BEFORE THE DEPARTMENT OF TRANSPORTATION FEDERAL AVIATION ADMINISTRATION WASHINGTON, D.C.

) DELTA/US AIRWAYS PETITION FOR ) WAIVER OF THE TERMS OF THE ORDER ) FAA-2010-0109 LIMITING SCHEDULED OPERATIONS ) AT LAGUARDIA AIRPORT )

____________________________________ )

RESPONSE OF SPIRIT AIRLINES, INC

Communications with respect to th is document should be sent to:

Joanne W. Young David M. Kirstein Kirstein & Young, PLLC 1750 K Street, N.W. Suite 200 Washington, D.C. 20006 (202) 331-3348 (telephone) (202) 331-3933 (facsimile) Attorneys for SPIRIT AIRLINES, INC.

June 24, 2011BEFORE THE DEPARTMENT OF TRANSPORTATION FEDERAL AVIATION ADMINISTRATION WASHINGTON, D.C.

) DELTA/US AIRWAYS PETITION FOR ) WAIVER OF THE TERMS OF THE ORDER ) FAA-2010-0109 LIMITING SCHEDULED OPERATIONS ) AT LAGUARDIA AIRPORT )

____________________________________ )

RESPONSE OF SPIRIT AIRLINES, INC

________________________________________________ INTRODUCTION Spirit Airlines, Inc. (“Spirit ”) files this Response to the Petition for Waiver and Other Relief (the “Petition”) filed by Delta Airlines and U.S. Airways (the “Joint Applicants”) on May 23, 2011 renewing their request for a waiver from certain re strictions to the LaGuardia Interim Order. 1 Approval of the Petition would a llow US Airways to transfer 265 operating authorities (“slots”) it holds at LaGuardia Airp ort to Delta, in exchange for 84 slots held by Delta at Reagan National Airport and other assets. 2 In mitigation of competition concerns created by this transfer, the Joint Applicants ag ree to divest up to 32 slots at LGA and up to 16 slots at DCA in a DOT approved process. Spirit does not oppose the approval of this transfer subject to the stated divestment of slots. However, Spirit urges the DOT to adopt a divestment process whereby the FAA would withdraw the slots from the Joint Applicants a nd reallocate them to the low-fare incumbents

1 Petition for Waiver and Other Relief, FAA- 2010-0109 (May 23, 2011). [hereinafter, Petition ] 2 The term “slots” is used to apply both to slots at DCA and to “operating authorizations” at LGA.Response of Spirit Airlines, Inc FAA Docket 2010-0109 Page 2 of 13 currently operating with fewer th an five (5) percent of the slots at these airports (“limited incumbents”), rather than through an auction pr ocess whereby eligible carriers were required to purchase the slots from the Joint Applicants as included in the FAA’s May 2010 Order

. 3 Significantly, the Joint Applicants have not sought payment for the surrendered slots. Rather in their current waiver petition, they voluntarily agree to divest slots without requiring or even asking for payment. 4 This is entirely consistent with their agreement prior to the
FAA’s May 2010 Order to give away 4.5 slot pairs at DCA and 15 slot pairs at LGA to certain limited incumbents. 5 Even if the Joint Applicants had requested payment, authorizing them to sell the divested slots would directly contradict the prohibition of sale of operating authorities at LaGuardia and, importantly, the Department’s own Deregulation mandate. 6 Under the policies contained in the Air line Deregulation Act as codifi ed at 49 U.S.C. § 40101 (a)(9), (a)(10), (a)(12), and (a)(13), in carrying out its regulatory au thority the Department is required to consider as in the public interest: (9) preventing unfair, deceptive, predatory, or anticompetitive practices in air transportation. (10) avoiding unreasonable industry concentration , excessive market domination, monopoly powers, and othe r conditions that would tend to allow at least one air carrier... unreasonably to increase prices, reduce services, or exclude competition in air transportation. (12) encouraging, developing, and main taining an air transportation system relying on actual and potential competition— (A) to provide efficiency, innovation, and low prices ; and

