[Federal Register Volume 75, Number 90 (Tuesday, May 11, 2010)]
[Notices]
[Pages 26322-26343]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-10978]


-----------------------------------------------------------------------

DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration (FAA)

[Docket No. FAA-2010-0109]


Notice on Petition for Waiver of the Terms of the Order Limiting 
Scheduled Operations at LaGuardia Airport

ACTION: Grant of petition with conditions.

-----------------------------------------------------------------------

SUMMARY: The Secretary and the FAA are granting, subject to conditions, 
the joint waiver request of Delta Air Lines and US Airways from the 
prohibition on purchasing operating authorizations (``slots'' or ``slot 
interests'') at LaGuardia Airport (LGA). The grant permits the carriers 
to consummate a transaction in which Delta would transfer 42 pairs of 
slot interests to US Airways at Ronald Reagan Washington National 
Airport (DCA), international route authorities to S[atilde]o Paulo and 
Tokyo; and terminal space at the Marine Air Terminal at LGA. US Airways 
would transfer 125 pairs of slot interests to Delta at LGA, and would 
lease an additional 15 pairs of LGA slot interests with a purchase 
option, together with terminal space in LGA's Terminal C. The grant is 
subject to the conditions that the carriers dispose of 14 pairs of slot 
interests at DCA and 20 pairs of slot interests at LGA to eligible new 
entrant and limited incumbent carriers, pursuant to procedures set out 
in this Notice, and achieve a mutually satisfactory agreement regarding 
gates and associated facilities with any such purchaser.
    If you wish to review the background documents or comments received 
in this proceeding, you may go to http://www.regulations.gov at any 
time and follow the online instructions for accessing the electronic 
docket. You may also go to the U.S. Department of Transportation's 
Docket Operations in Room W12-140 on the ground floor of the West 
Building at 1200 New Jersey Avenue, SE., Washington, DC between 9 a.m. 
and 5 p.m. Monday through Friday, except Federal holidays.

DATES: The waiver is effective upon Delta and US Airways satisfying the 
conditions required by this Notice. On February 9, 2010, the FAA issued 
the Notice of petition for waiver and solicited comments through March 
22, in this Docket, on the grant of the petition with conditions. (75 
FR 7306, Feb. 18, 2010). On March 30, 2010, the FAA reopened the 
comment period and solicited rebuttal comments through April 5, 2010. 
(75 FR 16574, Apr. 1, 2010).

FOR FURTHER INFORMATION CONTACT: Rebecca MacPherson, Assistant Chief 
Counsel for Regulations, by telephone at (202) 267-3073 or by 
electronic mail at [email protected]; or Jonathan Moss, Deputy 
Assistant General Counsel for Operations, by telephone at (202) 366-
4710 or by electronic mail at [email protected].

SUPPLEMENTARY INFORMATION:

The Proposed Transaction and the Waiver Request

    In the Wendell H. Ford Aviation Investment and Reform Act for the 
21st Century (AIR-21), Public Law 106-181 (2000), Congress required a 
phase out and termination of the High Density Rule (HDR) \1\ at LGA by 
January 1, 2007.\2\ Congress expressly retained the FAA's authority for 
``safety and the movement of air traffic.'' \3\ The FAA eliminated the 
terms of the HDR applicable at LGA; however, the demand for flights at 
LGA and resultant severe congestion prompted the FAA to re-impose 
quotas by means of an order published in 2006 and subsequently amended 
(``LGA Order'' or ``Order'').\4\ The LGA Order, issued under the FAA's 
authority to regulate the use of navigable airspace,\5\ assigned to the 
incumbent carriers at LGA their slot interest holdings and authorized 
them to lease or trade authorizations for any consideration for the 
duration of the Order. The Order, originally scheduled to expire 
October 24, 2009, was extended through October 29, 2011. The Order does 
not allow for the purchase or sale of slot interests at LGA, and the

[[Page 26323]]

only way for a carrier to purchase or sell such interests is therefore 
through obtaining a waiver of the Order. The FAA is authorized to grant 
waivers when it determines that ``the exemption is in the public 
interest.'' 49 U.S.C. 40109.
---------------------------------------------------------------------------

    \1\ The HDR is codified at 14 C.F.R. Part 93, Subparts K and S.
    \2\ 49 U.S.C. 41715(a)(2).
    \3\ 49 U.S.C. 41715(b)(1).
    \4\ Operating Limitations at New York LaGuardia Airport, 71 FR 
77,854 (Dec. 27, 2006); 72 FR 63,224 (Nov. 8, 2007) (transfer, 
minimum usage, and withdrawal amendments); 72 FR 48,428 (Aug. 19, 
2008) (reducing the reservations available for unscheduled 
operations); 74 FR 845 (Jan. 8, 2009) (extending the expiration date 
through Oct. 24, 2009); 74 FR 2,646 (Jan. 15, 2009) (reducing the 
peak-hour cap on scheduled operations to 71); 74 FR 51,653 (Oct. 7, 
2009) (extending the expiration date through Oct. 29, 2011).
    \5\ 49 U.S.C. 40103(b) directs the FAA to develop plans and 
policy for the use of the navigable airspace and, by order or rule, 
to regulate the use of the airspace as necessary to ensure its 
efficient use.
---------------------------------------------------------------------------

    In addition to limitations on the number of operations, both 
airports also are subject to ``perimeter rules'' that prohibit nonstop 
flights to and from airports beyond an established perimeter. DCA's, at 
1,250 miles, is set by Federal statute.\6\ The perimeter rule at LGA 
was imposed by the Port Authority of New York and New Jersey.\7\ 
Banning flights to cities more than 1,500 miles away, the Rule was 
imposed in 1984 in an effort to ease ground congestion at the airport.
---------------------------------------------------------------------------

    \6\ 49 U.S.C. 49109. Slot exemptions specifically authorized by 
Congress have allowed 24 slots to be used for beyond-perimeter 
nonstop operations, with US Airways holding 6 for service to Phoenix 
and 2 for Las Vegas, and Delta holding 2 for Salt Lake City. 49 
U.S.C. 41718.
    \7\ The United States Court of Appeals for the Second Circuit 
upheld the right of the Port Authority of New York and New Jersey, 
as airport proprietor, to adopt perimeter rule under the 
circumstances at the time. Western Air Lines v. Port Authority of 
N.Y. and N.J., 817 F.2d 222 (2d Cir. 1987).
---------------------------------------------------------------------------

    Two air carriers, Delta and US Airways, have proposed an exchange 
of slot interests at these two airports. This exchange, which could 
potentially impact as many as 182 round-trip operations at the two 
airports,\8\ would qualify as a purchase under both the Order and the 
HDR.\9\ The carriers consider the slot interest exchanges to be part of 
an integrated transaction because the sale of US Airways' slot 
interests to Delta at LGA is conditional upon the purchase by US 
Airways of Delta's slot interests at DCA.
---------------------------------------------------------------------------

    \8\ The transaction affects almost 10% of the total number (832) 
of DCA slots and more than 20% of the total number (1147) of LGA 
slots.
    \9\ 14 CFR 93.221.
---------------------------------------------------------------------------

FAA's Tentative Determination

    On February 9, 2010, we issued a Notice for publication in the 
Federal Register that we had received from US Airways and Delta a 
petition for waiver of the LGA Order, and tentatively approved the 
proposed transaction subject to certain conditions.\10\ In 
conditionally approving the transaction, we stated our tentative 
determination that, while the proposed transaction had a number of 
benefits, a grant of the waiver in its entirety would result in a 
substantial increase in market concentration that would harm consumers. 
The public interest would best be served, we tentatively found, by 
creating new and/or additional competition at the airports to 
counterbalance that harm, specifically through divestiture of 14 pairs 
of slot interests at DCA and 20 pairs of slot interests at LGA to new 
entrant and limited incumbent carriers. We proposed the divestiture of 
two slot-pair bundles at DCA with Bundle A containing 8 pairs and 
Bundle B containing 6 pairs; and four slot-pair bundles at LaGuardia, 
with Bundle A containing 8 pairs and Bundles B-D containing 4 pairs per 
bundle.
---------------------------------------------------------------------------

    \10\ 75 FR 7308 (Feb. 18, 2010).
---------------------------------------------------------------------------

    In the Notice, we noted that if the proposed transaction were 
approved as presented, it would lead to significantly increased 
concentration at DCA for US Airways and at LGA for Delta. Based on 
their February 2010 schedules, US Airways would raise its share of 
departures at DCA from 47 to 58%, with its share of slots (including 
regional affiliates) increasing from 44 to 54%. This increase would 
make it three times the size of its closest competitor (American 
Airlines). At LGA, Delta (with its affiliates) would ascend to a 
dominant position, raising its share of departures from 26 to 51% and 
its share of slots from 24 to 49%. Delta would become two and one-half 
times the size of its closest competitor (also American), and LGA would 
transition from an airport with three competing carriers of similar 
size to one having a single dominant carrier.
    The Notice stated concern that due to a dominance of this 
magnitude, other incumbent carriers would be limited in exerting 
competitive pressures and disciplining fares. This concern was further 
compounded by the fact that low-cost carriers (``LCCs'')--which create 
the most competitive impact by the ability to dramatically lower fares 
and increase the volume of passengers in a market--had only a limited 
presence at DCA and LGA. Together, they have only 3.3% of slot interest 
holdings at DCA, and 6.8% at LGA.\11\
---------------------------------------------------------------------------

    \11\ Following the issuance of the Notice, JetBlue received 
eight slot pairs at DCA from American Airlines in a temporary slot 
transfer that will expire October 29, 2011. JetBlue announced on 
April 28, 2010 that it planned to initiate service using those slot 
pairs beginning November 1, 2010. Including these temporary slots, 
LCCs will have 5.2% of the slot interests at DCA.
---------------------------------------------------------------------------

