& XI-100316-00 1

U.S . Departmen t Assistan t Secretar y ' • ^ ' r! i ; : iTt?()ij}j^ w Jerse y Avenue . S E o f Transportatio n [ ; Washington , o c 2059 0 Offic e o f th e Secretar y o f Transportatio n MA Y 2 6 201 0

Mr . Edwar

dP . Faberman Wile y Rein , LLP 177 6 K Stree t N W Washington , D C 2000 6 Dea r Mr . F^remwn : Than k you fo r you r lette r concernin g agrant

awar dunde r tJie Department' s SmaJ

l Communit y Ai r Servic e Developmen t

Progra m("Smal l Community Program" ) to Huntsviiie , Alabama . You r letter make s referenc e t o aMarc h 1 lette r fromUnite dAirline s ("United") , whic h offers nonsto p servic e betwee n Huntsviii e an dWashingto n Dulle s airport . Amon g other points , United' s lette r

asserte dthat

Huntsviii e shoul dno t

b e permitte dt o us e grant

fiind s t o exten dservic e t o an y o f th e Baltimore/Washingto n airports , a s doin g s o woul db e anti

competitiv e an

dinconsisten t

wit h th e Department' s policies . Your letter contende dtha

t Baltimor e i s adifferen

t marke t tha n the tw o Washington-are aairport s andtha t United' s positio n wa s therefore incorrect . I hav e responde dto United' s letter , notin g tha t Huntsviii e wa s specificall y targetin g Thurgoo dMarshal l Baltimore/Washingto n Internationa l (BWI ) airpor

t i n it s proposal , an dtha t th e Department' s selectio n o f Huntsviii e andus e o f

gran t fund s fo r BWl

Huntsvill e servic e wer e consisten t wit h th e relevan

t statutor y criteri aandDOT' s policies . A cop y o f m y lette r t o Unite di s enclosed . A s i s ou r norma l practice , I a

mplacin g acop y o f

you r lette r an dthi s respons e i

n Docke t OST-2009-014 9 a s acontac t outsid e th e recor

do f thi s matter . I appreciat e your interes t i n th e Smal l Communit

y Ai r Servic e Development

Program . Sincerel y yours .

Susa n L . Kurlan d Assistant Secretar y fo r Aviatio n andInternational Affair s Enclosure

# o XI-100316-00 1

U.S . Departmen t Assistan t Secretar y 120 0 Ne w Jerse y Avenue . S E o f Transportatio n Washington . D C 20590 Offic e o f th e Secretar

y ..^ ^ o f Transportatio n MA Y 2 6 ZOl O

Ms . Juli e Oettinge r Managin g Directo r International & Regulatory Affair s Unite dAirline s 1025 Connecticu t

Avenue , N W Suite 121 0 Wasliington , D C 2003 6 Dea r Ms . Oettinger : Than k you fo r your letter s t o th e U . S . Department o f Transportatio n ("th e Department" ) o f October 2 an dMarc h 1 , concernin g application s unde r th e Smal l Communit

y Air Servic e Developmen t

Progra m("Smal l Communit y Program, " o r

"SCASDP" ) fro

m Huntsviiie , Alabam a("Huntsviiie " o r "HSV") , Greenville/Spartanburg , Sout h Carolin a ("Greenville/Spartanburg") , an dKnoxville , Tennesse e ("Knoxville " o r "TYS") . You r letter s expresse dconcern ove r whether thes e thre e proposal s wer e consisten t wit h th e Department' s policie s o n award , a s yo u believe dthe y sough t gran t fund s to subsidiz e additiona l servic e i n amarke t

that wa s alread

y serve db y anothe r

carrie r o r carriers . You

r March 1 letter , sen t

afte r DO T selecte dth e Huntsviii e an dKnoxvill e proposal s fo r award, ' requeste dtha t

w e clarif y tha t th e communitie s woul dno t b e authorize dto utiliz e th e grant fund s fo r servic e t o an y airpor

t i n the "Washington/Baltimor e market. " Underlyin g your

reques t i s th e fac t

tha t Unite dserve s Huntsviii e andKnoxvill e from Wasliingto n Dulle s Internationa l Airpor t (IAD) , andth e premis e tha t th e "Washington/Baltimor e market " i s asingl e market that include s IAD , Ronal dReaga n Washmgto n Nationa l Airport (DCA) , an

dThurgoo dMarshal l Baltimore-Washingto n Airpor t (BWI) . A s background , th e Smal l Community Progra mwa s establishe dt o hel p smaller communitie s addres s ai r

servic e deficiencies , particularl y issue s relate dto hig h airfare s andinsufficien

t service . Congres s appropriate d$ 8 millio n fo r gran t award s under

thi s progra min Fiscal Yea

r 2009 . In orde r

t o provid e communitie s with latitud e i n developin g solution s t o thei r af r servic e problems , th e statut e provide s significant flexibility i

n ho w th e financial assistanc e ma y b e used . I n their applications , Huntsviii e an dKnoxvill e set ou t i n detai l thei r

reasonin g fo

r seekin g assistanc e unde r

th e Smal l Communit

y Program . Tliei r

proposal s wer e focuse do n

' I n Februar y 2010 . th e Departmen t

announce dit s SCASD P award s fo r 2009 . A s yo u ar e aware , Huntsviii e an dKnoxvill e were recipient s o f grant award s o f

