Order 2010-5-7

UNITED STATES OF AMERICA

DEPARTMENT OF TRANSPORTATION

OFFICE OF THE SECRETARY WASHINGTON, D.C.

Issued by the Department of Transportation

on the 7 th day of May, 2010

Served: May 7, 2010

ORDER TO SHOW CAUSE

SUMMARY

By this Order, we tentatively al locate four available slot pair s for daily scheduled combination

services between the United States and Tokyo’s Haneda Airport, as follows: 1) one slot pair to Hawaiian Airlines, Inc. (Hawaiian) for its proposed Honolulu-Haneda service; 2) two slot pairs to Delta Air Lines, Inc. (De lta) for its proposed Los Angele s-Haneda and Detroit-Haneda services; and 3) one slot pair to American Ai rlines, Inc. (American) for its proposed New York (JFK)-Haneda service. We tentatively decide no t to award backup authority in this case. We also tentatively award Hawaiia n underlying economic authority to engage in its proposed

services.

BACKGROUND

On December 11, 2009, the United States and Japa n initialed the text of a Memorandum of Understanding (“2009 MOU”), providing for an Open -Skies regime between the two countries. The 2009 MOU permits U.S. and Japanese air carriers to provide scheduled combination

services between the United Stat es and Tokyo’s Haneda Airport wh en Haneda’s fourth runway becomes operational. 1 Initially, only four daily slot pairs will be available to carriers from each country to provide these services. The scheduled operations will also be subject to the following conditions: (1) U.S. operations at Haneda w ill be permitted between 2200 and 0700 hours local time; (2) departures from Haneda to a point in the 48 contiguous U.S. states are not permitted prior to midnight; and (3) extra sections are not permitted.

1 Operational use of the fourth runway is currently scheduled in October 2010. In the Matter of

2010 U.S.-HANEDA COMBINATION

SERVICES ALLOCATION PROCEEDING Docket DOT-OST-2010-00182 By Order 2010-1-17, issued January 26, 2010, the Department instituted the 2010 U.S.-Haneda Combination Services Allocation Proceeding , inviting interested U.S. carriers to apply for allocation of the four newly available pairs of slots for U.S.-Haneda scheduled combination

services. 2 The Order also set forth a procedural schedule and evidentiary requirements for the establishment of a record for the Depart ment to make a decision in this case. On February 12, 2010, following the weather-related closure of th e Washington, D.C., offices of the Federal Government, including the Department of Tr ansportation, the Depart ment issued a Notice amending the original procedural schedule. Pu rsuant to that revise d procedural schedule, applications were due February 16, 2010, answer s were due March 1, 2010, and replies were due March 8, 2010.

SUMMARY OF APPLICATIONS AND RESPONSIVE PLEADINGS

Six carriers – American, Continental Airlines, In c. (Continental), Continental Micronesia, Inc. (Continental Micronesia), 3 Delta, Hawaiian, and United Air Lines, Inc. (United) filed applications for the four availa ble slot pairs to provide daily combination services in the U.S.-Tokyo (Haneda) market. 4 Carriers that requested more than one slot pair were required to prioritize their requests in order of precedence, and the requests are outlined in that order immediately below.

American requests two slot pairs for daily serv ice from both New York (JFK) and Los Angeles using B777 aircraft. Joint applicants Continenta l and Continental Micron esia request one slot pair for Continental for daily service from Newa rk using B777 aircraft and one slot pair for Continental Micronesia for daily service from Guam using B767 ai rcraft. Delta requests four slot pairs for daily services from Seattle, Detr oit, Los Angeles, and Honolulu, and proposes to use B747 aircraft for all routes with the excepti on of Seattle, for which it proposes to use A330 aircraft. Hawaiian requests two slot pairs a nd proposes to use both for daily services from Honolulu using B767 aircraft. United requests one sl ot pair for daily service from San Francisco using B777 aircraft.

Answers and replies were filed by all of the appli cant carriers. Alaska Ai rlines, Inc. (Alaska) and Horizon Air Industries, Inc. d/b/a Horizon Air (Horizon) file d a consolidated reply to the

answers of United and Continental. In addition, a number of civic parties filed formal pleadings in support of the various applicant carriers. Th e Port Authority of New York and New Jersey filed in support of American’s New York (J FK) proposal and Continental’s Newark proposal; the New Jersey Parties filed in support of Continental’s Newark proposal; the Continental Master

Executive Council of the Air Line Pilots Associat ion filed in support of Continental’s Newark proposal and Continental Micronesia’s Guam pr oposal; the Territory of Guam (the Guam Parties) filed in support of Continental Microne sia’s Guam proposal; the Delta Master Executive

Council of the Air Line Pilots A ssociation filed in support of all four Delta proposals; the Wayne County Airport Authority filed in support of Delta’s Detroit proposal; the Port of Seattle filed in

2 We instituted this proceeding in adva nce of the effective date of the 20 09 MOU to provide U.S. carriers the opportunity to fully utilize the new rights when they become available.