    Another concern raised in the Notice was that, if the proposed 
transaction were approved as submitted, more markets would be served on 
a monopoly or dominant basis. In a number of instances either US 
Airways or Delta would depart a market in which they both compete, 
leaving the other in a monopoly position. In others, where only one of 
the two currently compete, the serving carrier would depart the market 
and the other would enter it, assuming a monopoly or dominant position 
in which it would have even greater pricing power by virtue of its 
increased concentration at DCA or LGA. We tentatively concluded that 
the transaction would produce higher fares for consumers in certain 
domestic markets, as the fewer the number of carriers competing in a 
market the more likely it is that the fares will be higher. Moreover, 
our analysis of US Airways' and Delta's fares at DCA and LGA showed 
that they tended to charge higher fares when they operate monopoly or 
dominant routes from those airports.\12\
---------------------------------------------------------------------------

    \12\ DOT calculated that, at DCA, US Airways charged on average 
124% of the Standard Industry Fare Level (SIFL), a cost-based index 
that the Department has used historically to assist in its 
evaluation of pricing. However, in markets where it held a 95 to 
100% share of nonstop departures, US Airways charged substantially 
more. Delta, having a less strong position at LGA than US Airways at 
DCA, tends to price more competitively, averaging only 89% of the 
index figures with its current slot interest holdings. However, we 
anticipate that Delta's increased market share after the transaction 
would permit it to increase the percent of SIFL associated with its 
service at LGA. In comparison, at Washington Dulles International 
Airport (IAD), the average of all carriers' fares vs. SIFL is 77%, 
and at Thurgood Marshall Baltimore-Washington Airport (BWI) the 
figure is 65%. The fares of the largest carrier at IAD, United 
Airlines, average 90% of SIFL, while those of the largest carrier at 
BWI, Southwest Airlines, average 65%. At Newark Liberty 
International (EWR), the average of all carriers' fares vs. SIFL is 
71%, and at JFK the figure is 57%. The fares of the largest carrier 
at EWR, Continental Airlines, average 71% of SIFL, while those of 
the largest carrier at JFK, JetBlue, average 57%. The NYC/Washington 
airports that have the largest proportion of low-cost carriers 
consistently provide lower fares. A further discussion of our SIFL 
methodology appears below.
---------------------------------------------------------------------------

    We also considered whether the three airports in the New York area, 
and the three in the Washington area, effectively disciplined fares at 
one another, 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. In analyzing both overlap and all markets at the 
airports, we found that yields (i.e., revenue per passenger mile) were 
substantially different among the airports.\13\ The average yield in 
all markets at BWI is 48% less than DCA, and the average yield in all 
markets at Dulles is 37% less than DCA. Similarly, the average yield at 
JFK is 28% less than at LGA, and Newark is 9% less than at LGA. We 
reasoned that if the airports were effective economic substitutes for 
all passengers, the yield spreads would not differ so significantly.
---------------------------------------------------------------------------

    \13\ Specifically, yield at DCA is 27 cents per mile, vs. 17 
cents at Dulles and 14 cents at BWI, while yield at LGA is 20.5 
cents per mile, vs. 18.7 cents at EWR and 14.7 cents at JFK.
---------------------------------------------------------------------------

    We also found that these differences in the level of yields at area 
airports

[[Page 26324]]

tended to correlate with the level of low cost carrier operations. 
Thus, passengers paid more for nonstop service of equivalent distance 
at DCA and LGA than at alternative airports that have sizable LCC 
competition. For example, for trips out to 1000 miles, passengers at 
LGA pay 23% more on average than those at JFK ($147 vs. $120 each way). 
Passengers at DCA pay 64% on average more than those at BWI ($184 vs. 
$113 each way).
    We also noted that Delta and US Airways were not committed to any 
markets for defined periods, and were free to discontinue those that 
were being proposed as part of the transaction and initiate routes 
elsewhere. We expressed concern that, given their added slot holdings, 
they could use those to target smaller competitors, for example by 
increasing their roundtrips in competitive markets and ``sandwiching'' 
competitor flights. The competitive harm, we feared, would occur not 
just at the city-pair level, but at the network or airport level as 
well, particularly given the finding that the other area airports did 
not serve as effective substitutes for each other.
    These concerns--the combination of increased airport concentration, 
the increase in the number of monopoly or dominant markets in which 
increased pricing power could be exercised, and the potential for use 
of transferred slot interests in an anticompetitive manner--led us to 
propose that a relatively limited number of slots be divested as a 
condition for approving the transaction. At DCA, we proposed that 14 
pairs be divested, to new entrant or limited incumbent carriers--enough 
to initiate and/or increase service in one large market or multiple 
smaller markets. At LGA, we proposed a divestiture of 20 pairs to such 
carriers, in combinations that would allow new competition in three or 
four new markets. We reasoned that the relatively modest divestitures 
would allow the parties to realize almost all of their purported 
benefits, while limiting the increase in concentration at the airports 
and providing opportunities for greater competition.\14\
---------------------------------------------------------------------------

    \14\ US Airways and Delta also filed a notification and report 
with the Antitrust Division of the Department of Justice (DOJ) under 
the Hart-Scott-Rodino Act, 15 U.S.C. 18a (HSR). Under the HSR 
process, DOJ reviews the transaction to determine whether it would 
substantially lessen competition or have other significant 
anticompetitive effects. Documents relevant to the HSR review were 
submitted to DOJ by the carriers, with access provided also to DOT, 
which independently assists DOJ in its analysis of the transaction. 
DOJ is continuing its review under HSR and has participated with 
comments in support of the Department's tentative determination in 
this proceeding.
---------------------------------------------------------------------------

    We also tentatively determined that the divestitures be made to 
U.S. or Canadian air carriers having fewer than five percent of the 
total slot holdings at the airport in question.\15\ This approach was 
designed to exclude carriers that already offer a level of service 
sufficient to affect pricing in the market, and include both limited 
incumbents that with few slots were most vulnerable to anticompetitive 
strategies, and new entrants that could bring the prospects of 
increased efficiencies and capacity, as well as vigorous price 
competition to the markets.
---------------------------------------------------------------------------

    \15\ To ensure the integrity of the 5% proposal, we also 
tentatively determined that carriers eligible to receive divested 
slots not code share with any carrier that has 5% or more slot 
holdings, and are not subsidiaries, either partially or wholly-
owned, of a company whose combined slot interest holdings are equal 
to or greater than 5% at LGA and/or DCA. Carriers that would not 
qualify include those who are involved in a code-share relationship 
at DCA/LGA with carrier(s) that also would not qualify as of the 
date of the Notice.
---------------------------------------------------------------------------

    We also proposed that the proceeds of the divestiture sales be 
collected and retained by the divesting carriers; that the divesting 
carriers be required to take their actions within a 60-day period; that 
carriers purchasing the slot interests be precluded from re-selling or 
leasing them to carriers that were ineligible to participate as 
purchasers in the divestiture proceeding; that the slot interests be 
sold in identified ``bundles'' (with specific times we indicated) so as 
to enable the purchasers of the slots to operate competitive service 
with them with times spread across the day. We also solicited comments 
on the specific means by which the carriers might sell the slot 
interests, noting such options as through private sales after FAA-
monitored outreach efforts; through a blind, cash-only, process over an 
FAA Web site; and through an FAA Web site-based outreach process that 
allowed the carriers to negotiate the consideration and terms of sale 
with eligible purchasers.
    The Notice invited interested parties to submit their comments by 
March 22, 2010, to the docket management office at DOT, identifying 
them by docket number FAA 2010-0109. The comments that were received 
are summarized in Appendix A.\16\
---------------------------------------------------------------------------

    \16\ We have also placed in the docket a number of other letters 
the Department received in connection with the Delta-US Airways 
proposal, which were generated before the docket was established. 
These were typically general letters of support for the proposal.
---------------------------------------------------------------------------

US Airways-Delta Divestiture Counterproposal

    On March 22, in their comments, US Airways and Delta stated that, 
as they were ``mindful of the concerns expressed by FAA'' and desiring 
of a solution that would permit them to move forward, they had entered 
into provisional divestiture agreements with four carriers that were 
eligible under the terms of the Notice for 15 slot pairs at LGA and 4.5 
slot pairs at DCA. The 15 slot pairs at LGA would be transferred, five 
each, to AirTran Airways, Inc., Spirit Airlines, Inc., and WestJet, 
Inc. over periods of up to 28 months; the 4.5 pairs at DCA would be 
transferred to JetBlue Airways, Inc. The carriers added that these more 
limited divestitures, ``while diminishing the benefits of the 
transaction,'' would preserve enough of the benefits to permit them to 
go forward. As explained in their joint filing with the new entrant/
limited incumbent carriers to which they would divest slots under their 
counterproposal: (1) At DCA, JetBlue would acquire 4.5 pairs of slots 
(JetBlue intends otherwise to add one off-peak hour slot to complete a 
5-roundtrip service pattern); (2) at LGA, AirTran, Spirit, and WestJet 
would acquire 5 pairs of slots each, respectively, for a total of 15 
pairs; (3) in all cases, the acquisition would be conditioned on FAA's 
grant of the LGA Waiver request; (4) the JetBlue transfer would take 
place relatively soon, but Delta would continue service with the slots 
under a lease from JetBlue for a period; (5) the AirTran and Spirit 
transactions would occur over a 24-month period at dates of their 
choosing; and (6) the WestJet transaction would occur at a date of its 
choosing within 28 months, and WestJet and Delta will be negotiating 
other commercial arrangements as well.
    The Joint Applicants also stated that if the FAA grants the waiver 
subject to the proposed divestiture conditions, they would not 
consummate the transaction, and reserved the right to seek judicial 
review.
    Given the issues raised by the Joint Applicants' counterproposal, 
the FAA determined that it was in the public interest to reopen the 
comment period through April 5. The rebuttal and supplemental comments 
are also summarized in Appendix A. We grant all motions for leave to 
file late comments, and all comments to date were accepted into the 
docket.