3 See Order, Notice on Petition for Waiver of the Terms of the Order Limiting Scheduled Operations at LaGuardia Airport, 75 FR 26322 at 26336-38 (May 11, 2010) [hereinafter May 2010 Order ] 4 Petition at 1. 5 Rebuttal Comments of Delta Airlines and U.S. Airway s, FAA-2010-0109, at 2 (April 5, 2010). If the proposed transaction had been approved, Spirit was to receive 5 LGA slots for free . It is believed the other low fare carriers were offered substantially the same deal. 6 Notice of Order on Operating Limitations at New York LaGuardia Airport, 71 FR 77854, 77857 (Dec. 27, 2006). 49 U.S.C. § 40101(a).Response of Spirit Airlines, Inc FAA Docket 2010-0109 Page 3 of 13 (B) to decide on the variety and qua lity of, and determine prices for, air transportation services. (13) encouraging entry into air tr ansportation markets by new and existing air carriers and the conti nued strengthening of small air carriers to ensure a more effective and competitive airline industry. The Joint Applicants received these slots withou t charge from the Department. Accordingly, only fairness coupled with the mandates of the Airline Deregulation Act require that the low cost carriers receive th em without charge as well. The Jo int Applicants are prohibited from selling the LGA operating author ities under the LGA Interim Order, and the FAA has failed to articulate any rational basis for changing its well-reasoned decisi on that these operating authorities are not property intere sts which cannot be bought or sold 1 Id. The law is clear that “[a]n agency’s view of what is in the public interest may ch ange, either with or without a change in circumstances. But an agency changing its course must supply a reasoned analysis .” Greater Boston Television Cor p. v. FCC, 444 F.2d 841, 852 (1970) (emphasis added). Moreover, the LaGuardia Interim Or der has yet to be re placed by a long term solution. Thus, any slots purchased by low fare carriers could be lost when the Order is replaced by a new rule. Importantly, the net effect of the underlyi ng transaction is to markedly increase the Joint Applicants’ dominance at these two airpor ts, where effective competition is already severely encumbered by slot restrictions. Re quiring small carriers to further pad the pockets of these dominant airlines flies in the face of the Department’s Deregulation mandate to encourage and strengthen low cost carriers. As the FAA correctly asserted in the May 2010 Order, “[s]lots do not represent a pr operty right but represent an operating privilege subject to absolute FAA control.” 7 In the case of the LGA operati ng authorities, allowing the Joint

7 14 C.F.R. § 93.223(a).Response of Spirit Airlines, Inc FAA Docket 2010-0109 Page 4 of 13 Applicants to sell these slots would be inequita ble, as other airlines are not given the same privilege. Accordingly, the FAA should not au thorize the Joint Applicants to reap further financial benefits from these slots, at the e xpense of low fare carrier s and, importantly, the price-sensitive consumers they serve. In order to best serve the public interest, Spirit proposes that the FAA bundle the slots into sets of usable pairs, and distribute them to the eligible limited incumbents (those U.S. airlines having fewer than five percent of the sl ot allocations at each airport, namely Spirit, Frontier, JetBlue, and Southwest/AirTran) for do mestic service. The slots should be grouped into four bundles of four slot pairs each at LaGuardia, and fo ur bundles of two slot pairs each at Reagan. If a limited incumbent cannot use all the slots allocated afte r a reasonable start up period, the FAA could make t hose available by lottery to another qualified limited incumbent. This approach will ensure the di vested slots are fairly allocated in a manner sufficient to protect consumers from the anti-c ompetitive effects of th e underlying transfer and will best promote the use of these slots and thus the availability of low-fare competitive alternatives in these key markets, as re quired by the Airline Deregulation Act. I. BACKGROUND As the FAA correctly explained in its Noti ce of February 18, 2009, in the more than 30 years since airline deregulation, efforts to promote compe tition at LGA and DCA have been unsuccessful. Spirit began its quest for LGA slots in the early 1990s. Given the High Density Rule imposed by the FAA in 1969, obtaining slots for new entrants since passage of the Airline Deregulation Act in 1978 has proven extraordinarily difficult. Significantly, it was only through Congressional intervention in the Wendell H. Ford Aviation Investment and Reform Act for the 21 st Century (AIR-21) in 2000, which required DOT/FAA to issueResponse of Spirit Airlines, Inc FAA Docket 2010-0109 Page 5 of 13 exemptions to new entrants to ensure they c ould have 20 slots, thatSpirit and other new entrants were able to provide even minimal service at LGA. 8 In the almost 10 years since it obtained AIR-21 slots, despite diligent effort s, Spirit has been unable to obtain through purchase or lease an adequate number of slot s to efficiently increase service at LGA. That same AIR 21 legislation enabled the legacy carriers to add unlimited service to small-hub and non-hub airports usin g aircraft with fewer than 71 seats. Immediately, the large carriers through their regiona l affiliates applied for 548 sl ots, of which Delta and US Airways accounted for 346 or a whopping 63% of th e slots, promising a capacity disaster at
LGA