3 We refer to Continental and Continental Micronesia coll ectively as the joint applican ts, as the carriers combined their requests in a joint application.

4 See Appendix A, where we summarize the applicants’ proposals in chart form.3 support of Delta’s Seattle proposal ; and the San Francisco Internat ional Airport filed in support of United’s San Francisco proposal.

POSITION OF THE PARTIES

American asserts that, in terms of local Origin & Destination (O&D) traffic, its proposed gateways of New York and Los Angeles represen t the two largest mainla nd U.S.-Tokyo markets. It maintains that its proposals would provide on-line connecting se rvice to Haneda from 17 U.S.

cities behind New York and 20 U. S. cities behind Los Angeles, as well as from 26 foreign points for the two gateways. American states that its on-line connecti ng services combined with its New York and Los Angeles gateways would enable it to offer Haneda service to the top 10 largest mainland U.S.-Tokyo markets. 5

In comparing New York JFK with Continental’s Ne wark Liberty proposal, American claims that JFK is the preferred airport for international travel, noting that, base d on Commerce Department data, Newark attracts just 6.4% of international traffic for New York. 6 American also maintains that JFK is significantly better than Newark in on-time performance, stating that in 2009 Newark ranked last in that category am ong 31 “reportable” airports.

With respect to its Los Angeles proposal, Amer ican contends that it would offer more on-line connecting opportunities than woul d Delta, the other applicant for Los Angeles service. American also points out that Delta is alrea dy by far the dominant U.S. carrier in the Japan market with a 52% U.S.-Japan bookings share, as compared to 21.8% for Continental and 18.5% for United, and only 7.6% for American. 7

In their answers and replies, the competing ca rriers question American’s ability to flow connecting traffic over New York and Los Angele s because American does not operate hubs at those gateways. With regard to American’s JF K proposal, Continental maintains that its Newark service would provide superior connectivity by offering on-line connections to significantly

more cities than would American from JFK. 8 Continental also disputes American’s claim that JFK is superior to Newark for international service, stating that Continental currently out-carries

American in the New Yo rk/Newark-Tokyo market. 9 Regarding American’s Los Angeles proposal, Delta asserts that, by use of its B747 aircraft, it would pr ovide 63% more capacity than

American. 10 Alaska and Horizon support the selec tion of Los Angeles as a new gateway to Haneda and the applications of both American and Delta for Los Angeles-Haneda service. Among other things, Alaska and Horizon note that they have comprehensive marketing relationships, including frequent flier programs, with both Delta and American, and state that they have every intention of maximizing their Seattle and Los Angeles networks to enhance connecting opportunities for Delta and American passengers. 11 United states that its proposed San Francisco service is superior to both Am erican proposals because the San Francisco-Tokyo

5 American Reply , at 1.

6 American Answer , at 15.

7 American Answer , at 5.

8 Continental/Continental Micronesia Joint Answer , at 10.

9 Continental/Continental Micronesia Joint Reply , at 6-8.

10 Delta Reply , at 20.

11 Alaska/Horizon Reply , at 2.4 market is underserved as compared to the Los Angeles-Tokyo and New York-Tokyo markets, and because United’s proposal offers substantially superior connectivity. 12

Continental and Continental Micronesia assert that their proposed Newark and Guam services, respectively, would provide U.S. -Haneda service in two of the four largest overall U.S.-Tokyo markets. With respect to Continental’s Newark proposal, the joint appli cants state that through an extensive hub network at Newark, in addition to providing service to the largest local U.S.-Tokyo market in the eastern United States, Continental would also offer convenient on-line connections to 76 points throughout the North American and Latin American/Caribbean regions. They further state that Continental’s Newark se rvice would also provide effective competition for the Tokyo services offered from New York’s JFK airport. The join t applicants allege American’s claim of better on-time performance at JFK than Newark is misleading, asserting that the existing Newark- Narita flight has a better on-time record than American’s JFK-Narita flight.

The joint applicants st ate that Continental Micronesia’s Gu am-Haneda proposal would serve one of the largest U.S.-Tokyo local markets while su pporting the Guam and Saipan tourist industries and facilitating the proposed U.S. military expansion in Guam. 13 They contend that, in addition to accommodating a large base of tourists, busin ess travelers, military personnel, and civilian contractors, Continental Microne sia’s proposed service would al so provide the only connecting service for passengers traveling between Hane da and various Pacific islands. The joint applicants maintain that only the selection of Continental Micronesia’s proposal would allow Guam and Saipan to compete effectively with Ha waii for Japanese tourist traffic. Continental and Continental Micronesia also point out that, unlike other applicants, they have committed to continuing their U.S.-Narita services and woul d offer passengers the convenience of Haneda

service as well as alternative service to and extensive connections at Narita. 14