Statutory Authority To Grant Waiver Subject to Slot Interest 
Divestitures

    The FAA and the Secretary have authority to grant the requested 
waiver of the LaGuardia Order, and to grant the waiver subject to 
certain conditions.\17\

[[Page 26325]]

The FAA is authorized to grant an exemption when the Administrator 
determines the ``exemption is in the public interest.'' 49 U.S.C. 
40109. The Administrator may ``modify or revoke an assignment [of the 
use of airspace]'' when required in the public interest. 49 U.S.C. 
40103(b)(1). Courts have upheld the conditions an agency may place on 
its approval of a transaction to meet public interest standards.\18\
---------------------------------------------------------------------------

    \17\ Petition for Waiver of the Terms of the Order Limiting 
Scheduled Operations at LaGuardia Airport, 75 FR 7306 at 7307 (Feb. 
18, 2010). The LaGuardia Order was issued under the FAA's authority 
to ``develop plans and policy for the use of the navigable airspace 
and assign by regulation or order the use of the airspace necessary 
to ensure the safety of aircraft and the efficient use of 
airspace.'' 49 U.S.C. 40103(b)(1). Operating Limitations at New York 
LaGuardia Airport, 71 FR 77,854 (Dec. 27, 2006); 72 FR 63,224 (Nov. 
8, 2007) (transfer, minimum usage, and withdrawal amendments); 72 FR 
48,428 (Aug. 19, 2008) (reducing the reservations available for 
unscheduled operations); 74 FR 845 (Jan. 8, 2009) (extending the 
expiration date through Oct. 24, 2009); 74 FR 2,646 (Jan. 15, 2009) 
(reducing the peak-hour cap on scheduled operations to 71); 74 FR 
51,653 (Oct. 7, 2009) (extending the expiration date through Oct. 
29, 2011).
    \18\ See South Dakota v. Dole, 483 U.S. 203, 208 (1987) (``The 
Federal Government may establish and impose reasonable conditions 
relevant to Federal interest * * * and to the over-all objectives 
thereto''); N.Y. Cent. Sec. Corp. v. United States, 287 U.S. 12 
(1932) (upholding Interstate Commerce Commission order approving the 
acquisition of the ``Big Four'' railroad companies by N.Y. Central 
upon the condition that it also acquire short line railroads on 
certain terms).
---------------------------------------------------------------------------

    Further, our consideration of Delta's and US Airways' request to 
waive the terms of the LaGuardia Order complies with and carriers out 
AIR-21's mandate to instill competition at slot-controlled airports and 
doing so in conjunction with considering the Secretary's Section 
40101(a)'s pro-competitive public interest factors.\19\ Congress did 
not exclude the Administrator from considering the ``public interest'' 
to include factors beyond ``safety,'' ``national defense'' and 
``security.'' Rather, Congress expressly directed the Administrator to 
consider those matters ``among others.'' Accordingly, as we articulated 
in our February Notice, it is rational for the FAA to consider, as 
being in the ``public interest,'' ``other factors'' including the 
fostering of competition in the context of the slot program. The 
``public interest'' includes policies furthering airline competition, 
as provided in 49 U.S.C. 40101(a)(4), (6), (9), (10), (12)-(13) and 
(d). These goals have been public policy since at least the time of 
adoption of the Airline Deregulation Act of 1978, Public Law 95-504 (92 
Stat. 1705), and they include (among others) maximizing reliance on 
competitive market forces; avoiding unreasonable industry concentration 
and excessive market domination; and encouraging entry into air 
transportation markets by new carriers.\20\
---------------------------------------------------------------------------

    \19\ Neither the Joint Applicants nor other carriers arguing 
against the waiver conditions cite any cases prohibiting the FAA or 
the Secretary from considering competitive goals in the public 
interest. N.Y., op cit., upheld an agency's public interest 
conditions to an acquisition, despite the industry's opposition to 
the conditions. That decision affirmed the Interstate Commerce 
Commission's conditions to the New York railroad's acquisition of 
the ``Big Four'' railroads on the asserted ``burdensome'' condition 
of acquiring the short-lines. Similarly, our conditions to the 
waiver are intended to promote the public interest by fostering and 
promoting competition in the airline industry and to benefit the 
traveling public.
    The fact that the Supreme Court vacated a National Highway 
Traffic Safety Administration rescission of its ``passive 
restraint'' rule on the grounds that NHTSA relied on a factor 
Congress had not intended it to consider has no bearing on the fact 
that the FAA may legitimately consider public interest factors in 
carrying out the slot program. Motor Vehicle Mfrs. Ass'n of U.S., 
Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 44 (1983).
    \20\ Reliance on United States v. Oberle, 136 F.3d 1414, 1423-34 
(10th Cir. 1998), for the proposition that Congress should have 
included pro-competitive factors in Section 40101(d), is misplaced. 
That case held the Government did not need to reach a burden-of-
proof level of ``beyond a reasonable doubt'' in applying the ``three 
strikes'' enhanced sentencing statute.
---------------------------------------------------------------------------

The FAA Consistently Exercises Its Slot Allocation Authority in a Pro-
Competitive Fashion

    None of the commenters dispute the fact that the FAA has the 
authority to limit flight operations at congested airports and to 
distribute and allocate landing and takeoff reservations (slot 
interests) to designated air carriers at controlled airports. The FAA 
holds this power due to its authority to manage and control the 
``efficient use of airspace,'' to assign the use of airspace and to 
modify or revoke such an assignment in the public interest. 49 U.S.C. 
40103(b)(1).
    Managing slot allocations is a subset of controlling the navigable 
airspace; and courts are clear that the FAA may consider pro-
competitive policies in carrying out its powers to manage the efficient 
use of navigable airspace. In Northwest Airlines, Inc. v. Goldschmidt, 
645 F.2d 1309, 1315-16, 1318 (8th Cir. 1981), the Court found that the 
FAA may allocate slots, divest them from incumbent carriers and 
reallocate them to requesting new entrants, mindful of the pro-
competitive policy of the Airline Deregulation Act of 1978. That case 
analyzed the FAA's reallocation of slots under the HDR, 14 CFR part 93, 
subpart K. At the time, the HDR limited flight operations at congested 
airports in order to reduce landing and takeoff delays and permitted 
airline scheduling committees to allocate the slots among interested 
carriers. (The committees operated under antitrust immunity, granted by 
the then-operative Civil Aeronautics Board.) When the scheduling 
committee refused to provide slots to a new entrant at Washington 
National Airport, the allocation process broke down and the FAA 
attempted to resolve the distribution process by requiring incumbent 
carriers to yield slots or move slot times to new entrants.
    The United States Court of Appeals for the Eighth Circuit rejected 
arguments that the HDR was limited to safety functions only and that 
the operative statute (Section 40103) did not authorize slot allocation 
by the FAA. The holding in that case--that the power to manage the 
efficient use of airspace comprises the power to allocate slots and 
that the FAA may validly divest slots, in consideration of the pro-
competitive policy of the Airline Deregulation Act--should suffice to 
resolve concerns about our statutory authority to condition a waiver of 
a slot transfer transaction on a divestiture of slot interests to 
foster a competitive environment.\21\
---------------------------------------------------------------------------

    \21\ See Eileen M. Gleimer, Slot Regulation at High Density 
Airports: How Did We Get Here and Where Are We Going?, 61 J. Air L. 
& Com. 877, 883, fn. 25 (1996), stating that the court determined 
the action was within the agency's statutory authority and ``was 
consistent with the pro-competitive policies of the Airline 
Deregulation Act.''
---------------------------------------------------------------------------

    The FAA also relied in large part on the Airline Deregulation Act's 
pro-competition policies when it issued the ``Buy-Sell'' amendment to 
the HDR. The Buy-Sell Rule provided a secondary market in slots and 
imposed a minimum utilization requirement and an administrative lottery 
mechanism giving preference to new entrants.\22\ The Buy-Sell Rule, 14 
CFR part 93, subpart S, High Density Traffic Airports; Slot Allocation 
and Transfer Methods, 50 FR 52,180 (Dec. 20, 1985). The preamble 
specifically stated that the rule relies on the FAA's ``statutory 
responsibilities including the need to place maximum reliance on market 
forces'' in allocating slots. 50 FR at 52,182.\23\ That regulation 
opened up a secondary market for slot interests by permitting holders 
to buy or

[[Page 26326]]

sell slots for any consideration from or to any person.\24\
---------------------------------------------------------------------------

    \22\ In creating an administrative mechanism to lottery new and 
withdrawn slots with a preference for new entrants, the Buy-Sell 
Rule was informed by the Airline Deregulation Act to expressly give 
``special consideration'' to new entrants. 50 FR at 52185.
    \23\ The Buy-Sell Rule's major objective was to achieve the 
policy goals of the Airline Deregulation Act, that is, to maximize 
competition at the congested airports, by giving new entrant 
carriers an opportunity to purchase slots:
    [T]he ability to buy and sell slots also removes existing 
artificial barriers to entry into high density airport markets. The 
elimination of barriers to entry is essential for the optimal 
operation of a competitive market. The rule accomplishes this by 
placing new entrants in the same position as incumbent carriers 
desiring additional slots. 50 FR at 52186.
    \24\ Were we unable to consider pro-competitive factors in 
implementing our authority over navigable airspace, it is very 
likely we would not have issued the Buy-Sell Rule in the first 
place. In that event, it would not have been possible for the 
petitioners to seek approval for the transaction before us. The 
Airline Deregulation Act, which ``replaced the old form of 
regulation with a new economic regime that relied heavily on free-
market mechanisms,'' (Delta Air Lines, Inc. v. C.A.B., 674 F.2d 1, 3 
(D.C. Cir. 1982) spawned new entrant airlines clamoring to enter the 
highly-regulated slot-constrained airports.
    In this regard, we note, as does the U.S. Department of Justice 
in its comments in this docket, that the petitioners' arguments 
about lack of FAA authority over pro-competitive slot divestitures 
are in stark contrast with their previous assertions that the FAA 
has the authority to re-implement the Buy-Sell provision at 
LaGuardia and that this provision ``has worked to promote new entry 
and enhance competition at `capped airports' for more than two 
decades.'' Comments of Delta Air Lines at 3, Docket No. FAA-2006-
25755 (July 14, 2009), Reply Comments of the United States 
Department of Justice, Public Version, at 12.
---------------------------------------------------------------------------