. 9 Ultimately, the legacy carriers were able to operate 200 additional daily flights. It was this avalanche of small aircraft service wh ich created the capacity crisis that has plagued LGA for the last decade. Again, the legacy carriers paid absolutely nothing for these valuable slots and have been able to use them since for whatever service they wish. In accordance with the Deregulation mandate s, Spirit and other limited incumbents who only gained entrance to LGA through AIR- 21 should be given these divested slots, without compensation to the Joint Applicants, so that they may efficiently increase the level of competition at these two airports. As th e FAA correctly recogni zed, with a sufficient number of slots these low-fare carriers will be able to “establish su stainable patterns of service” and provide important consumer benef its by substantially increasing the ability of passengers to choose between carriers with di ffering business models and range of fares offered the traveling public. 10

8 See , Public Law 106-181, 114 Stat. 61, Section 231 adding a new provision 49 USC §41716(b). 9 See DOT, Order 2000-9-18, September 21, 2000 at 11. 10 Notice, Petition for Waiver of the Terms of the Order Limiting Scheduled Operations at LaGuardia Airport, 75 FR 7306, 7310-7311 (Feb. 18, 2010) [hereinafter, Feb. 2010 Notice ].Response of Spirit Airlines, Inc FAA Docket 2010-0109 Page 6 of 13 Spirit is the country’s leading Ultra Low Cost Carrier (“Ultra LCC”) and maintains consistently very low fares, offering an average system-wide fare of less than $80 11 , which is substantially less than any other airline. Significantly, at LGA, Spirit’s 2010 average fares were approximately 18 percent below JetBlue, 15 percent below AirTran and at least 35 percent below the average fares charged by any of the legacy carriers. Spirit’s ability to act as an Ultra LCC provides an inva luable public service, as it ex tends the benefits of flying to those particularly price-sensit ive consumers who might not othe rwise be able to afford to travel at all. In these depressed economic times, it is particularly important that the FAA support the interests of Spirit and other low- cost carriers. Small businesses and lowerincome consumers are dependant on these airlin es to stay connected to an increasingly globalized economy. Spirit currently holds only 22 sl ots at LGA, which it uses for flights to Detroit, Myrtle Beach and Fort Lauderdale, and 10 slots at DC A for flights it uses to and from Fort Lauderdale. 12 From Fort Lauderdale, passengers from LGA and DCA are able to connect to Spirit’s Caribbean and Latin American network and to other points such as Atlanta, Orlando and Tampa. Providing Spirit with access to additional slots at LGA and DCA will enable new low-fare service that particularly benefits the Latino and Caribbean communities who need to travel between these two cities and Spirit’s Caribbean and Central/South America destinations for business and to visit family. II. DISTRIBUTING THE DIVE STED SLOTS WITHOUT CHARGE BEST SERVES THE PUBLIC INTEREST The slot divestiture process should be structured to maximi ze benefits to consumers.

