Objection of Hyannis Air Service, Inc. dba Cape Air

T o the application of LIAT (1974) Limited

F or exemption from 49 USC §41301

Docket: DOT

- OST

- 1998

- 3771

To: U.S. Department of Transportation
Office of International Aviation

From: 

### Andrew Bonney Senior Vice President of Planning Cape Air
660 Barnstable Rd. Hyannis, MA 02601
508

- 862

- 9719 andrew.bonney@capeair.com

Re: A pplication of LIAT (1974) Limited for exemption from 49 USC §41301

Date: June 1 , 20151 Introduction Hyannis Air Service, Inc. dba Cape Air, a United States airline headquartered in Hyannis, Massachusetts objects to the petition of LIAT (1974) Limited , an airline certificated in Antigua and Barbuda, on May 18,
2015 for exemption from 49 USC §41301 to the extent that it could permit LIAT to compete directly in a

non

- stop market between a U.S. point and a foreign point not party to LIAT’s country of registration or
multi

- state ownership ( a “Seventh Freedom ” r o u t e ) when a t least one U.S. flagged airline serves that
route. S uch appears to be the case in LIAT’s May 2015 announcement of non

- stop service between San Juan and Tortola effective July 15, 2015. Cape Air has no objection to the other components of the exemption request.

Service H istory

Cape Air has been serving the San Juan

– Tortola non

- stop market since 1999

. Cape Air presently
market s its service with indigenous “ 9K ” code, but also United Airlines puts their “UA” code on Cape
Air’s San Juan

– Tortola serv ice.

San Juan

- based Seaborne Airlines operates Saab 340 aircraft on the San Juan

– Tortola market with multiple daily frequencies , marketed under their BB code and also with American Airlines ’ “AA” c ode.

Air Sunshine (“YI”) operates scheduled servic e in the San Juan

– Tortola market as well.

For a relatively small market the San Juan

– Tortola route has robust competition . No fewer than three
U.S. airlines offer consumers choices. T wo of the largest airlines in the world, American Airlines and

U nited Airlines, each offer their code in this market.

Capacity in the San Juan

– Tortola market is growing

0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000 

# San Juan

- Tortola Seats

Source: Official Airline Guide (OAG)

Air Sunshine

Seaborne Airlines
Cape Air2 Furthermore, capacity in the San Juan

– Tortola market is growing. I n the first half of 2015 capacity was up 17% compared with the first half of 2014.

Seat share in the San Juan

– Tortola market 1H15 is diverse. No one carrier dominates.

Load factors on the San Juan

– Tortola route are low

Cape Air’s load factor on the San Juan

– Tortola market is low. There are plenty of seats for the market to grow into. Cape Air, 19,080, 40%

Seaborne Airlines, 21,522, 45% Air Sunshine, 7,240, 15% 

# San Juan

- Tortola Seats

1H15; Source: OAG

Cape Air

Seaborne Airlines

Air Sunshine

67% 68% 73% 66% 60% 68% 67%

56% 54% 60% 67%

58%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 

# Cape Air SJU

- EIS Load Factor

Source: Cape Air3 Foreign g overnment s ubsidized c ompetitor
LIAT is government

- owned and subsidized. Therefore, c ompetition by an unsubsidized US carrier against LIAT can not be expected to be fair

. Meanwhile , privately owned Cape Air has invested in and

grown its San Juan

– Tortola business over 15 years. Approximately 20% of Cape Air is employee

- owned through an ESOP. Cape Air regrets to see that patient investment upended by a foreign

- governmen t

funded competitor no party to either the BVIs or the US. The consumer also has a keen interest in
sustainable service. Cape Air provide s that sustainable service today after considerable struggle.

Impossibility of t rue r eciprocity Past DOT grants o f exemption authority to LIAT have cited reciprocity as a reason for permitting the request. However, f or reciprocity to exist a U

. S

. airline would have to apply to the very owner s of LIAT for permission to compete directly against them, a situation which is a patent conflict of interest . Under these circumstances no reciprocity in the sense that it is commonly understood can possibly exist. Even if an exemption authority were granted by the foreign government there c ould always be the implicit
threat of revocation or, due to the intensely regulated nature of the airline business, imposition of regulatory hurdles that would make continuation of service effectively impossible. This point makes no accusation against the demonstrably good character of LIAT ’s management and ownership, but merely speaks to the inherent conflict of interest in the regulatory and political structure.

Material factual error in the stated merits of applicant’s case Paragraph 4 of LIAT’s exemption request states that “the pro posed air transportation services are the same as those it performed between the Caribbean region and the United States during the past year.”
This is incorrect. LIAT has not flown San Juan

– Tortola in the last year, but announced the route in May
2015 f or summer service effective July 15, 2015 , and has it for sale on their website as of the week of May 18, 2015

.4 Possible p rocedural omission in the application Seaborne Airlines does not appear on the service list, yet is required to be notified of this application as they are an incumbent U.S. airline in the San Juan

– Tortola market directly impacted by the applicant’s exemption request.

Conclusion and s ugg ested remedy Permitting Seventh Freedoms to LIAT is decidedly not in the public interest because it would materially disrupt the healthy competitive market between San Juan and Tortola, which already has unusually
vibrant service for a small market

. Furth ermore, entrance of a foreign

- subsidized airline in a market that has been carefully cultivated and invested in by Cape Air and other U.S. carriers would undermine the
rationale for future investments in air service. C ape Air objects to LIAT’s exemption r equest only to the

extent that it could allow LIAT to compete directly in non

- stop markets between a U.S. point and a foreign point (where such foreign point is neither in the country in which LIAT is flagged nor is it in a country party to LIAT’s ownershi p structure), and which is served by a U.S. carrier. If LIAT removes that portion of their request for exemption authority and suspends sales activity in such markets

, Cape Air would have no further objection.

T h a n k y o u f o r y o u r c o n s i d e r a t i o n

.

V e r y r e s p e c t f u l l y ,

A n d r e w W

. B o n n e y S e n i o r V i c e P r e s i d e n t o f P l a n n i n g C a p e A i r