    The following year, the FAA further carried out an administrative 
mechanism giving a preference to new entrants at slot-controlled 
airports by implementing a ``reverse lottery'' withdrawing up to 5% of 
slots from incumbent carriers and reallocating them to new entrant and 
limited incumbent carriers. Special Slot Withdrawal and Reallocation 
Procedures, 51 FR 8632 (Mar. 12, 1986). The FAA considered pro-
competitive public interest factors in justifying the preferential 
nature of the lottery by noting that there had been ``very little 
opportunity for new entry by air carriers'' at the HDR-controlled 
airports and that providing ``immediate access'' for them would ``serve 
the pro-competitive principles of the Airline Deregulation Act.'' 51 FR 
at 8633, 8635.
    The FAA has consistently relied on pro-competitive policy goals in 
carrying out its slot programs. For example, in 1992, the FAA amended 
the Buy-Sell Rule to expand protections and treatment afforded to new 
entrant and limited incumbent carriers at airports regulated by the 
HDR, explaining that the amendments ``enhance competition by affording 
new entrant and limited incumbent carriers greater access.'' High 
Density Traffic Airports; Slot Allocation and Transfer Methods, 57 FR 
37,308 at 37,309 (Aug. 18, 1992). During 2000, when instituting the 
phase-out of the HDR at LaGuardia, the FAA issued a notice of intent to 
conduct a lottery of the AIR-21 slot exemptions granted at LaGuardia, 
specifically identifying new entrant and limited incumbent carriers to 
be eligible for the lottery. Further, the temporary ``slot'' regulation 
at O'Hare International Airport applied pro-competitive policies from 
the Airline Deregulation Act in granting preferential treatment to new 
entrant and limited incumbent airlines in assigning new or withdrawn 
slot interests. Congestion and Delay Reduction Rule at Chicago O'Hare 
International Airport, 14 CFR part 93, subpart B; 14 CFR 93.30.
    The FAA has the authority to consider pro-competitive factors under 
several statutory sources, notably Sections 40101(d) (as described 
above), 40103(b) (authorizing the FAA to manage the ``efficient'' use 
of airspace),\25\ 40103(e) (directing the FAA to prohibit the exclusive 
use of air navigation facilities),\26\ and 47107(d) (requiring the FAA 
to carry out its airport and airway program in a manner fostering 
competition).\27\ It is appropriate for the FAA to use these tools in 
response to the request before us, to approve a significant slot 
interest transaction that would affect the competitive structure of the 
aviation industry at two important, slot-controlled airports. By 
conditioning the waiver on slot divestitures, the FAA is carrying out 
Congressional intent to ensure the provision of opportunities for 
competition in the slot program.\28\
---------------------------------------------------------------------------

    \25\ In the context of the slot program, ensuring the 
``efficient'' use of airspace means making productive use of the 
slots including operating larger aircraft with lower costs and 
offering lower fares to consumers, resulting in more passengers per 
flight. New entrant and limited incumbent carriers typically use 
larger aircraft and offer lower fares and ``would most likely be 
more efficient, from a consumer benefit standpoint.'' See Department 
of Justice Reply Comment at 6-7.
    \26\ Without the slot divestiture conditions, the transaction 
would lead to significantly increased airline concentration at DCA 
and LGA; the carriers would increase the number of markets they 
serve on a monopoly or dominant basis and charge premium airfares, 
thus negating the purpose of the prohibition on exclusive rights at 
Federally-assisted facilities. See 40 U.S.A.G. 71 (1941), stating 
that the purpose of the provision is to ``promote and encourage 
competition in civil aeronautics.''
    \27\ Congress directed the FAA to ensure that each airport and 
airway program be carried out ``consistently'' with Section 40101(a) 
to ``foster competition, prevent unfair methods of competition in 
air transportation [and] prevent unjust and discriminatory 
practices.'' 49 U.S.C. 47101(d).
    \28\ Some commenters assert that 49 U.S.C. 40113(a) and 
46105(a), by referring to ``aviation safety duties and powers,'' 
limit the Administrator's administrative powers to those involving 
safety only. Reading the ``aviation safety duties and powers'' 
clause, however, to authorize the Administrator to take action over 
not only ``aviation safety duties'' but also over the 
Administrator's other, more extensive ``powers'' conforms to the 
text of the statutory provision before it was recodified without 
substantive change: ``The Administrator shall be responsible for the 
exercise of all powers and the discharge of all duties of the 
Administration.'' 49 U.S.C. 1341(a). It does not divest the 
Administrator of pro-competitive, public interest policy 
considerations. See, the recodification of Title 49, Public Law 103-
272 (1994), H.R. Rep. 103-180 at 262 (1993). ``The purpose of H.R. 
1758 is to restate in comprehensive form, without substantive 
change, certain permanent and general laws related to 
transportation.''
---------------------------------------------------------------------------

    Furthermore, we disagree with the argument made by some commenters 
that the FAA regulations in 14 CFR part 11 allow the FAA to consider 
only safety matters in deciding whether or not to grant an exemption or 
waiver request. The FAA regulations require the applicant for a waiver 
to address, in addition to safety concerns, why the request ``would be 
in the public interest, that is, how it would benefit the public as a 
whole'' and to provide any additional information supporting the 
request. 14 CFR 11.81(d), (g). As indicated in the body of this Notice, 
we do not find that petitioners satisfied the ``public interest'' 
concern showing how the transaction--without our proposed divestiture 
remedy--would benefit the public as a whole.
    Moreover, in a situation such as this, where two major domestic 
airlines seek the approval of a dramatic market shift with significant 
economic and competitive impact on the aviation industry and the 
traveling public, the Administrator does not act without input and 
guidance from the Secretary. As the head of the Department, the 
Secretary has broad oversight of significant FAA decisions.\29\ In 
evaluating the waiver request, the Secretary considers the public 
interest in furthering airline competition, as provided in 49 U.S.C. 
40101(a)(4), (6), (9), (10), (12) and (13). The waiver of the LGA Order 
on the conditions set forth in this Notice carries out the 
Congressional intent of AIR-21 to allow for new airline entry, to 
increase competition, and lower inflated prices at the slot-controlled 
airports.\30\ The Secretary has previously conditioned air carrier 
route transfers and grants of antitrust immunity on the divestiture of 
slots and/or other assets for the purposes of ensuring competitive 
opportunities for other airlines.\31\ Accordingly, the Secretary (i) 
has the authority to waive the terms of the LaGuardia Order to further 
the Secretary's public interest goal of maximizing airline competition, 
among other things; and (ii) may condition the waiver on carriers 
taking specific actions that foster competition at slot-controlled 
airports.
---------------------------------------------------------------------------

    \29\ See 49 U.S.C. 102 and 106.
    \30\ 49 U.S.C. 41715(a)(2) directs the Secretary to terminate 
the HDR at LGA as of January 1, 2007. See H. Rept. 106-167 (106th 
Cong., 1st Sess. 1999) at 37-42.
    \31\ 75 FR 7306 at 7308.

---------------------------------------------------------------------------

[[Page 26327]]

The Slot Divestiture Conditions Do Not Violate Other Laws or 
Regulations

    Continental in its comments claims that our slot divestiture 
conditions constitute unauthorized market-based pricing and an 
unauthorized withdrawal of slots under the LaGuardia Order and the HDR. 
Continental's concerns reflect a misunderstanding of our action. For 
purposes of the requested waiver, we are not asserting any FAA right to 
collect monies by monetizing slot interests through an auction. Rather, 
in responding to a request for a waiver from the LaGuardia Order 
prohibition on a permanent transfer of slots, we simply are 
conditioning the waiver on a divestiture of some of the slot interests 
to new entrant and limited incumbent carriers. Those slot interests 
would not be divested to the FAA; they would be sold by the respective 
petitioning carriers to eligible purchasers and the petitioning 
carriers would retain the proceeds of the sales. Nor are we 
affirmatively withdrawing slot interests. Consequently, the provisions 
in the LGA Order and the HDR governing withdrawals of slots by the FAA 
are inapplicable to our action.\32\
---------------------------------------------------------------------------

    \32\ Continental referred to Verizon Communications v. Law 
Offices of Curtis V. Trinko, 540 U.S. 398, 407-08 (2004) for the 
proposition that our action ``compelling'' US Airways and Delta to 
divest their slot interests may undermine their incentives to invest 
in beneficial infrastructure. We repeat that we are not, however, 
directing a slot divestiture. Rather, we are granting a waiver 
request, which is subject to a finding that it is in the public 
interest, subject to pro-competitive remedies. The two regulatory 
actions are of a different nature.
---------------------------------------------------------------------------

    We also do not accept the comments of the Joint Applicants, 
Continental or United, that the Department of Justice, not the 
Secretary (or FAA), is the sole source of competition authority over 
slot transactions. While DOJ has the authority under Section 7 of the 
Clayton Act to reject anticompetitive transactions, that does not 
remove DOT's responsibility to carry out its programs consistently with 
the pro-competitive public interest criteria contained in Section 
40101(a)(4), (6), (9), (10), (12) and (13). In considering the 
petitioners' waiver request in the public interest, the DOT is not 
asserting antitrust jurisdiction or implementing Clayton Act authority. 
Neither the FAA nor the Secretary is exercising the former ``Section 
408'' authority over airline transactions. Petitioners are ignoring the 
fact that they petitioned the FAA for a waiver from a validly issued 
Order that prohibits permanent slot interest transfers at LaGuardia. 
The FAA is considering the waiver, not exercising antitrust authority 
nor intruding on the Department of Justice's jurisdiction.\33\ As the 
DOJ indicated in its reply comments, the FAA's proposed decision ``does 
not usurp'' the DOJ's investigative authority under Section 7 of the 
Clayton Act (at p. 13). See Bowman Transp. Inc. v. Arkansas-Best 
Freight System, Inc., 419 U.S. 281, 298-99 (1974) (``A policy in favor 
of competition embodied in the laws has application in a variety of 
economic affairs.'')
---------------------------------------------------------------------------