11 Average fare data is for full year 2010. 12 Spirit also operates a flight to and from Myrtle Beach outside the controlled period.Response of Spirit Airlines, Inc FAA Docket 2010-0109 Page 7 of 13 Spirit strongly agrees with the recent Comments of JetBlue that the Joint Applicants should not have discretion to select the recipients of these slots. 13 Additionally, the slots should be allocated in a manner that gives the carriers that have successfully offered low fare service, despite very limited slots, and that are most lik ely to have a beneficial competitive impact at LGA and DCA, an equal opportunity to expand . Spirit believes the divestiture procedure proposed by the FAA in the May 2010 Order is completely inadequate to achieve this end. A. Requiring Limited Incumbents to Purch ase the Slots is Anti-Consumer and Provides a Windfall to the Joint Applicants Spirit strongly disagrees with the FAA’s prior proposal to allow Delta and U.S. Airways to sell the LGA and DCA slots and retain the profits in order to to “monetize their interests.” 14 This proposed result is contrary to Congressional intent and Congress’ mandate that the Department of Transporta tion and the FAA provide limited incumbents slots at no cost. It is also in consistent with FAA’s specific d ecision that the airlines do not have any financial or security interest in ope rating authorizations at LGA. Unless the FAA requires the carriers to return the LGA and DCA slots to th e FAA without compensation, the result will be a financial windfall to Delta and US Airways at the expense of low fare carriers and the public they serve

. Importantly, in a Notice of Order on Oper ating Limitations at New York LaGuardia Airport, 71 FR 77854, issued December 27, 2007, the FAA specifically prohibited the permanent sale, purchase or tran sfer of Operating Authorizat ions. The FAA stated that: Carriers and other persons have long known that any rights held under the slot rules would end on December 31, 2006. The statutory termination date for the slot rules has meant that all financial and security interests in slots will

13 Comments of JetBlue Airways Corporation, FAA-2010-0109, at 2 (June 14, 2011). 14 Id . at 7311.Response of Spirit Airlines, Inc FAA Docket 2010-0109 Page 8 of 13 inevitably end on that date, so no one could have reasonably expected that ex isting business and financial arrangements based on the slot rules could c ontinue after this year. 15 Accordingly, any payment to the Joint Applicants would be a complete windfall in violation of current FAA requirements. The FAA earlier claimed that it wished to allow the Joint Applicants to “maximize the value of their slot interest s as originally intended as part of the larger transaction.” 16 However, the Joint Applicants are obtaining a huge and unfair benefit from the transaction. Given their prior willingness to release these slots for free, 17 their decision to go forward clearly is not based on receiving payment for the rele ased slots. Accordingly, given the negative impact on the public interest, it is uncle ar why the FAA would see this as a needed, let alone important, aspect of the larger transaction. Forcing low-fare carriers to purchase the slots will needlessly result in higher fares for passengers, either because the winning bidders must recoup the amount they paid for the slots given the thin margins on which they opera te to keep fares low or because the lowest cost carrier could not bid su ccessfully for enough slots to co mpete, ultimately undermining the public interest and harming consumers duri ng a time of economic hardship. Clearly, to allow Delta or US Airways now to be paid fo r slots they acquired for free from the federal government would be inequitable and contrary to the Deregulation mandate and policy that Congress, DOT and the FAA have pursued for the last 16 years to promote competition at these airports.