Competing carriers question the va lue of Continental’s claimed connections at Newark, noting that many of Continental’s proposed connecting cities have minimal Tokyo traffic or better connectivity via existing Narita services. Amer ican and United state that, with only two daily services, Continental has chosen not to have a significant presence in the U.S.-Japan market, though it has had ample opportunity to increase its services since 1998. 15 United contends that the New York-Tokyo market is cu rrently better served than the San Fran cisco-Tokyo market, and claims that, through a combination of its service to the large local San Francisco-Tokyo market and its superior connecting service at th at gateway, its service w ould benefit more total U.S. passengers than Continental’s.

With respect to Continental Micronesia, the competing applicants contend that its Guam proposal does not warrant an award of valuable Haneda slots because the Guam-Tokyo market is already well-served and consists al most entirely of Japan-originati ng leisure traffic. They further contend that connecting service opportunities at Guam would be se verely limited. The majority

12 United Answer , at 22-24.

13 We note that in their answer and reply, the joint applicants at times characterize Continental Micronesia’s proposed service as Guam/Saipan-Haneda. We are considering only the potential benefits of the Guam-Haneda direct service proposal that the joint applic ants applied for in this proceeding.

14 Continental/Continental Micronesia Joint Answer , at 2.

15 American Reply , at 11; United Reply , at 27.5 of the competing carriers also assert that C ontinental Micronesia could provide its proposed service by operating charter flights a nd does not need an award of slots. 16 Hawaiian asserts that its Honolulu proposal should be given priority over Continental Microne sia, arguing that its service would bring more economic benefits to th e United States. Hawaiian further asserts that, while Hawaiian currently opera tes no Honolulu-Tokyo or U.S.-Japan services, Continental Micronesia already provides three daily Guam-Tokyo flights. 17

Delta states that each of its four proposed gatewa ys would provide signif icant service benefits and promote effective competition while injectin g the greatest amount of capacity into the constrained Haneda market. With respect to its Seattle proposal, Delta as serts that it would serve a large local market from a West Coast hub gateway and, through the combination of its own services and its partnership with Alaska, one-stop Haneda service for 55 U.S. cities. In concert with Seattle, Delta states that its Detroit proposal would provide comprehensive network coverage of the United States and offer one-stop connecting Haneda service for 106 U.S. cities.

Delta claims that Detroit should be selected as an eastern gateway to Haneda over Continental at

Newark and American at JFK because Delta woul d serve substantially more cities over Detroit than those proposed by C ontinental and American. 18

Delta states that it would maximize service and competitive benefits in its Los Angeles proposal, while also providing significant capacity to the largest mainland U.S.-Tokyo market through

utilization of B747 aircraft. Delta also asserts that through its substantia l network at Los Angeles and its partnership with Alaska, it would provide one-stop connec ting Haneda service for 18 U.S.

cities. Delta states that it w ould also use B747 aircraft for it s proposed Honolulu-Haneda service to maximize service benefits and enhance U.S.-flag competition with incumbent Japanese carriers that are already se rving the Honolulu-Haneda ma rket on a charter basis.

Delta takes the position that the proposed im munized alliances between American and Japan Airlines, Inc. (JAL) in the oneworld alliance, and United/Continental and All Nippon Airways Co., Ltd. (ANA) in the Star alli ance, are significant to the di sposition of this case because American, Continental, and United will all have access to Haneda thr ough their metal-neutral joint ventures with their Ja panese alliance partners.

The competing carriers generally maintain that Delta is already the dominant incumbent U.S. carrier in Japan and Asia and shoul d not receive any slot pairs, let alone four. They call attention to the extensive U.S.-Tokyo and beyond-Tokyo servic es operated by Delta at its Narita hub, as well as the additional Asia service it provides as a result of its immunized alliance with Korean Air Lines, Inc. American and United dispute Delta’s assertion that they should not receive awards due to their pending applications for ant itrust immunity with their respective alliance partners JAL and ANA, arguing that Delta is already the largest U. S. carrier in Japan and Asia,

and that awards to American and United w ould foster competitive balance among the three global alliances. American specifically notes that JAL is undergoing reorganization and restructuring and will likely emerge as a smaller carrier, operating fewer departures and serving

16 United Reply , at 30, 35; American Answer , at 19.

17 Hawaiian Answer , at 25.

18 Delta Reply , at 16-17.6 fewer destinations. 19 The majority of the applicants argue that an award to Delta for its proposed

Seattle and Detroit services is not warranted because the Seattle and Detroit local Tokyo markets represent the smallest local markets that are propos ed in this case. Some also question the value of Delta’s connections at Los Angeles and Seat tle, pointing out that Delta would be relying significantly on Alaska- and Horizo n-connecting traffic over which it has no control. Alaska and Horizon support the selection of Seattle as a new gateway for U. S. carrier service to Japan’s Haneda Airport and Delta’s application to provide Seattle-Haneda nonstop service. 20 United maintains that its San Francisco proposal woul d provide service to far more U.S.-originating Haneda passengers than would each of Delta’s four proposals.