    \33\ Continental claims that we have not proven that the 
carriers' practices would rise to a Sherman Act Section 2 offense; 
we are not invoking or attempting to enforce antitrust laws. Rather, 
we are asserting our authority to protect the traveling public by 
fostering competition in the context of the requested waiver.
---------------------------------------------------------------------------

    Conditioning the waiver on slot interest divestitures is 
consistent--and does not interfere--with the competitive structure of 
the airline industry, or the statutory policy goal of ``placing maximum 
reliance on competitive market forces,'' as asserted by United and some 
other commenters. The conditions mitigate the competitive burdens of 
the transaction and ensure that the transaction will not result in 
undue industry concentration, the impediment of new entry, or otherwise 
disadvantage the traveling public. The policy goals direct us not only 
to place ``maximum'' reliance on competitive market forces but also to 
rely on ``actual and potential competition'' to avoid ``unreasonable 
industry concentration,'' and to encourage ``entry into transportation 
markets by new and existing air carriers.'' Section 40101(a)(6), (10), 
(12). Our action on the waiver request responds aptly to these policy 
directives.\34\
---------------------------------------------------------------------------

    \34\ United overstates the import of our waiver condition when 
it asserts that we are re-regulating the industry contrary to the 
Congressional directive in the Airline Deregulation Act. Conditions 
at slot-constrained airports are not reflective of a free, 
competitive market. The fact is that the FAA placed limits on flight 
operations that may be carried out at LGA and DCA due to congestion 
in the airspace; in the context of those flight limits, only certain 
airlines may operate at designated times. These airports thus are 
regulated by the Government and are in a different position than the 
vast majority of the other airports that are not slot-controlled. 
The FAA, in this instance, actually is instilling the opportunity 
for more competition at DCA and LGA, in reliance on the Airline 
Deregulation Act. By placing these conditions on the waiver grant, 
the FAA also is protecting against exclusive rights at the airports 
under 49 U.S.C. 40103(e) and is fostering competition at the 
Federally-assisted LGA and DCA. 49 U.S.C. 47107(d).
---------------------------------------------------------------------------

    Our slot divestiture conditions do not withdraw slot exemption 
service authorized under 49 U.S.C. 41714(c), 41716(b), 41718. We do not 
mandate the divestitures of any slot exemptions that US Airways or 
Delta may hold.
    We also are not bound to allocate the divested slots without 
charge, as Spirit prefers. The slot exemptions provisions directing the 
Secretary to grant slot exemptions from the HDR to new entrant and 
limited incumbent carriers under specified provisions are not 
applicable here. The FAA is under no statutory obligation to have the 
divested slot interests allocated to eligible carriers free of charge. 
Although Spirit as noted in its comments is concerned that it may lose 
out in any attempt to purchase slot interests due to its relatively 
small share of revenues compared to that of the other eligible 
carriers, a sale of the slot interests allows the petitioners to 
maximize the value of their slot interests as originally intended as 
part of the larger transaction. 75 FR at 7311.

The Slot Divestiture Conditions Are Not ``Takings''

    The petitioners claim we cannot legitimately require the slot 
divestitures because that constitutes taking without just compensation. 
We do not agree with this assertion. As we indicated in the Notice, the 
FAA has the authority to condition the grant of a waiver.\35\ See also, 
South Dakota v. Dole, 483 U.S. 203, 208 (1987) (``The Federal 
Government may establish and impose reasonable conditions relevant to 
Federal interest * * * and to the over-all objectives thereto.''). The 
FAA expressly has the power to modify assignments of use of navigable 
airspace when in the ``public interest'' and to grant waivers only in 
the ``public interest.'' As we discuss above, it is in the public 
interest for us to condition the waiver request of the transfer of 167 
slot pairs on the divestiture of certain slots to carriers with no or 
little presence at the constrained airports. This condition produces 
efficiencies, fosters competition, prevents unreasonable industry 
concentration, and protects the traveling public.
---------------------------------------------------------------------------

    \35\ 75 FR at 7307, citing Starr v. Federal Aviation 
Administration, 589 F.2d 307, 311 (7th Cir. 1978).
---------------------------------------------------------------------------

    In any event, the takings claim is inapposite because slot 
interests are not property subject to the takings clause. Slot 
interests are subject to pervasive Federal encumbrances that limit any 
air carrier's property right or interest associated with them.\36\ The 
HDR provides that ``[s]lots do not represent a property right but 
represent an operating privilege subject to absolute FAA control.'' 14 
CFR 93.223(a). Accordingly, any ``proprietary interest''

[[Page 26328]]

claimed by an air carrier in a slot is subject to the encumbrances 
placed on those slots by FAA regulation.\37\ The Department, as we 
pointed out in the February Notice, has conditioned international 
aviation route transfers and antitrust immunity grants on divestitures 
of slots or route certificates in the past, and, because these are not 
``property,'' they do not constitute Fifth Amendment compensable 
takings.\38\ A carrier's interest in slots is subject to extensive FAA 
regulation and Congressional direction.\39\
---------------------------------------------------------------------------

    \36\ In the context of an air carrier's bankruptcy proceeding, 
it has been held that the FAA's control over slots substantially 
encumber a carrier's property interest: ``A carrier possesses a 
proprietary right in allocated slots, [ ] limited as to the superior 
rights of the FAA.'' In re Gull Air, Inc. 890 F.2d 1255, 1260 (1st 
Cir. 1989).
    \37\ See 14 CFR 93.211-229. At DCA, where slots are subject to 
the HDR, these encumbrances include, for example, the ability to 
withdraw slots for essential air services, operational needs, and 
non-use. 14 CFR 93.219, 93.223 & 93.227. At LaGuardia, slot 
interests are subject to the terms of the Order which grants only a 
temporary interest in the slots to carriers, providing for only 
leases or temporary transfers through the duration of the Order. 71 
FR 77,854 at 77,860, as amended 74 FR 51,653 (Oct. 7, 2009). They 
are subject to the terms of the January 2009 Order on voluntary 
retirements. 74 FR 2646 (Jan. 15, 2009). Also, slot interests at 
LaGuardia are subject to minimum utilization requirements. 71 FR 
77,854 at 77,860.
    \38\ See discussion of DOT Orders requiring such divestitures in 
the public interest. 75 FR 7306 at 7308.
    \39\ The Port Authority of New York and New Jersey commented 
that slot interests are licenses, not Federal property. We need not 
address, in this Notice, the Port Authority's arguments in this 
regard.
---------------------------------------------------------------------------

    There is no definitive judicial holding that slots are ``property'' 
subject to the Takings Clause.\40\ In any event, a slot interest is 
substantially fettered and encumbered by FAA requirements, as explained 
above, and therefore a holder does not have the attributes of an 
unfettered right to ``use the property, receive income produced by it, 
and to exclude others from it'' as a tenant by entirety does under 
Michigan State law. United States v. Craft, 535 U.S. 274, 282 (2002). 
Rather, a carrier's use of a slot interest is subject to FAA minimum 
utilization requirements and any right to ``exclude others'' is subject 
to FAA operational control, withdrawal rights, and congressional 
directives.
---------------------------------------------------------------------------

    \40\ The United States Court of Appeals for the First Circuit 
held that it ``need not decide [whether slots constituted part of a 
bankrupt carrier's estate].'' In re Gull Air, 890 F.2d 1255, 1261, 
1262 fn. 8. Unlike the situation in Ruckleshaus v. Monsanto, 467 
U.S. 986, 1002-1003 (1984), where the Court determined that 
intangible property (a trade secret) exhibited characteristics of 
more tangible forms of property, slots lack many of those 
characteristics. For example, there is no state law recognizing a 
slot interest as a property right, as was the case in Monsanto. 
Additionally, unlike the cases relied on in Monsanto, a slot 
interest does not convert the carrier to the position of a creditor, 
such as a mechanic's lien does to a contractor, in Armstrong v. 
United States, 364 U.S. 40 (1960); or a mortgage to a bank 
mortgagee, in Louisville Joint Stock Land Bank v. Radford, 295 U.S. 
555, 596-602 (1935). Nor is a slot interest a contract subject to 
the Takings Clause as a war risk insurance contract is to a 
beneficiary, in Lynch v. United States, 292 U.S. 571, 579 (1934).
---------------------------------------------------------------------------

    Further, we disagree with petitioners' claims that the conditions 
on the waiver do not serve the government interest and are tantamount 
to ``extortion.'' Nollan v. California Coastal Commission, 483 U.S. 
825, (1987).\41\ Our grant of the waiver permitting the petitioners to 
proceed with the slot interest transaction, subject to slot 
divestitures to new entrant and low-cost carriers, substantially 
advances the FAA's legitimate objectives of more efficient use of 
constrained airspace and of fostering airline competition at airports. 
A ``broad range of governmental purposes and regulations satisfies'' 
the requirements for considering a condition to a waiver as 
substantially advancing a governmental interest. Nollan at 834-35. 
Accordingly, we find that the conditions to the waiver do not deprive 
petitioners of property without just compensation.
---------------------------------------------------------------------------

    \41\ Nollan struck down, as an unlawful ``taking,'' a State 
condition on a building permit to replace a small beachfront 
bungalow with a larger house with a public easement across the 
beach. The Court held that the permit condition did not 
substantially advance legitimate State interest related to land-use 
regulation. The Court did find, however, that a legitimate permit 
condition would have been a height limitation, a width restriction, 
or a ban on fences. 483 U.S. at 836.
---------------------------------------------------------------------------

