& 

XI-100316-001 

U.S. Department Assistant Secretary ' • ^ ' r ! i ; : iTt?()ij}j^w Jersey Avenue. SE 

of Transportation [ ; Washington, oc 20590 

Office of the Secretary 

of Transportation MAY 2 6 2010 

Mr. Edward P. Faberman 

Wiley Rein, LLP 

1776 K Street NW 

Washington, DC 20006 

Dear Mr. F^remwn: 

Thank you for your letter concerning a grant award under tJie Department's SmaJl 

Community Air Service Development Program ("Small Community Program") to 

Huntsviiie, Alabama. 

Your letter makes reference to a March 1 letter from United Airlines ("United"), which 

offers nonstop service between Huntsviiie and Washington Dulles airport. Among other 

points, United's letter asserted that Huntsviiie should not be permitted to use grant fiinds 

to extend service to any of the Baltimore/Washington airports, as doing so would be anticompetitive and inconsistent with the Department's policies. Your letter contended that 

Baltimore is a different market than the two Washington-area airports and that United's 

position was therefore incorrect. 

I have responded to United's letter, noting that Huntsviiie was specifically targeting 

Thurgood Marshall Baltimore/Washington International (BWI) airport in its proposal, 

and that the Department's selection of Huntsviiie and use of grant funds for BWlHuntsville service were consistent with the relevant statutory criteria and DOT's policies. 

A copy of my letter to United is enclosed. 

As is our normal practice, I am placing a copy of your letter and this response in Docket 

OST-2009-0149 as a contact outside the record of this matter. I appreciate your interest 

in the Small Community Air Service Development Program. 

Sincerely yours. 

Susan L. Kurland 

Assistant Secretary for 

Aviation and International Affairs 

Enclosure 
o 

XI-100316-001 

U.S. Department Assistant Secretary 1200 New Jersey Avenue. SE 

of Transportation Washington. DC 20590 

Office of the Secretary ..^ ^ 

of Transportation MAY 2 6 ZOlO 

Ms. Julie Oettinger 

Managing Director 

International & Regulatory Affairs 

United Airlines 

1025 Connecticut Avenue, NW Suite 1210 

Wasliington, DC 20036 

Dear Ms. Oettinger: 

Thank you for your letters to the U. S. Department of Transportation ("the Department") 

of October 2 and March 1, concerning applications under the Small Community Air 

Service Development Program ("Small Community Program," or "SCASDP") from 

Huntsviiie, Alabama ("Huntsviiie" or "HSV"), Greenville/Spartanburg, South Carolina 

("Greenville/Spartanburg"), and Knoxville, Tennessee ("Knoxville" or "TYS"). 

Your letters expressed concern over whether these three proposals were consistent with 

the Department's policies on award, as you believed they sought grant funds to subsidize 

additional service in a market that was already served by another carrier or carriers. Your 

March 1 letter, sent after DOT selected the Huntsviiie and Knoxville proposals for 

award,' requested that we clarify that the communities would not be authorized to utilize 

the grant funds for service to any airport in the "Washington/Baltimore market." 

Underlying your request is the fact that United serves Huntsviiie and Knoxville from 

Wasliington Dulles International Airport (IAD), and the premise that the 

"Washington/Baltimore market" is a single market that includes IAD, Ronald Reagan 

Washmgton National Airport (DCA), and Thurgood Marshall Baltimore-Washington 

Airport (BWI). 

As background, the Small Community Program was established to help smaller 

communities address air service deficiencies, particularly issues related to high airfares 

and insufficient service. Congress appropriated $8 million for grant awards under this 

program in Fiscal Year 2009. In order to provide communities with latitude in 

developing solutions to their afr service problems, the statute provides significant 

flexibility in how the financial assistance may be used. 

In their applications, Huntsviiie and Knoxville set out in detail their reasoning for seeking 

assistance under the Small Community Program. Tlieir proposals were focused on 

' In February 2010. the Department announced its SCASDP awards for 2009. As you are aware, Huntsviiie 

and Knoxville were recipients of grant awards of $! .000,000 and $500,000, respectively. Greenville/ 

Spartanburg was not selected for an award for 2009. 
XI-100316-001 

lowering airfares at the airports, and their applications demonstrated that their airfares are 

significantly higher than the national average (#1 highest and #3 highest in the nation, 

respectively). 

Huntsviiie specifically targeted the HSV -BWI market and the HSV - Orlando market 

because those markets are the number two and number three markets, respectively, that 

do not have nonstop service. The HSV - BWI market is approximately 54 passengers per 

day each way ("PDEW"), while the HSV - IAD market is 32 PDEW and currently has 

multiple nonstop flights via United Express. Knoxville's application targeted the TYSBWI market. The proposals sought revenue guarantees and start-up cost offsets to assist 

their targeted carriers in establishing service. 

Turning to the question as to whether the Washington and Baltimore airports constitute a 

single domestic market, the Department has found sfrong evidence that the three major 

airports serving the Wasliington/Baltimore market (IAD, DCA, and BWI) are not 

economic substitutes. In several tests we performed, domestic price competition among 

the airports did not appear to be pervasive enough to discipline individual airport prices 

and eliminate the substantial price differentials that exist. 