Hawaiian asserts that, because it is the only applicant in this proceeding that does not currently serve the U.S.-Tokyo or U.S.-Japan markets by eith er direct or code-sha re service and does not have an alliance partner, as the only new entr ant applicant its proposal should take precedence

over all others. 21 It argues that the extensive U.S.-Tokyo services currently operated by the other applicants and their alliance partne rs at Narita make it all but impossible for a new entrant carrier to institute service at that airport.

Hawaiian highlights the economic benefits that its service would provide to the Hawaiian economy, noting the dominance of the tourism industr y, and contends that it would also be ideal for business travelers, given Haneda’s proxim ity to downtown Tokyo. Hawaiian maintains that its proposed service would bring over $110 million in new revenue to the United States and create nearly 2,500 U.S. jobs. Although the H onolulu-Haneda service would primarily benefit Japan-originating traffic, Hawaiian rejects the no tion that it should not receive an award in this proceeding for that reason, or that it should in stead rely on charter operations to provide its service. Hawaiian contends, however, that the answer is not to award Skyteam alliance member Delta the four slot pairs it has requested because Delta and its code-share partners already control 35% of U.S.-Tokyo flights. Rather , Hawaiian states that this cas e presents a unique opportunity to introduce a new, independent co mpetitor in the U.S.-Tokyo market.

Similar to the position taken by Delta, Hawaiian argue s that the award of slots in this proceeding cannot be separated from the Department ’s consideration of the pending Star (Continental/United/ANA) and oneworld (American/J AL) applications for antitrust immunity. Hawaiian contends that if those applications are granted, competition would no longer exist between American and JAL, as well as between Continental, United, and ANA, thereby resulting in a reduction in the number of comp etitors in the U.S.-Japan market. 22

The competing carriers argue that Hawaiian s hould not receive an award for its proposed Honolulu service, for essentially the same reas ons they argue that C ontinental Micronesia’s Guam proposal should not be awarded. The carri ers state that the H onolulu-Tokyo market is already well-served by existing Narita services operated by U.S. and Japanese carriers and

maintain that valuable Haneda slots should not be used to carry traffic that is in large majority Japan-originating leisure travelers. They also call attention to the lack of connecting services

19 American Answer , at 8.

20 Alaska/Horizon Reply , at 2.

21 Hawaiian Answer , at 3-4.

22 Hawaiian Reply , at 4-5.7 that would be offered by Hawaiia n at Honolulu. Hawaiian’s opponent s also contend that, rather than being awarded limited Haneda slots, Hawaiia n could provide its proposed scheduled service at Narita or by operating charter flights at Haneda. 23

United asserts that its San Francisco-Haneda pr oposal would offer th e strongest all-around combination of local and connecting service be nefits at both ends of the route. It claims that

because the Western United States accounts for 36% of all Tokyo traffic, and California alone accounts for 27% of that traffic, at least one of th e slot pairs must be a llocated to a West Coast

gateway. 24 United contends that, of the three app licants proposing Haneda service from West Coast gateways, only United’s San Francisco prop osal would provide service from a gateway that is a hub for the applicant carrier. 25

United argues that the focus of this proceedi ng should be placed on the benefits provided specifically to U.S.-originating pa ssengers and asserts that its propos al to serve Haneda from its optimally located San Francisco hub would provide service to more of those passengers than would American’s Los Angeles service and De lta’s Seattle and Los Angeles services. Specifically, United contends that its San Fran cisco service would offer non-stop service to a large local market and connecting roundtrip service to 27 airports behind San Francisco, enabling

it to offer service to 40% of a ll U.S.-originating Tokyo passengers. 26

American and Continental assert that United, like Delta, has long enjoyed the benefits of being an incumbent carrier in the U.S.-Japan market , as it holds authority to provide unlimited U.S.-Japan services as well as services beyond Japan. 27 American notes that United also holds antitrust immunity with the Ko rean carrier Asiana Airlines, Inc., giving United Asian hubs at

both Narita and Seoul. American further note s that United also enga ges in non-immunized code-sharing in U.S.-Asia markets on Star pa rtners Air China, Shanghai Airlines, and Thai International, and points out that the Star alli ance is unique in having multiple U.S. carrier members - US Airways, Inc. and Continental - as well as United. Delta argues that, in terms of local O&D traffic, its proposed Los Angeles gate way would generate more than twice as many passengers as United’s proposed San Francisco gateway.