    Even assuming slots are property for purposes of the Takings 
Clause, the divestiture as a condition to the FAA waiver simply 
regulates the carriers' use of the slot interests and does not 
constitute a taking. The Supreme Court has identified several factors 
for consideration of when a government taking has occurred under the 
Fifth Amendment: ``The character of the government action, its economic 
impact, and its interference with reasonable investment-backed 
expectations.'' See Penn Central Transportation Co v. New York City, 
438 U.S. 104, 125 (1978) (City Landmarks Preservation Commission 
disapproval of construction of a 50-story office building over Grand 
Central Terminal held not to be a ``taking'' of the owners' right to 
exploit the superadjacent airspace).
    Here, our waiver condition of slot divestiture would constitute a 
regulatory, not a takings, action.\42\ By conditioning the transfer of 
a large portion of slot interests on the sale of some of the slot 
interests, the FAA effectively is regulating the ability of the 
petitioning carrier to transfer slot interests in a manner that results 
in unreasonable industry concentration. Divesting some slot interests 
to petitioners' competitors will ensure that the traveling public does 
not experience a degradation of fares, service or routes at the 
affected airports.
---------------------------------------------------------------------------

    \42\ Lingle v. Chevron U.S.A. Inc., 554 U.S. 528 (2005), cited 
by Continental for a takings test, is not apposite. That case 
reversed and remanded the Ninth Circuit Court of Appeals' holding 
that a Hawaii statute which responded to concerns of oil companies' 
market concentration by limiting the rent that oil companies charged 
to dealers, effected an unlawful taking.
---------------------------------------------------------------------------

    With respect to reasonable investment-backed expectations, carriers 
have been on notice for decades that the FAA has considered slots to be 
an operating privilege not a property right. 14 CFR 93.223(a). As 
discussed above, not only have the FAA regulations been clear about the 
tentative nature of slots and the duration of slot interests, the FAA 
retired the slot system at Chicago O'Hare airport in 2008. 14 CFR Part 
93, Subpart B, Congestion and Delay Reduction at Chicago O'Hare 
International Airport, Sec.  93.21(e). In AIR-21 (2000), Congress 
legislated a phase-out of the HDR at the New York airports and at 
O'Hare. Accordingly, the carriers and those banks and financing firms 
holding slots as collateral were aware of the FAA/Congress' right to 
change the slot system, withdraw slots, etc. The Securities and 
Exchange Commission filings recognize the Federal encumbrances to slot 
holdings.\43\ Consequently, the ability of the FAA to condition the 
waiver allowing the transfer of massive amounts of slots on 
divestitures of a small percentage is a ``burden we all must bear in 
exchange for `the advantage of living and doing business in a civilized 
community.' '' Monsanto, 467 U.S. 986, 1007.
---------------------------------------------------------------------------

    \43\ See, for example, America West Holdings Corporation Form 
10-K for the Fiscal Year Ending December 31, 2003 (at 11):
    At New York City's John F. Kennedy International Airport and 
LaGuardia Airport, and at Washington DC's Ronald Reagan National 
airports, which are designated ``High Density Airports'' by the FAA, 
there are restrictions on the number of aircraft that may land and 
take-off during peak hours. At the New York airports, slot 
restrictions are abolished after January 1, 2007. In the future 
these takeoff and landing time slot restrictions and other 
restrictions on the use of various airports and their facilities may 
result in further curtailment of services by, and increased 
operating costs for, individual airlines, including AWA, 
particularly in light of the increase in the number of airlines 
operating at such airports. In general, the FAA rules relating to 
allocated slots at the High Density Airports contain provisions 
requiring the relinquishment of slots for non-use and permit 
carriers, under certain circumstances, to sell, lease or trade their 
slots to other carriers. All slots must be used on 80% of the dates 
during each two-month reporting period. Failure to satisfy the 80% 
use rate will result in loss of the slot which would revert to the 
FAA and be reassigned through a lottery arrangement.
---------------------------------------------------------------------------

    Because we may condition the grant of the waiver, and the 
conditions do not effect a ``taking'' of ``property,'' we disagree with 
petitioners' contention

[[Page 26329]]

that the conditions adversely affect the asserted ``just compensation'' 
to be derived from their slot interests under United States v. 50 Acres 
of Land, 469 U.S. 24, 29 (1984). In any event, the process we will 
institute provides for the sale of the slot interests, subject to 
certain rules to maintain competition, for a bundle of slot interests.

The FAA May Condition the Waiver on DCA Slot Interest Divestitures

    The petitioners assert that we have no jurisdiction over the DCA 
slot interest sale by Delta and purchase by US Airways, because the 
High Density Rule permits an unfettered sale of slots at DCA. They 
claim a forced divestiture of DCA slots conflicts with the HDR.
    As we explained in the Notice, we find that the slot swap between 
US Airways and Delta at both LaGuardia and DCA are a single 
transaction, such that the LGA purchase and sale would not occur 
without the DCA purchase and sale. Accordingly, we review both 
transactions as part of a single, unified transaction and may condition 
our waiver to the LGA Order on divestitures of slots at both airports.
    In the petition before us, the carriers seek a waiver from the buy-
sell prohibition in the LGA Order for the purpose of exchanging slot 
interests at both LGA and DCA airports. We are not ``bound by legal 
formalisms'' in discharging its duty but instead will ``take account of 
the economics of the transaction under investigation.'' See Reves v. 
Ernst & Young, 494 U.S. 56, 61 (1990); The Shoshone Indian Tribe of the 
Wind River Reservation, Wyoming v. United States, 58 Fed. Cl. 77, 86 
(2003) (``must examine the underlying economic reality'' of the 
transaction).
    The fact that the slot swap concerns two airports does not compel 
us to segregate the transactions; rather, it is clear that the 
transactions are contingent on each other. The joint application of US 
Airways and Delta, filed August 24, 2009, before the U.S. Department of 
Transportation for approval of the transfer of U.S.-Brazil frequencies 
is expressly termed ``contingent joint application,'' made dependent on 
completion of the Mutual Asset Purchase and Sale Agreement, which 
involves the slot interest transfer at issue here. As stated in the 
joint application:

    The Joint Applicants are submitting this application on a 
strictly contingent basis. The proposed transfer of the Joint 
Applicants' U.S.-Brazil frequencies is part of the larger 
transaction described herein. The Joint Applicants will proceed with 
the larger transaction only if all transaction components * * * 
occur. (Joint application, fn. 2).

The joint application explains that the larger transaction includes the 
swap of the slot interests at both LaGuardia and Reagan National 
airports:

    The [Mutual Asset Purchase and Sale] Agreement further involves 
the transfer of certain slots and real estate at LaGuardia Airport 
to Delta from US Airways, and the transfer of slots from Delta to US 
Airways at Reagan Washington National Airport, allowing the Joint 
Applicants to expand their respective operations at these points.'' 
(Joint application, at 2-3).

In such a situation, the agreements concerning each airport constitute 
``a single actual transaction.'' See SEC v. M&A West, Inc., 583 F.3d 
1043, 1052-3 (9th Cir. 2008) (holding that the ``existence of multiple 
agreements bears little effect when the agreements collectively 
constitute a single transaction.'') The fact that the slot purchase and 
sale agreements at both DCA and LGA were entered into simultaneously 
and were linked together creates a necessary nexus between the 
agreements for purposes of conditioning our approval of the petition on 
certain remedies. Shoshone Indian Tribe, 53 Fed. Cl. at 88-89. Further, 
considering the DCA and LGA slot swaps as a single transaction 
justifies the remedies at both LGA and DCA, which effectuate the 
statutory goal of maximizing competitive opportunities for airlines and 
assuring that the traveling public receives the service and fare 
benefits provided by competitive airline service.

The Proposed Transaction Would Lead to a Reduction in Competition at 
DCA and LGA

    In their filings, US Airways and Delta have not challenged the 
calculations stated in the Notice that, if the transaction were 
approved as proposed, the proportion of US Airways' share of slots and 
departures at DCA, and Delta's share of slots and departures at LGA, 
would increase substantially. DOT had calculated that US Airways' share 
of slot interests at DCA (including regional affiliates) would increase 
from 44% to 54%, and its share of departures would increase from 47 to 
58%. Similarly, DOT's calculations for Delta's share of slot interests 
at LGA, including affiliates, would rise from 24 to 49%, and its share 
of departures would rise from 26 to 51 percent. In both cases, the 
increases would have the effect of making US Airways by far the 
dominant carrier at DCA, and Delta by far the dominant carrier at LGA.
    Rather than challenging the calculations of concentration, the 
carriers argued that the Notice fails to articulate the level of 
concentration that causes concern.
    The common metric used in antitrust analysis for market 
concentration levels is the Herfindahl-Hirschman Index, (HHI).\44\ 
Under the Horizontal Merger Guidelines issued by the U.S. Department of 
Justice and the Federal Trade Commission, transactions that increase 
the HHI by more than 100 points in concentrated markets (concentrated 
markets are defined as those in which the HHI is in excess of 1800 
points) presumptively raise antitrust concerns. In its comments to the 
docket in this case, the United States Department of Justice stated 
that it had calculated that, if the transaction were approved as 
proposed, the HHI at will increase at LGA by 600 from 2394 to 2994, and 
at DCA will increase by 626 from 2756 to 3382.\45\ Under the 
Guidelines, such increases in highly concentrated markets are 
presumptively likely to create or enhance market power or facilitate 
its exercise.\46\
---------------------------------------------------------------------------

    \44\ The HHI for a particular market is calculated by squaring 
the market share of each firm competing in the market and then 
summing the resulting numbers. The HHI takes into account the 
relative size and distribution of the firms in a market and 
approaches zero when a market consists of a large number of firms of 
relatively equal size. The HHI increases both as the number of firms 
in the market decreases and as the disparity in size between those 
firms increases. See U.S. Department of Justice and Federal Trade 
Commission, Horizontal Merger Guidelines.
    \45\ Comments of the United States Department of Justice, March 
24, 2010, p. 5.
    \46\ U.S. Department of Justice and Federal Trade Commission, 
Horizontal Merger Guidelines Sec.  1.51 (1992).
---------------------------------------------------------------------------