$ ! .000,00 0 an d$500,000 , respectively . Greenville / Spartanburg wa s no t

selecte dfo

r a n awardfo

r 2009 .XI-100316-00 1

lowerin g airfare s at

th e airports , an dthei r

application s demonstrate dthat thei r airfare s ar

e significantl y highe r

than th e national averag e (# 1 highes t an d# 3 highes t

i n th e nation , respectively) . Huntsviii e specificall y targete dth e HS V -BW I marke t an dth e HS V - Orland o market becaus e thos e market s ar e th e numbe r tw o an dnumbe r thre e markets , respectively , tha t do no t hav e nonsto p service . Th e HS V - BW I marke t i s approximatel y 5 4 passenger s per da y eac h way ("PDEW") , whil e th e HS V - IA D marke t i s 3 2 PDE W an dcurrentl y ha s multipl e nonsto p flights vi aUnite dExpress . Knoxville' s applicatio n targete dth e TYS

BW I market . Th e proposal s sough t revenu e guarantee s an dstart-u p cos t offset s t o assis t their targete dcarrier s i

n establishin g service . Turnin g to th e questio n a s t o whethe r th e Washingto n an dBaltimor e airport s constitute a singl e domesti c market , th e Departmen t ha s foundsfron g evidenc e tha t th e thre e majo

r airport s servin g th e Wasliington/Baltimor e market (IAD , DCA , an dBWI ) are no t economi c substitutes . I n several test s w e performed , domesti c pric e competitio n amon g the airport s di dno t

appea r t o b e pervasiv e enough t o disciplin e individual airpor t price s an deliminate th e substantia l pric e differential s tha t exist . Followin g tha

t reasoning , th e gran t

fund s will no t

b e utilize dt o subsidiz e servic e in th e "sam e market " tha

t Unite dserves . Th e Department' s selectio n o f thes e communitie s fo

r grant s i s consisten t

wit h tli e statutory criteri afo

r awardrecommendations , andI findn o reaso n t o findth e selection s otherwis e prohibite db y our policies . Hadth e tw o communitie s propose dservic e t o IA D in direc t competitio n with United , th e application s woul dhav e bee n materiall y different an devaluate do n different

grounds . A s i s our norma l practice , I amplacin g acop y o f you r lette r an dthi s respons e i

n Docke t OST-2009-014 9 a s acontac t outsid e th e recor

do f thi s matter . I appreciat e your interes t i n till s program . Sincerel y yours .

Susa n L . Kurlan d Assistant Secretary for Aviatio n andInternationa l Affair sX1-100 3 I 6-00 1

177 6 KSTREE T N W WASHINGTON , O

C 2000 6 PHON E J02.7J9.700 0 fA X 202.719.70* 9 792 i JONE S BRANC H DRIV E McLEAN , V

A 2210 2 PHON E 703.90S.280 0 FA X 703.905.282 0 www.wUeyrein.ca m Edwar d P . Faberma n 202.719.740 2 efaberman@iwileYrein.co m Marc h 15,201 0 Susa n Kurlan d Assistan t Secretary for

Aviatio n and Internationa l Affair s U.S . Departmen t

o f Transportatio n 120 0 Ne w Jerse y Avenue , S E Washington , D C 2059 0 Re : Smal l Communit y Ai r Servic e Developmen t

Program , Orde r 2010-2-1 2 (Docke t

DOT-OST-2009-0149 ) Dea r Assistan t Secretary Kurland : O n February 18 , 2010 , th e Department o f Transportatio n issue da

n Orde r Awardin g Grant s unde r

th e Smal l Communit

y Ai r Servic e ("SCAS" ) Developmen t Grants . Th e Orde r

wa s issue dunde r

th e "Wendel l H . FordAviatio n Investmen t an dRefor

m Ac t fo r th e 21 " Century ("AIR-21). " Th e Ac t wa s issue dt o hel p smalle r communitie s enhanc e thei r air servic e andaddres s issue s relate dt o hig h airfares . A s multipl e governmen t