As a final matter, Alaska and Horizon filed a co nsolidated reply to the answers of Continental and United, to the extent that Continental and Un ited oppose: 1) the selection of Seattle as a new gateway for U.S. carrier service to Japan’s Haneda Airport and Delta’s application to provide Seattle-Haneda nonstop service; a nd 2) the selection of Los Angele s as a new gateway to Haneda and the applications of both American and Delta for Los Angeles-Haneda service. Among other things, Alaska and Horizon note that they have comprehensive marketing relationships, including frequent flier programs, with both Delta and American, a nd state that they have every

23 Delta states that it recognizes that Hawaiian would be limited to offering charter service to Haneda if Hawaiian does not receive a slot pair in this case. In these circ umstances, Delta states that it has no objection to Hawaiian receiving one slot pair for Honolulu-Haneda servi ce, with Delta selected as the backup carrier. See Delta Reply , at
21.

24 United Answer , at 4.

25 United Answer , at 5.

26 United Reply , at 2.

27 Continental/Continental Micronesia Joint Answer , at 24-25; American Reply , at 8.8 intention of maximizing their Seattle and Los Angeles netw orks to enhance connecting opportunities for Delta and American passengers.

TENTATIVE DECISION

We have tentatively decided to al locate the four available slot pa irs for daily scheduled services between the United States and Tokyo’s Haneda Airpor t (Haneda), as follows: 1) one slot pair to Hawaiian Airlines, Inc. (Hawaiian) for its proposed Honolulu-Haneda service; 2) two slot pairs to Delta Air Lines, Inc. (De lta) for its proposed Los Angele s-Haneda and Detroit-Haneda services; and 3) one slot pair to American Ai rlines, Inc. (American) for its proposed New York (JFK)-Haneda service.

As an initial matter, we note that the Hane da opportunities in this proceeding will not be

available for use until such time as the Un ited States and Japan sign the 2009 MOU and Haneda’s fourth runway is available for operatio ns. In reaching our tentative decision, we are proceeding on the assumption that the slot pair s will be available for use by U.S. carriers upon runway completion. 28

Haneda services have been limited to primarily domestic operations and have been unavailable to U.S. carriers for scheduled international ope rations since 1978. U.S. carriers have been limited to operating U.S.-Tokyo sc heduled services at Tokyo’s Na rita airport. The 2009 MOU presents us with a unique opportunity to facil itate the return of more convenient U.S.-Tokyo access for the traveling public.

In past cases, where we have had an opportunity to introduce or re-intr oduce service to an area that has long been unavailable to U.S. carrier s, the Department has typically attempted, where possible, to satisfy diverse public interest objectives and needs in selecting carrier proposals for award of the available rights. 29 Similarly, in this proceeding, the ability to allocate slot pairs to enable four daily U.S.-Haned a services, allows us to re introduce convenient U.S.-Tokyo access while addressing a variety of important public inte rest objectives. Specifically, we can introduce new competition in the U.S.-Tokyo market, addre ss the need for U.S.-Haneda service in the largest mainland U.S.-Tokyo O&D markets, and enhance competition in the U.S.-Tokyo and U.S.-Asia markets. In the circumstances presen ted, we find that our tent ative selections would provide the most effective access to Haneda , consistent with the public interest.

We tentatively award one slot pair to Hawaiian, which would ach ieve the important objective of enhancing competition in the U.S.-Tokyo market as a new entrant. Unlike the other applicants in this proceeding, Hawaiian currently does not operate any scheduled U.S.-Tokyo or U.S.-Japan services. As the provider of one of four new U.S. carrier serv ices at Haneda, Hawaiian’s entry into the Japanese market should be a positive devel opment, in terms of offering greater choice to travelers as well as increased compe tition in the U.S.-Japan market.

28 Our tentative findings here are made on each application’ s merits, and have not been considered in conjunction with, nor have we pre-judged the outcome of, the onew orld (American/JAL) and Star (Continental/United/ANA) applications for antitrust immunity pending before the Department.

29 2007/2008 U.S.-Colombia Combination Frequency Allocation Proceeding, Order 2008-5-27, issued May 21,

2008.9 We have taken into account Hawaiian’s acknow ledgement that the large majority of the Honolulu-Tokyo market consists of Japan-originating leisure traffi c. However, we tentatively find that, in addition to the service and competiti ve benefits outlined above, Hawaiian’s service

would benefit the local Hawaiia n economy. Tourism is the do minant industry in the local economy, and Japan-originating visitors comprise a si gnificant percentage of travelers to Hawaii. The Department has previously found benefit to the Hawaiian economy to be an affirmative public interest factor wort hy of decisional weight in our regulatory proceedings. 30 We tentatively find such weight fully warrant ed in light of the facts presented.