    As the methodology for the calculation of the HHI indicates, it is 
not simply the market share of the largest competitor that raises 
potential competitive concerns, but its magnitude relative to the 
market shares of others. As the Notice pointed out, if the transaction 
were approved as submitted, at DCA US Airways would become three times 
the size of its closest competitor, while at LGA, Delta would become 
two-and-one-half times the size of its closest competitor. (Moreover, 
LGA would transition from an airport with three competing carriers of 
similar size to one with a single dominant carrier.) As also cited in 
the Notice, carriers with relatively weak minority positions have 
limited abilities to exert competitive pressure and discipline the 
fares of the dominant carriers, a point that neither US Airways nor 
Delta chose to dispute.
    In its comments, the Department of Justice concurred with our 
tentative view of the increased concentration levels. It emphasized 
another important point--that the transaction would

[[Page 26330]]

reduce competition between US Airways and Delta: \47\
---------------------------------------------------------------------------

    \47\ DOT calculates that at DCA there would be a sharp decrease 
in service by Delta, reducing it from a major competitor on DCA 
routes with US Airways to one holding fewer than 5.5% of the O&D 
passengers. Similarly, at LGA US Airways' share of O&D passengers 
would fall to just 6 percent. In these cases, we fear that the 
diminished presence of Delta at DCA and of US Airways' at LGA will 
lessen their abilities to competitively price their remaining 
flights at the respective airports.

    The transaction also will reduce competition between Delta and 
US Airways at DCA and LGA. US Airways and Delta are principal rivals 
at the airports. Post transaction, however, Delta will shrink 
substantially at DCA, reducing its ability to compete effectively 
with US Airways. Similarly, US Airways will shrink substantially at 
LGA, reducing its ability to compete effectively with Delta.'' \48\
---------------------------------------------------------------------------

    \48\ Comments of the United States Department of Justice, March 
24, 2010, p. 4.

While not an issue directly addressed in the HHI, DOT believes that, as 
a general rule, in the aviation industry more competitive pressure and 
pricing discipline can be exerted by low-cost carriers than by 
incumbent legacy carriers. This view is supported by the Department of 
Justice,\49\ as well as in the academic literature cited in the Notice 
and by DOJ in its Appendix A. At both LGA and DCA the second largest 
carrier would be the legacy carrier American Airlines. Moreover, low-
cost carriers have only a very limited presence at both airports, with 
a 3.3% share of slot interest holdings at DCA \50\ and a 6.8% share at 
LGA, and they face substantial barriers to increasing their presence, 
because entry to both airports is governed by slot regimes. As stated 
in the Notice, studies indicate that entry by low-cost carriers 
dramatically lowers fares and increases the volume of passengers in a 
market,\51\ a point reinforced by Southwest's assertion in its comments 
that, were it to operate the slots to be divested, empirical data 
indicated that it would annually carry more than 340,000 additional 
passengers to and from each of the two airports and that its fares 
would average 33% lower than Delta's average fare at LGA and 49% lower 
than US Airways' average fare at DCA.\52\
---------------------------------------------------------------------------

    \49\ See Comments of the United States Department of Justice, 
Appendix A.
    \50\ If the temporary slots interests acquired by JetBlue from 
American were included, the LCC percentage at DCA would rise to 5.2 
per cent.
    \51\ Notice, p. 12.
    \52\ Comments of Southwest Airlines Co., p. 11-12.
---------------------------------------------------------------------------

    In addition, the Department of Justice, in its comments, stated 
that Delta has, in the past, assumed inconsistent positions on the 
competitive effects of slot shares and concentrations at DCA and LGA:

    During Delta's bankruptcy three years ago, US Airways considered 
acquiring Delta. Delta resisted US Airways' overtures, arguing that 
the merger would cause competitive harm at DCA and LGA. At that 
time, Delta argued that slot shares resulting from the merger levels 
that are approximately the same as the shares that would result from 
the present proposed transaction raised substantial competitive 
concerns. Delta's current position is precisely the opposite.\53\ 
[citations omitted].
---------------------------------------------------------------------------

    \53\ Comments of the United States Department of Justice, March 
24, 2010, p. 5, n.8, citing Hearing on the State of the Airline 
Industry: The Potential Impact of Airline Mergers and Industry 
Consolidation Before the S. Comm. on Commerce, Science and 
Transportation, 110th Cong. (Jan. 24, 2007) (testimony of Gerald 
Grinstein, CEO of Delta Air Lines) (``The combined carrier would 
overwhelming [sic] dominate at these unique airports with restricted 
entry due to slot controls * * * At Washington National, a merged US 
Airways-Delta would operate nearly four times more slots as its next 
largest competitor * * * At New York-LaGuardia, the combined carrier 
would operate almost twice as many slots as the next largest 
competitor * * *.'').

Although US Airways and Delta questioned the concern expressed in the 
Notice regarding the potentially anticompetitive effects resulting from 
increased airport concentration levels, they nonetheless offered a 
counterproposal under which they would voluntarily divest 15 slot pairs 
at LGA and 4.5 slot pairs at DCA. The slot pairs would be divested to 
four different carriers that were eligible under the terms of the 
Notice, with no carrier receiving more than 5 slot pairs.
    The carriers have not demonstrated that these voluntary 
divestitures should or would reasonably assuage the competitive 
concerns we expressed in our February 9 Notice. In particular, the 
divestiture of only 4.5 pairs of slots at DCA--where the Notice clearly 
indicated there were serious concentration and competition concerns--
and the inability of the four low-cost beneficiaries to mount their own 
competing service in the near-term were disappointing elements to the 
counterproposal. As discussed more fully below, we conclude that the 
counterproposal falls significantly short of what we believe the 
minimum levels of divestiture must be to adequately protect the public 
interest.

Our Concerns About Potential Anticompetitive Harm are Well-Founded and 
Fully Justifiable

    In the Notice, we set out concerns that US Airways and Delta could 
increase the number of markets they serve on a monopoly or dominant 
basis, and that consumers at these airports may be harmed by the loss 
of nonstop service, the loss of a nonstop competitor, or the transfer 
of nonstop monopoly service to a more dominant carrier.
    We also tentatively concluded that the proposed transaction was 
likely to result in higher fares for consumers in certain domestic 
markets, as the carriers could rely on their increased dominance to 
maintain or enhance their premium fare structure in markets served at 
both airports. Furthermore, we expressed concerns that because slot 
restrictions at both airports substantially hinder proportional 
increases in competition by other carriers, higher fares could be 
sustainable due to the carriers' increased market power at both 
airports.
    In reaching these tentative conclusions, we relied on statistical 
information indicating that US Airways and Delta already charge higher 
relative fares where they operate monopoly or dominant routes from 
airports where they have a strong presence, such as DCA and LGA. That 
information included relating US Airways' and Delta's average fares at 
DCA and LGA to the Standard Industry Fare Level (SIFL), a cost-based 
index that we have used historically to assist in its evaluation of 
pricing. That information indicated that the average fares charged by 
US Airways at DCA and Delta at LGA substantially exceeded not only the 
average fares at the other DC-area and NYC-area airports, but of the 
largest carriers at each of those airports.
    It is telling that US Airways and Delta have not urged in response 
that their fares are at or below averages, nor provided data showing 
that they do not utilize their pricing power to charge premium fares in 
markets that they dominate. Rather, they asserted that FAA's concerns 
about potential anticompetitive actions were mere speculation, as we 
did not point to specific instances of harm; argued that the SIFL was 
effectively obsolete as a useful measure of cost; and urged that the 
benefits of the transaction, which they assessed at $44.3 million less 
in consumer costs for travel on affected routes and $153 million if 
increased flying due to improved connectivity and service were 
included, would outweigh the conceivable harms.
    As to the concerns about harm in specific markets, those concerns 
are real and demonstrable. If the transaction is consummated as finally 
proposed, Delta plans to withdraw from a number of DCA nonstop routes 
on which it competes with US Airways, and US Airways plans to withdraw 
from other LGA nonstop routes on which it competes with Delta. Unless 
new service is instituted by carriers other than DL and US, these 
routes will

[[Page 26331]]

become new monopoly routes for the remaining carrier.
    Moreover, at various other communities US Airways will depart 
markets at which it is the sole or dominant provider of LGA nonstop 
service, and Delta will enter those same markets and become the sole or 
dominant provider of service. At several more, Delta will depart a 
market at which it is the sole provider of DCA nonstop service, and US 
Airways will enter that same market and become the sole provider of 
such service. While replacing one dominant carrier with another in a 
market might at first glance seem to have a neutral overall impact, 
such a conclusion would ignore the greater economic dominance that the 
succeeding carrier would have as a result of the transaction. Although 
the carriers plan to add nonstop service to a number of new 
communities, that service is likely to be provided on a monopoly basis 
and as a result can be priced at a premium. As discussed also below, 
there is no assurance that such service will continue for the longer 
term. Delta has already notified the airport at Roanoke, VA that it 
does not plan to continue its service from that airport to LGA, leaving 
that community without any nonstop service to New York City airports, 
and its intentions for service to other Virginia communities has also 
been questioned.\54\
---------------------------------------------------------------------------

    \54\ Letter of March 25, 2010 from Jim Webb and Mark Warner, 
United States Senators from Virginia, to DOT Secretary Ray LaHood, 
Docket FAA 2010-0109.
---------------------------------------------------------------------------

    While some of the consumer benefits cited in support of this 
transaction may prove to be short-lived, the consequences of carrier 
dominance, if not effectively remediated, will likely be more 
persistent. In this regard, DOJ noted that:

    The FAA has concluded that the increased concentration resulting 
from the transaction will lead Delta and US Airways to `rely on 
their increased dominance to maintain or enhance their premium fare 
structure in markets served at both airports' [citing the Notice at 
7,309]. This is consistent with an extensive body of empirical work 
finding that airport concentration is associated with higher 
fares.\55\

    \55\ Comments of the United States Department of Justice, March 
24, 2010, p. 6-7.

