshare relationship with

TAM for intra-Brazil service. C. Delta Proposes Service Using its Sm allest Widebody Aircraft of Any Carrier in this Proceeding, and Indeed, in its Own Fleet

Delta will use the smallest aircraft of any applicant in this case for each of its three proposed services. Delta’s B767-300ER seats only 210 passengers, 30 while US Airways’ A330-200, the largest aircra ft proposed in this proceeding, seats 253

passengers 31 —20% more than Delta’s aircraft. As a result, US Airways’ service proposal offers more annual se ats than any carrier in this proceeding, as shown in Figure 5.

30 This is Delta’s smallest B767 variant. Acco rding to www.delta.com, Delta’s B767-300 seats 261 passengers, and its B767-400ER seats 246. It states also that Delta’s B 767-300ER seats only 208 passengers, not 210.

31 Does not include five crew rest seats.Answer of US Airways, Inc. Docket DOT-OST-2013-0072 May 3, 2013

- 19 - Figure 5: US Airways Proposes Serv ice with the Largest Aircraft

Not only is Delta’s B767-300ER the smallest aircraft proposed by any applicant, it is also the smallest widebody ai rcraft in Delta’s entire fleet, as shown in Figure 6.Answer of US Airways, Inc. Docket DOT-OST-2013-0072 May 3, 2013

- 20 - Figure 6: Delta Proposes Service with the Smallest Widebody Aircraft It Operates

Only aircraft used for international service shown. Source: B767-300ER gauge per Delta Application S upplement, all other seating capacities from Delta.com. Delta A330 aircraft were not included in Exhibit DL-505.

If Delta believes it lacks capacity, as suggested in Exhibit DL-106, Delta could also up-gauge its existing Sao Paulo service. Delta presently operates B767 aircraft between Atlanta, Detroit, and New York-JFK, and Sao Paolo. 32 Figure 6 shows

there are at least four aircra ft types in Delta’s fleet it could use to increase the capacity it presently offers. Yet Delta does not intend to us e any of these aircraft for its Brazil service, either existing or proposed.

32 Source: Exhibit DL-204 (Atlanta), Exhibi t DL-305 (JFK), and delta.com (Detroit). B747

‐ 400

A330

‐ 300

B777

‐ 200LR

B777

‐ 200ER

B767

‐ 400

A330

‐ 200Answer of US Airways, Inc. Docket DOT-OST-2013-0072 May 3, 2013

- 21 - D. Among Gateway Cities with a Single Daily Flight to/from Sao Paulo, Atlanta and Detroit Have the Relatively Low Local Demand

Despite Delta’s claim that Atlanta requires additional Sao Paulo service, the number of local Atlanta and Detroit passengers traveling to Sao Paulo is lower than almost all other U.S. gatew ays with no more than once-daily service to Sao Paulo. Atlanta is Delta’s largest hub, and Detroit has already experienced several years of stimulation, yet both cities have failed to ac hieve impressive results. As Figure 7(a) shows, there are four other gateways wit h once-daily service or less, which are

better candidates for additional Sao Paulo service. Figure 7(a): Among Cities with Once-Daily Service or Less, Atlanta and Detroit Show Some of the Least Local Demand for Additional Service

Dallas/Ft. Worth, Miami, and New York (JFK) have more than once-daily Sao Paulo service. Miami and New York (JFK) have several daily nonstop flights daily to/from Sao Paulo that primarily support their strong local market passenger base. Source: YEMar13 CRS Booking Data, YEMar2013 OAG Schedules Furthermore, while Charlotte currently has less local traffic than Atlanta, this will grow substantially once US Airways’ Charlotte-Sao Paulo service begins. WhenAnswer of US Airways, Inc. Docket DOT-OST-2013-0072 May 3, 2013

- 22 - US Airways commenced Charlotte-Rio de J aneiro service in December 2009, there

was also a small amount of local market tr affic. However, US Airways successfully stimulated the marketplace, and the amount of local Charlotte-Rio de Janeiro passenger traffic now exceeds the amount of local Atlant a-Rio de Janeiro passenger traffic, as shown in Figure 7(b).

Figure 7(b): US Airways’ Charlotte-Rio de Janeiro Service Has Grown to Carry More Local Passengers than Atlanta-Rio de Janeiro

Source: US DOT Data, Q4 2007 thru Q32012 US Airways anticipates a similar re sult for Charlotte-Sao Paulo service. 33 E. US Airways Will Offer Abundant Intra-Brazil Codeshare Service While Delta emphasizes its codeshare with its corporate partner GOL, US Airways currently offers 271 weekly codeshare flights on TAM to ten Brazilian points

33 This also means US Airways’ Charlotte-Sao Paulo service will carry more local passengers that Delta’s Detroit-Sao Paulo service, which has fewer local passengers than Atlanta, rendering Exhibit DL-405 obsolete.Answer of US Airways, Inc. Docket DOT-OST-2013-0072 May 3, 2013

- 23 - beyond Rio de Janeiro. 34 US Airways expects to institute codeshare service with TAM to ten Brazilian points beyond Sao Paul o after commencement of US Airways’ new Charlotte-Sao Paulo service, as shown in Figure 8. Figure 8: US Airways’ Wi ll Offer Abundant Intra-Brazil Codeshare Service from Sao Paulo

Source: August 2013 OAG.