We also took note of the assertions of the ot her applicants that the Honolulu-Tokyo market is sufficiently served by existing services from Narita and that Hawaiia n would offer minimal connecting opportunities at Honolul u. Given that the Honolulu- Tokyo market represents the largest overall U.S.-Tokyo market, we tentatively find that the la rge local traffic base should make Hawaiian’s proposal viable an d sustainable while, at the same time, affording travelers in this market enhanced service options. In this regard, we tentativel y find that Hawaiian’s Honolulu proposal merits an aw ard of one slot pair.

Having addressed the public interest objective of new competitive entry, we now turn to service to the west coast, and California in particul ar, which accounts for a significant volume of U.S.-Tokyo traffic, and which should support introduc tion of Haneda service from a west coast gateway. We note that of the seven U.S. main land proposals in this pr oceeding, four involve a west coast gateway: American from Los Ange les; Delta from Seattle and Los Angeles; and United from San Francisco. Having considered the relative merits of these proposals, we tentatively favor the selection of Delta’s Los Ange les-Haneda service. We tentatively find that Delta’s proposal at Los Angeles would maximi ze public benefits by providing service in the largest west coast and mainland U.S.-Tokyo market, one that is sign ificantly larger than both the San Francisco-Tokyo and Seattle- Tokyo markets. We further te ntatively find that Delta’s proposed service would best fulf ill the public interest by accommoda ting the very large local Los Angeles-Tokyo traffic base while also providing a number of connecting opportunities to Tokyo

traffic from the western United States. 31

Other parties assert that Delta would offer limite d connecting services at Los Angeles and argue that some of those services would be opera ted by Alaska and Horiz on rather than Delta. 32 Delta, however, would not be relying exclusiv ely on Alaska and Horizon services. 33 As to those

services that Alaska and Hori zon would provide, we note that Delta, Alaska, and Horizon state on the record that they have a domestic alli ance and comprehensive marketing relationship. 34

Alaska and Horizon assert that they intend to maximize their Los Angeles network to enhance connecting opportunities for Delta pa ssengers. Therefore, we tenta tively find that, to the extent those services augment the large Los Angeles-To kyo local traffic base, this domestic marketing relationship further suppor ts selection of Delta.

30 Expanded Air Services at Hawaii International Airports , Order 99-12-10, issu ed December 10, 1999.

31 Delta Exhibit , DL-121.

32 Joint Answer of Continental and Continental Micronesia , at 16 and United Reply , at 15-16.

33 Delta Exhibits , DL-126 through DL-129.

34 Delta Reply , at 20 and Consolidated Reply of Alaska and Horizon , at 2.10 Through utilization of B747 aircraft, Delta woul d inject more capacity into the U.S.-Tokyo market than the other west coast services propo sed by the applicants. We tentatively find that Delta’s significant capacity advantage is partic ularly compelling at Los Angeles, clearly the largest Tokyo traffic generator of the proposed west coast gateways to Haneda. Although American utilizes Los Angeles as a “focus” airp ort, and would have the additional connecting traffic of Alaska and Horizon, Delta’s Los A ngeles proposal would inject 63% more capacity into the U.S.-Tokyo market than American’s Los Angeles proposal with its B777 aircraft, and 50% more than United’s San Francisco proposal w ith its B777 aircraft. Thus, Delta’s proposed Los Angeles-Haneda service would provide passengers the largest ca pacity in this large market to offer a practical alternative service option to the existing Narita services available from Los Angeles.

Having selected a new-entrant carrier and additio nal service at Honolulu and provided the largest local mainland U.S.-Tokyo O&D market with Haneda service at Los Angeles, we tentatively find that there is a need to provide central and eastern U.S. passengers with access to Tokyo’s downtown airport. Detroit has proven for decades to be a strong hub for Japan and Asia services, and is well-situated geographically to maximize connecting services. 35 The broad catchment area, in combination with traffic from the lo cal Detroit-Tokyo O&D ma rket, should further provide a substantial traffic base to support Delt a’s proposed Detroit-Haneda service. The local Midwestern economic ties to Japan – both Mich igan and Ohio have extensive industrial relationships with Japanese companies – provide additional economic reasons to select Delta’s Detroit-Haneda proposal. 36 While the other applicants in th e proceeding cite their connecting service advantages, we tentatively find on ba lance that Delta’s De troit-Haneda proposal represents the best overall co mbination of geographic breadth of catchment area with limited circuity of routing.

We have considered carrier conc erns that Delta’s Detroit pro posal does not warrant selection because the Detroit-Tokyo local O& D market is the smallest proposed in this proceeding. In this regard, however, we tentatively find that sele ction of Delta’s hub gate way at Detroit would further the goals of this proceeding. Through its substantial hub presence and route network at Detroit, we tentatively find that Delta would offer important service and competition benefits by providing connecting services at Detroit to the largest behind-gateway catchment area in this proceeding. 37 Delta’s proposed use of B747 aircraft for its Detroit service would also maximize use of its hub gateway in serving Haneda, enabling it to accommodate traffic from both the Detroit-Tokyo local market and its catchment area.