Following that reasoning, the grant funds will not be utilized to subsidize service in the 

"same market" that United serves. The Department's selection of these communities for 

grants is consistent with tlie statutory criteria for award recommendations, and I find no 

reason to find the selections otherwise prohibited by our policies. Had the two 

communities proposed service to IAD in direct competition with United, the applications 

would have been materially different and evaluated on different grounds. 

As is our normal practice, I am placing a copy of your letter and this response in Docket 

OST-2009-0149 as a contact outside the record of this matter. I appreciate your interest 

in tills program. 

Sincerely yours. 

Susan L. Kurland 

Assistant Secretary for 

Aviation and International Affairs 
X1-1003 I 6-001 

1776 K STREET NW 

WASHINGTON, OC 20006 

PHONE J02.7J9.7000 

fAX 202.719.70*9 

792i JONES BRANCH DRIVE 

McLEAN, VA 22102 

PHONE 703.90S.2800 

FAX 703.905.2820 

www.wUeyrein.cam 

Edward P. Faberman 

202.719.7402 

efaberman@iwileYrein.com 

March 15,2010 

Susan Kurland 

Assistant Secretary for Aviation and 

International Affairs 

U.S. Department of Transportation 

1200 New Jersey Avenue, SE 

Washington, DC 20590 

Re: Small Community Air Service Development Program, 

Order 2010-2-12 (Docket DOT-OST-2009-0149) 

Dear Assistant Secretary Kurland: 

On February 18, 2010, the Department of Transportation issued an Order Awarding 

Grants under the Small Community Air Service ("SCAS") Development Grants. 

The Order was issued under the "Wendell H. Ford Aviation Investment and Reform 

Act for the 21" Century ("AIR-21)." The Act was issued to help smaller 

communities enhance their air service and address issues related to high airfares. 

As multiple government studies have found, when low fares are brought to a 

market, that market sees a significant increase in service and passengers. 

One of the communities that received a grant was Huntsviiie, Alabama. Huntsviiie 

presented information to the Department showing that the current fares offered in 

certain markets including the Huntsviiie-Washington market limited flight options. 

Huntsviiie demonstrated that with a grant under the AIR-21 program, it would be 

able to expand opportunities for residents of the Huntsviiie area to travel to the 

important Washington-Baltimore market and residents of the Washington-Baltimore 

market to travel to Huntsviiie. 

In various letters including one dated March 1, 2010 (submitted to this docket). 

United Airlines claims that a grant to Huntsviiie Airport allowing the addition of 

service to Baltimore is inconsistent with Department policies since it would 

subsidize additional service to Washington/Baltimore. In the letter. United states it 

is "concerned with the anti-competitive use of SCAS funds." 

As to Washington/Baltimore market, on behalf of AirTran Airways, we note that 

when the Department amended the US-Mexico aviation agreement in October 2005, 

it specifically stated, "The amended agreement also provides that, for designation 

purposes, (1) Washington, D.C. and Baltimore, Maryland, shall be regarded as 

separate points." The Federal Aviation Administration again emphasized that 
XI-1003 16-001 

Susan Kurland 

March 15,2010 

Page 2 

Baltimore is a different market than the two Washington area airports in the "Notice 

of a Petition for Waiver of the Terms of the Order Limiting Scheduled Operations at 

LaGuardia Airport," dated February 9, 2010, when it stated: 

The Department also considered whether the three airports in the 

New York area, and the three in the Washington area, effectively 

constitute the same market for all passengers, such that if fares 

are perceived to be rising too high at one airport, the harm would 

be mitigated by consumers simply shifting to the other two. 

Department analysts, evaluating passenger ticket data that 

contained actual fare information, looked at whether the three 

airports at New York and the three in Washington were effective 

substitutes for each other, and concluded that they were not. 

The Department also found that the differences in the level of 

yields at area airports tended to correlate with the level of low 

cost carrier operations. 

Apparently United has accepted the Department's decision to consider Washington 

and Baltimore as separate markets since it did not raise this "concern" regarding 

services to Cancun even though five carriers have authority to operate between 

Cancun and the Baltimore and Washington markets.' 

Apparently, United Airlines believes that despite the fact that the Department has 

specifically determined that Baltimore (BWI International Airport) is a separate 

market from the Washington, DC market (Ronald Regan Washington National 

Airport/Dulles International Airport), all of these airports must be considered as a 

single market for awards under AIR-21. 

' United, US Airways, and Delta Airlines have authority to serve Dulles-Cancun and AirTran 

Airways and USA 3000 have authority to serve BWI-Cancun. 
X1-100316-001 

Susan Kurland 

March 15,2010 

Page 3 

For these reasons, it is important that the Department inmiediately dismiss United's 

incorrect claims. The Department should advise United that although United would 

like to limit competition in the entire Maryland/District of Columbia/Virginia area, 

there is no question that Baltimore (BWI) is a different market firom Washington, 

D.C. (DCA and IAD). 

It is time to allow the residents and businesses of Huntsviiie to enjoy the benefits of 

low fares. 

Sincerely, 

Edward P. Faberman