studie s hav e found , whe n lo w fare s ar e brough t t o a market , that

marke t see s asignificant

increas e i

n servic e an dpassengers . On e o f th e communitie s that

receive dagran t

wa s Huntsviiie , Alabama . Huntsviii e presente dinformatio n t o th e Department showin g that

th e curren t

fare s offere di

n certai n market s includin g th e Huntsviiie-Washingto n marke t limite dfligh

t options . Huntsviii e demonstrate dthat wit h agrant unde r th e AIR-2 1 program , i t

woul db e abl e t o expan dopportunitie s fo r resident s o f

th e Huntsviii e are at o trave l t o th e importan t Washington-Baltimor e marke t an dresident s o f

th e Washington-Baltimor e marke t t o trave l t o Huntsviiie . I n variou s letter s includin g on e date dMarc h 1 , 201 0 (submitte dt o thi s docket) . Unite dAirline s claim s that agrant to Huntsviii e Airpor t

allowin g th e additio n o f servic e t o Baltimore i s inconsisten t wit h Departmen t

policie s sinc e i t

woul d subsidiz e additiona l servic e to Washington/Baltimore . I n th e letter . Unite dstate s i t i s "concerne dwit

h th e anti-competitiv e us e o f SCA S funds. " A s t o Washington/Baltimor e market , o n behal f o f AirTra n Airways , w e not e tha t when th e Departmen t

amende dth e US-Mexic o aviatio n agreemen t i n Octobe r

2005 , i t specificall y stated , "Th e amende dagreemen t als o provide s that , fo

r designatio n purposes , (1 ) Washington , D.C . an dBaltimore , Maryland , shal l b e regarde da s separat e points. " Th e Federal Aviatio n Administratio n agai n emphasize dtha tXI-100 3 16-00 1

Susan Kurlan d Marc h 15,201 0 Pag e 2 Baltimor e i s adifferen t

marke t tha n th e tw o Washingto n are aairport s i n th e "Notic e o f aPetitio n fo

r Waive r o f th e Term s o f

th e Orde r Limitin g Schedule dOperation s a t LaGuardi aAirport, " date dFebruar y 9 , 2010 , whe n i t

stated : Th e Departmen t

als o considere dwhethe r

th e thre e airport s i n th e Ne w Yor k area , andth e thre e i n th e Washingto n area , effectivel y constitut e th e sam e marke t fo r al l passengers , suc h tha t

i f fare s ar e perceive dt o b e risin g to o hig h a t on e airport , th e harmwoul d b e mitigate db y consumer s simpl y shiftin g t o th e othe r two . Departmen t

analysts , evaluatin g passenge r ticke t dat atha t containe dactual far

e information , looke da

t whethe r th e thre e airport s a t Ne w Yor k andth e thre e in Washingto n wer e effectiv e substitute s fo

r eac h other , an dconclude dthat the y wer e not . Th e Departmen t

als o foun dtha t th e difference s i n th e leve l o f yield s at are aairport s tende dt o correlat e wit h th e leve l o f

lo w cos t carrie r operations . Apparentl y Unite dha s accepte dth e Department' s decisio n to conside r Washingto n an dBaltimor e a s separat e market s sinc e i t di dno t rais e thi s "concern " regardin g service s t o Cancu n eve n thoug h five carrier s hav e authorit y t o operat e betwee n Cancu n an dth e Baltimor e andWashingto n markets. ' Apparently , Unite dAirline s believe s tha t despit e th e fact

that th e Departmen t

ha s specificall y determine dtha t Baltimore (BW I Internationa l Airport ) i s aseparat e marke t fro mth e Washington , D C marke t (Ronal dRega n Washingto n National Airport/Dulle s Internationa l Airport) , al l o f thes e airport s mus t

b e considere da s a singl e marke t

for award s unde r

AIR-21 .

' United , U S Airways , an dDelt aAirline s hav e authorit y to serv e Dulles-Cancu n an dAirTran Airway s an dUS A 300 0 hav e authorit y t o serv e BWI-Cancun .X1-100316-00 1

Susan Kurlan d Marc h 15,201 0 Pag e 3 Fo r thes e reasons , i t

i s importan t

tha t th e Departmen t

inmiediatel y dismis s United' s incorrec t claims . Th e Departmen t

shoul dadvis e Unite dtha t althoug h Unite dwoul d lik e t o limi t

competitio n i n th e entir e Maryland/Distric t o f Columbia/Virgini aarea , ther e i s n o questio n tha

t Baltimor e (BWI ) i s adifferent marke t firomWashington , D.C . (DC A an dIAD) . I t i s tim e t o allo w th e resident s andbusinesse s o f Huntsviii e t o enjo y th e benefit s o f lo w fares . Sincerely , EdwardP . Faberma n