We tentatively find that, with the final slot pair that is available in this proceeding, the public interest favors meeting the need for Haneda service in the second la rgest overall mainland U.S.-Tokyo O&D market – New York. We have two proposals before us: American’s proposed service from New York (JFK) and Continental’s proposed service from Newark Liberty. Having weighed each carefully, we see that each presents certain positive elements. While we find merit

35 Delta Application , at 4 and Delta Reply , at 2

36 Reply of Wayne County Airport Authority , at 4.

37 Delta Exhibit , DL-112.11 in both proposals, we tentatively find that the selection of American, which would provide enhanced alliance competition, would provide the greater public benefits. 38

As previously noted, Continental (along with United) is a member of the Star alliance. Delta is a member of Skyteam. In the overall U.S.-Asia ma rket, the Star and Skyteam alliances currently hold significant positions. Thus, an award of Ha neda rights to Ameri can here should enhance alliance competition by improving the competitive posture of American and oneworld in the U.S.-Asia market as compared to the Skyteam an d Star alliances. An award to American would also benefit alliance competition in the U.S.-Jap an market, where members of the other alliances are significant participan ts. For example, selection of Amer ican’s New York proposal provides the benefit of head-to-head competition with th e Narita services offered at JFK by Skyteam

member Delta and Star member ANA.

In light of the circumstances presented, and taki ng into account our other proposed selections and the public interest benefits, we find that selection of American would represent the better use of this last remaining Ha neda slot opportunity.

We tentatively conclude that the four selected gateways fo r U.S.-Haneda services, and the carriers selected at each such gateway to provide those services, will make effective use of the limited U.S.-Haneda opportunities available to U.S. carriers and widen U.S.-Haneda access, consistent with our goal here of addressing a variety of public inte rest objectives. On balance, we find that the public benefits that would be achieved by our te ntative selections outweigh the benefits of the proposals we we re not able to select.

For the reasons outlined above in our discussion of Delta’s Los Angeles proposal, we tentatively

find that selection of Delta at Los Angeles would address greater service needs than selection of Delta’s Seattle proposal, which we find far less compelling than Los Angeles in light of the strong Los Angeles local market, or United’s Sa n Francisco proposal. While United would offer more behind-gateway connectivity at San Francisco than woul d Delta at Los Angeles, we tentatively conclude that Delta ’s proposed Los Angeles gatewa y service would offer superior public benefits than that proposed by United, give n the far greater injection of capacity into the overall U.S.-Tokyo market that Delta would provide and its ability to acco mmodate traffic in the largest mainland U.S.-Tokyo O&D market.

We tentatively did not select Continental Micronesia’s Guam proposal, although we recognize that it would provide service in the second largest U.S.-Tokyo mark et and result in potential economic benefit to Guam. We tentatively find that the benefits of injecting Hawaiian’s new entrant competition at Honolulu outweigh the be nefits of Continenta l Micronesia’s service proposal. We further believe th at our other tentative selecti ons would result in a degree of competitive and service benefits that are superior to the benefits that would likely result if we

selected Continental Micronesia’s additional Gu am-Tokyo service for an award in place of one of the mainland U.S. gateway proposals we tentatively selected.

Against this background, having only four slot pairs to distribute, we recognize that the proposals that were not selected would generate benefits, bu t we tentatively conclude that those benefits do

38 2005/2006 U.S.-China Air Services Case and Designations, Order 2005-2-14, issued February 22, 2005.12 not outweigh the competitive and service benefi ts that we anticipate from our tentative

selections.

BACKUP AWARD

We have tentatively decided not to award backup authority in this case. Our awards here are directly tied to the diverse public interest concer ns needing to be addressed in the circumstances presented, taking into account the relative merits of the specific proposals before us in terms of addressing those concerns. Against this bac kground, should any of the selected carriers not begin its proposed services, we tentatively find that the public in terest would be best served by allowing us to award any unused righ ts on the basis of a fresh record.

ECONOMIC AUTHORITY

Each of the tentatively selected carriers has been found to be a citizen of the United States, and fit, and willing, and able to provide scheduled foreign air transportation of persons, property, and

mail as a certificated air carrier und er section 41102 of Title 49 U.S.C. 39 40 We propose to grant Hawaiian exemption authority for a period of two y ears, subject to renewal, and to make this authority effective immediately upon issuance of a final order in this proceeding. We note that Delta and American currently hold certificate authority to provide their proposed services. 41

We will impose a startup condition for each award. We will require the carrie rs to institute their proposed services within 90 days of Octobe r 31, 2010, the date on which the IATA 2010 winter season begins. 42 In addition, we propose that the slot pairs allocated in this proceeding be subject to a 90-day dormancy condition, wherein a ny slots not utilized for a period of 90 days (once inaugurated) would be deemed dor mant and revert to the Department.