15 Notice of Order on Operating Limitations at New York LaGuardia Airport, 71 FR 77854, 77857 (December 27, 2007). 16 Id. 17 Supra note 7.Response of Spirit Airlines, Inc FAA Docket 2010-0109 Page 9 of 13 B. The Proposed Auction Method Would Grossly Disadvantage Spirit. Spirit currently has the highest gate utiliz ation of any carrier operating at LGA which helps it to keep its fares as low as possible. However, as stated in previous comments, although Spirit provides great value to customers and its flights ar e consistently full, it would effectively be blocked from ac quiring any slots at LGA or DCA in an auction method of distribution. 18 Spirit is far smaller than any of the other carriers that would likely be seeking slots. In terms of 2010 total revenue, Spirit is 80% smaller than JetBlue a nd 95% smaller than the merged Southwest/AirTran. While Spirit’s ability to stim ulate traffic is very strong, Spirit is simply not in a position to compete on an equal basis in a bidding war with carriers like Southwest/AirTran or JetBlue. Importantly, neither of those carriers caters to the market segment which Spirit serves and neither would offe r the kind of fare choice Spirit is able to provide. Distributing the slots to the currently ope rating limited incumbents would ensure that each limited incumbent carrier will obtain new sl ots, which will benefit the public interest by promoting a variety of service options, while ensuring those carriers with the greatest likelihood of effectively competing in these markets can increase service. 19 The auction method proposed by the FAA easily could result in one carrier with the “deepest pockets” acquiring all the available slots - leaving the remaining low-fare carriers without the slots necessary to respond to the very anticompetitiv e practices the FAA seeks to prevent. In its prior May 2010 Order , the Department proposed that divested slots be auctioned off in bundles, four LGA bundles and two DCA bundles, to limited incumbents and new entrants. In an attempt to “prevent any one carrier from acquiring all divested

18 Rebuttal Comments of Spirit Airlines Inc., FAA-2010-0109 at 8 (April 5, 2010). 19 49 U.S.C. § 40101(a).Response of Spirit Airlines, Inc FAA Docket 2010-0109 Page 10 of 13 slots,” the FAA limited eligible carriers to purchasing only one slot bundle, “except at the seller’s option .” 20 The FAA was correct to recognize th at allowing all the slots to go to one carrier would not serve the public interest; however, the exception completely undermines this objective

. Giving the seller the option to sell more than one bundle to any carrier produces the same result as if there were no restrictions on the number of bundles purchased per carrier. In its proposal, the FAA intended to forward to th e selling carriers any bids that were higher than the “winning” bid but were disregarded because the bidder had already won a prior auction. The selling carrier woul d than have the choice to sell the slot bundle to either the “winning” bidder or the bidder who submitted the hi ghest bid. It is highly likely the Joint Applicants will always choose the highest bi dder, making it almost a certainty that one carrier (Southwest) will acquire all the slots. We ca nnot envision a more anticompetitive
process. III. THE DISTRIBUTION SHOU LD BE RESTRICTED TO LIMITED INCUMBENTS AS DEFINED IN THE MAY 2010 ORDER Slots should be transferred only to low-fare limited incu mbent carriers at these two airports, 21 rather than to new entrants. In orde r to effectively compete with the Joint Applicants at these slot constrained airports , carriers must possess enough slot interests to establish sustainable patterns of service

. 22 The FAA quite correctly recognized that, without sufficient slots to defend “against incr easingly dominant competitors,” Delta and US Airways “with the benefit of additional slot interests, could pursue anticompetitive