US Airways’ codeshare with TAM thus allo ws it to offer codeshare service beyond Rio de Janeiro and Sao Paulo to many major Brazilian points.

34 Source: August 2013 OAG. These points are: Belo Horizonte, Brasilia, Curi tiba, Fortaleza, Foz du Iguacu, Porto Alegre, Recife, Salvador, Sao Paulo, and Vitoria.Answer of US Airways, Inc. Docket DOT-OST-2013-0072 May 3, 2013

- 24 - * * *

Under no circumstance should Delta receive additional Sao Paulo frequencies when it does not fully utilize the frequencies available to it today; does not operate extra section fli ghts; does not operate peak s eason flights; and proposes

service with an aircraft that is the sma llest of any applicant and the smallest widebody aircraft in its fleet. This is par ticularly true when any award could be made only at the expense of applic ants that have consistent ly demonstrated their strong commitment to Brazil, such as US Airways.

V. Conclusion Only US Airways’ application provides for new service to Sao Paulo that achieves the Department’s goals of maximi zing public benefits an d providing optimal

and sustainable service for travelers and shi ppers. US Airways’ service proposal realizes these goals by providing a uni que combination of benefits, including:

 Service from Charlotte and Philadel phia - two new U.S. gateways;

 New entrant competition to Sao Paulo;

 Service with the largest aircraft of all applicants in this proceeding; and

 Unmatched commitment to U.S.-Brazil service through its persistent efforts over several years to commence Sao Paulo service. The Department has an opportunity in this proceeding to ensure the U.S.-Sao Paulo

market structure continues to maximi ze the benefits coming from Sao Paulo frequencies for U.S. travelers and shippers. Regardless of whether US Airways and

American are treated as one carri er or two, this means preserving existing gateways

where the carrier has shown dedication to the service; adding new gateways; and creating service alternatives within gateway s. It also means not awarding purelyAnswer of US Airways, Inc. Docket DOT-OST-2013-0072 May 3, 2013

- 25 - duplicative service merely to establish sy mmetry in the alloca tion of limited entry rights. As US Airways has demonstrated, Char lotte is an important competitive alternative to Atlanta; and Philadelphia provides an impor tant option versus Newark and Washington-Dulles. Wit hout an award of frequencies to US Airways, many passengers will be left with only a single carrier option for Sao Paulo service; and many more passengers will have less than full choice among carriers for Sao Paulo

service. Market structure considerations as ide, Delta’s application is also infirm in other aspects, offering the smallest aircraf t, to cities with either small local demand (Atlanta); which only serve local demand (JFK); or which Delta has previously abandoned (Detroit).Answer of US Airways, Inc. Docket DOT-OST-2013-0072 May 3, 2013

- 26 - For the foregoing reasons, US Airways, Inc. respectfully requests that the Department of Transportation grant it an exemption and 14 frequencies for service between Charlotte and Sao Paulo, and Philadel phia and Sao Paulo, as more fully explained herein, and grant such other or further relief as the Department deems necessary and appropriate. Respectfully submitted,

_______ ________________________ Howard Kass Vice President, Legal and Government Affairs Benjamin T. Slocum Director, Legal and Government Affairs US Airways, Inc. 1401 H Street, NW, Suite 1075 Washington, DC 20005 (202) 326-5153 howard.kass@usairways.com benjamin.slocum@usairways.com

DATED: May 3, 2013CERTIFICATE OF SERVICE I hereby certify that on Ma y 3, 2013, a copy of the Answer of US Airways, Inc. was served via e-mail on each of the following: urskr@state.gov (Department of State) paul.gretch@dot.gov (Depar tment of Transportation) esta.rosenberg@dot.gov (Department of Transportation) brett.kruger@dot.gov (Depar tment of Transportation) brian.hedberg@dot.gov (D epartment of Transportation) francis.heil@aa.com (American) robert.wirick@aa.com (American) steve.morrissey@united.com (United) dan.weiss@united.com (United) richa.himani@united.com (United) karine.faden@united.com (United) sascha.vanderbellen@delta.com (Delta) mark.gale@phl.org (Philadel phia International Airport) tjorr@charlotteairport.com (Charlotte Douglas International Airport) anita.mosner@hklaw.com (Counsel for Charlotte Douglas International Airport)

__________________________ Benjamin T. SlocumANNEX AANNEX B