ACCORDINGLY,

1. We tentatively grant Hawaiian Airlines, Inc. exemption authority to engage in scheduled foreign air transportation of persons, propert y, and mail between Honol ulu, Hawaii, and Tokyo, Japan, and allocate to it one slot pa ir to provide its proposed operations;

2. We tentatively allocate Delta Air Lines, In c. two slot pairs for its proposed Los AngelesHaneda and Detroit-Haneda services, respectively;

39 See Orders 2007-7-3 (Hawaiian), 2009-1-8 (Delta), and 2007-4-2 (American).

40 We further find that our awards in this proceeding will re sult in a near term increase of annual fuel consumption in excess of ten million gallons. As a result, our action constitutes a “major regulatory action” under the Energy Policy and Conservation Act of 1975, as defined by section 313.4(a)(1) of the Department’s regulations. We find, however, that the service provided under the authority granted and resulting public benefits outweigh any adverse effects that may be caused by the increased fuel consumption.

41 See Order 2009-1-8 (Delta) and Order 98-5-16 (American).

42 We are aware that the timing of the Haneda runway completion and the date on which the 2009 MOU is signed are factors that could have an impact on startup of Haneda services. We will entertain requests for modified startup dates in the event that those factors delay the ability of a carrier to institute its proposed services in the time period provided.13 3. We tentatively allocate American Airlines, Inc. one slot pair for its proposed New York (JFK)-Haneda service;

4. To the extent not granted, we tentatively deny the remaining applications in this proceeding;

5. We direct any interested pa rties having objections to our tent ative findings and conclusions set forth in this order and in ordering paragraphs 1 through 4 above, to file their objections, in the above-captioned docket, with the Department’s Docket Section, U.S. Department of Transportation, Docket Operations, M-30, West Building Ground Floor, Room W12-140, 1200 New Jersey Avenue, S.E., Washington, D.C., 205 90, no later than ten (10) calendar days from the date of service of this order; answers ther eto shall be filed no late r than seven (7) calendar days thereafter; 43

6. If timely and properly supported objections are filed, we will afford full consideration to the matters or issues raised by the objec tions before we take further action; 44 if no objections are filed, we will deem all further procedural steps to be waived and will proceed to enter a final order awarding the authority proposed in this order; and

7. We will serve this order on the parties to the captioned docket of the order, the Japanese Ambassador to the United States in Washingt on, DC, the Federal Aviation Administration, and the U.S. Department of State (Office of Aviation Negotiations).

By:

Susan L. Kurland Assistant Secretary for Aviation

and International Affairs

(SEAL)

An electronic version of this document is available on the World Wide Web at: http://www.regulations.gov

43 The original filing should be on 81⁄2" x 11" white paper using dark ink and be unbound without tabs, which will expedite use of our docket imaging system. In the altern ative, filers are encouraged to use the electronic filing submission capability available through the Dockets/FDMS Internet site ( http://www.regulations.gov ) by following

the instructions at the web site.

44 As we are providing for the filing of objections to th is tentative decision, we will not entertain petitions for

reconsideration of this order.Appendix A

1 Where applicants have submitted multiple proposals, they ar e listed here in the priority-ranking as indicated by the applicants.

2 Continental states that it may use B787 aircraft in the future.

3 Hawaiian Airlines states that it intends to operate its pr oposed services with B767-300 aircraft, but plans to begin receiving new Airbus A330 aircraft this spring and summer. Hawaiia n anticipates that it will grow its service with its newly acquired A330 aircraft in the future.

4 Hawaiian Airlines states its B767 aircraft are equipped with 264 Seats (18C and 246Y) but 1 Business Class seat and 5 Economy seats will be blocked for crews on all Ha neda flights, resulting in 258 total available seats. Applicant Proposed Routing 1 Type Aircraft Capacity Slot Pairs

American New York (JFK) – Haneda Los Angeles – Haneda B777

B777 247 Seats – 16F / 37C / 194Y

247 Seats – 16F / 37C / 194Y 1

1

Continental Newark - Haneda B777 2 285 Seats – 50C / 235Y 1

Continental Micronesia Guam – Haneda B767 256 Seats – 20C / 236Y 1

Delta Seattle – Haneda

Detroit – Haneda Los Angeles – Haneda

Honolulu - Haneda A330

B747

B747

B747 298 Seats – 34C / 264Y

403 Seats – 65C / 338Y

403 Seats – 65C / 338Y

403 Seats – 65C / 338Y 1

1

1

1

Hawaiian Honolulu – Haneda B767 3 258 Seats – 17C / 241Y 4 2

United San Francisco – Haneda B777 269 Seats – 8F / 40C / 107Y+ / 114Y 1