20 Id. at 26337. 21 AirTran/Southwest and Spirit at DCA and AirTran/Southwest, JetBlue, and Spirit at LGA. February 2010 Notice, 75 FR 7306, 7311. 22 Id.Response of Spirit Airlines, Inc FAA Docket 2010-0109 Page 11 of 13 strategies,” and force more effi cient low-fare carriers with diverse business models from their markets.” 23 We emphasize that the FAA’s prior Noti ce states that carriers with fewer than five percent of the total slot holdings at LGA and DCA, do no t have the “minimum level of competitive service sufficient to affect pricing in the market.” 24 Accordingly, a new entrant acquiring a bundle of four or fe wer slot pairs will have gr eat difficulty maintaining a sufficient and sustainable level of service and even less of a beneficial competitive effect on pricing. Conversely, granting four slot pairs to limited incumbent carriers at LGA and two slots pairs at DCA will enable them to more e ffectively utilize their current slots and have a greater impact on competition. In a perfect world, Spirit agrees with the F AA that it would be desirable to also make slots available to new entrants. Howeve r, as the FAA recognized, by proposing the withdrawal of slots from US Airways and Delta, the proposed slot swap creates a serious threat to the important competition created and promised by low-fare carriers currently serving LGA. Providing slots to these carriers, which in the case of Spirit and AirTran/Southwest have operated at LGA for many years, is the surest way to preserve and enhance domestic competition. JetBlue’s proposal, made in its recent comments regarding th e Joint Applicants Petition, to restrict the eligible class of limited incumbents to those carriers with fewer than 20 slots at DCA or LGA should not be adopted. 25 This self-serving proposal would leave only JetBlue and Frontier eligible at LGA, a nd JetBlue and Spirit at DCA. The FAA was correct to restrict alloca tion of the divested slots to carriers with less than five percent of the

23 February 2010 Notice, 75 FR 7306, 7310. 24 Id. 25 Comments of JetBlue Airways Corporation, FAA-2010-0109, at 5 (June 14, 2011).Response of Spirit Airlines, Inc FAA Docket 2010-0109 Page 12 of 13 total slot holdings at each airport. Defini ng a limited incumbent acco rding to percent of holdings at each airport better se rves the public interest given th at the low fare carriers have all already found their service and ability to compete severely limited by the slots they currently operate. Importan tly, JetBlue’s proposal would l ead to great inequity among carriers with similar slot holdings at each airport. Spirit, fo r example, has only 3 slots more than Frontier at LGA - 22 and 19, respectively - yet under JetBlue’s proposal, Spirit would be blocked from acquiring any new slots at all while Frontier co uld acquire enough to surpass Spirit in slot holdings at LGA. JetBlue’s proposal, for which it offers no particular economic or competitive justification, is nothing more than a thinly-veiled attempt to curb Spirit’s LGA presence, which would especially and adversel y affect pricing for consumers flying the highvolume New York-Florida routes on which these two carriers compete. CONCLUSION The surrendered slots should be allocated so that low-fare carriers can operate an efficient level of service at LGA and DCA and thus reach the very pr ice-sensitive public to which they especially cater. There is abso lutely no reason, given the Deregulation mandate to strengthen smaller carriers, th e abolition of the hi gh density rule at LGA, the huge number of slots acquired from the government by US Airways and Delta at no cost following the AIR-21 legislation, and the explicit notice by the FAA that after December 31, 2006 the operating authorizations at LGA would have no value, that thes e legacy carriers should now be permitted to sell these slots. Similarly these carriers should not be compensated for slots released at DCA. Distributing the slots to th e limited incumbent carriers identified by the FAA in its first notice will pr oduce the greatest public good by ensuring the slots go to the parties with the greatest motiv ation and ability to use them effectively to serve the publicResponse of Spirit Airlines, Inc FAA Docket 2010-0109 Page 13 of 13 interest. For the above reasons, Spirit requests th at, if the FAA approves the transaction upon the condition that the Join t Applicants divest 16 slot pairs at LGA and 8 slot pairs at DCA, these slots be distributed as proposed herein by the FAA to the limited incumbent low-fare carriers. Respectfully submitted,

__________________________ Joanne W. Young David M. Kirstein Kirstein & Young PLLC 1750 K Street N.W. Suite 200 Washington, D.C. 20006 (202) 331-3348 (telephone) (202) 331-3933 (facsimile) Attorneys for SPIRIT AIRLINES, INC. June 24, 2011CERTIFICATE OF SERVICE I hereby certify that, on June 24, 2011, I se rved a copy of the foregoing Response of Spirit Airlines via electronic mail upon the following persons: Howard_kass@usairways.com sascha.vanderbellen@delta.com

_______________________________ Lyndsey Grunewald