---------------------------------------------------------------------------
    DOJ also asserted that:

    The parties' transaction will make LCC entry at LGA and DCA less 
likely, depriving consumers of the lower fares and vigorous 
competition that LCCs bring to the marketplace. It will increase the 
share of slots held by Delta and US Airways, giving them more 
revenue and profits at risk due to entry, more markets for which it 
will be in their interest to forestall entry, and thus, less 
incentive to sell or lease slots to a potential entrant.\56\
---------------------------------------------------------------------------

    \56\ Id., p. 4.

---------------------------------------------------------------------------
    And also:

    LGA and DCA slots are highly concentrated in the hands of Delta 
and US Airways, both of which have little incentive to sell or lease 
slots to other carriers that would compete with them.
* * * * *
    [C]oncern about LCC entry is especially great at DCA and LGA, 
where limited LCC presence and slot controls protect high fares for 
incumbent carriers.\57\
---------------------------------------------------------------------------

    \57\ Id., pp. 8-9.

    As noted above, in the Notice we had provided data to the effect 
that US Airways maintained an average fare that was high relative to 
SIFL at DCA. The carriers challenged the use of SIFL in this context, 
arguing that it was calibrated to regulate airline fares in the 1970's, 
has limited current use, fails to control for certain factors, and is 
biased in favor of longer routes at the expense of shorter ones.\58\
---------------------------------------------------------------------------

    \58\ Any bias that may exist between long-haul and short-haul 
markets, as argued by the parties, does not apply to the SIFL 
analysis used in this case, which is based on average passenger trip 
length at each of the three Washington or New York airports (which 
are all in excess of 500 miles).
---------------------------------------------------------------------------

    A mileage cost-based fare benchmark, SIFL is calculated every 
quarter based on airline operating costs reported to DOT by 17 major 
airlines (composed of 6 legacy, 4 LCCs and 7 other carriers).\59\ Far 
from being obsolete, as the parties suggest, SIFL has been utilized by 
the Internal Revenue Service, the Government Accountability Office, the 
Department, other government agencies, the airline and airline 
consulting industries, and academics for fare analysis for many years. 
More importantly, the results achieved in our SIFL-based analysis 
mirror those of other tests.
---------------------------------------------------------------------------

    \59\ These costs are reported to DOT in ``Form 41 Financial 
data'' by certificated air carriers as a condition of their holding 
a U.S. air transport certificate of public convenience and 
necessity. U.S. air carriers submit these data accompanied by sworn 
statements attesting, under penalty of law, as to the accuracy and 
timeliness of the data.
---------------------------------------------------------------------------

    The first of these other tests of airport fare rankings is found in 
our ``Domestic Airline Fares Consumer Report,'' which is published 
quarterly. Table 7 of this report currently contains average fare 
premiums for 121 city markets, sorted by fare premium percentages in 
descending order. For the Third Quarter 2009, DCA ranks number 3 with a 
27.7% fare premium, while LGA appears as number 16 with a percent fare 
premium of 9%. These fare premium calculations include distance and 
density adjustments, and clearly substantiate our concern that DCA and 
LGA are high-fare airports--even before the additional concentration 
and resultant increase in pricing power that would result from the 
carriers' proposed transaction.
    Furthermore, an analysis of comparative yields--also discussed in 
the Notice, but in the context of comparing the three DC and three NYC 
airports--produced the same conclusions. We found that the average 
yield (i.e., revenue per passenger mile) in all markets at BWI is 48% 
less than DCA, and the average yield in all markets at Dulles is 37% 
less than DCA.\60\ Similarly, the average yield at JFK is 28% less than 
at LGA, and Newark is 9% less than at LGA.\61\ Moreover, using mileage-
based calculations that should allay the carriers' concerns about long-
haul bias in the SIFL figures, we determined that for trips out to 
1,000 miles, passengers at LGA pay 23% more on average than those at 
JFK ($147 vs. $120 each way), while passengers at DCA pay 64% on 
average more than those at BWI ($184 vs. $113 each way).\62\
---------------------------------------------------------------------------

    \60\ Yield at DCA is 27 cents per mile, vs. 17 cents at Dulles 
and 14 cents at BWI.
    \61\ Yield at LGA is 20.5 cents per mile, vs. 18.7 cents at EWR 
and 14.7 cents at JFK.
    \62\ These differences in the level of yields at area airports 
tended to correlate with the level of low cost carrier operations. 
Passengers pay more for nonstop service of equivalent distance at 
DCA and LGA than at alternative airports that have sizable LCC 
competition.
---------------------------------------------------------------------------

Market Analysis Confirms the Reasonableness of Our Concerns on Fares

    A review of both US Airways' and Delta's historical pricing in 
similar markets indicates that absent the opportunity for additional 
competition afforded by slot divestiture, consumer savings at DCA and 
LGA as a result of this transaction would be negligible. In assessing 
US Airways' and Delta's claims as to potential consumer savings that 
would arise as a result of the proposed transaction, we considered 
materials presented by US Airways that provided base period and 
forecast period estimates of market total passengers, projected load 
factors, and other data. We compared the forecasted fares against US 
Airways' historical pricing in comparable markets,\63\ and given their 
poor correlation we believe

[[Page 26332]]

the forecasts understate the average fares likely to actually prevail 
longer term in the particular markets. It may be that the prospective 
fares listed in the document are introductory fares, or other short-
term or promotional fares. In any event, given the divergence between 
these claimed fares and US Airways' historic pricing, we were unable to 
corroborate US Airways' claims of savings in the DCA market. Rather, 
projecting the historic pricing trends, it is reasonable to assume that 
US Airways at DCA would, especially over time, utilize its increased 
pricing power to exact premium fares in many of the markets impacted by 
the transaction.
---------------------------------------------------------------------------

    \63\ In this, we compared the existing average fares from the 
O&D with the Standard Industry Fare Level (SIFL) metric fare for 
each of 39 DCA markets and stratified the markets based on US 
Airways' market share, into monopoly, dominant, competitive, and 
non-competitive markets. These results provided a measure against 
which US Airways' forecast fares were compared to their historical 
pricing performance and against the SIFL metric.
---------------------------------------------------------------------------

    We did not have a similar document from Delta that projected its 
fares in each proposed market.\64\ However, in order to assess the 
potential impact of Delta's pricing policies on the traveling public we 
also examined probable Delta fares based on the carrier's historic 
pricing performance at LGA.\65\ As with DCA, we were unable to 
corroborate the carrier's claims of potential consumer savings and, as 
with DCA as well, the data indicated a likelihood that, especially over 
time, Delta would utilize its pricing power to exact premium fares in 
many of the markets affected by the transaction.
---------------------------------------------------------------------------

    \64\ DOT did request that Delta provide any documents it had 
that were equivalent to what US Airways had provided, but the number 
of markets for which they were able to offer information was limited 
to 10 out of approximately 36 markets where service is proposed. 
While useful, the limited data prevented the Department from fully 
analyzing the level of forecast fares and required the Department to 
independently review Delta's apparent pricing strategies in the 
markets.
    \65\ Staff calculated passenger-weighted average fares that 
reflected Delta's historic pricing in their existing markets, with 
which they estimated, together with other data (such as currently 
prevailing fares in the market and information on the competitive 
environment to be expected in the market) likely Delta fare ranges 
as a percent of SIFL in various city-pair markets. Of particular 
importance in this assessment was consideration for Delta's future 
potential market share and the competitive position that would 
enhance or diminish Delta's pricing power.
---------------------------------------------------------------------------

    Even if greater support might be mustered for the carriers' claims 
of consumer cost savings, we compared those claims with the savings 
that might occur under a divestiture scenario. Based upon an analysis 
conducted by the Department of Justice,\66\ we are persuaded that 
additional LCC presence at an airport is associated with significantly 
lower average fares and higher passenger volumes at that airport and 
consequently greater public benefit from competition.\67\
---------------------------------------------------------------------------

    \66\ Here, we placed reliance on an analysis conducted by the 
Department of Justice, which found that 10 extra percentage points 
of low-cost carrier share at an airport reduces on average the 
airport-wide price premium or discount by 4 to 9 percentage points, 
and increases the total number of passengers at the airport by 7.7 
to 14.8%, depending on the sample used.
    \67\ DOJ Appendix A at A-7.
---------------------------------------------------------------------------

    Moreover, there is convincing evidence, also based upon the 
Department of Justice findings, that as additional LCC presence grows 
at an airport over time, it is associated with large and statistically 
significant price decreases and passenger volume increases at that 
airport.\68\ This demonstrates precisely why the divestiture of slots 
to LCC's can ameliorate the competitive concerns raised by the 
applicants' proposed transaction.\69\
---------------------------------------------------------------------------

    \68\ Their analysis showed, for example, that as LCC presence at 
an airport increases by 20 percentage points (from zero to 20%, 
say), the average airport-wide fare premium falls by an average of 8 
to 18 percentage points, depending on the sample of airports 
examined. Similarly, a 20 percentage point increase in LCC presence 
is associated with a 15 to 30% increase in the number of passengers 
at that airport.
    \69\ Id. at A-6.
---------------------------------------------------------------------------

The Three DC Area and Three NYC Area Airports Are Not 
``Interchangeable''

    In our February Notice, we tentatively found that other airports in 
the New York and Washington, DC areas did not significantly impact the 
ability of carriers to exert pricing power at LGA and DCA, 
respectively. US Airways and Delta dispute this conclusion and 
maintain, as a key element in support of their application, that the 
three major metropolitan airports in Washington, and the three major 
metropolitan airports in New York, respectively constitute single 
product markets, implying that if fares were perceived to be rising too 
high at one airport, the harm would be mitigated by consumers simply 
shifting to the other two. Their argument heavily relied on a study 
performed on their behalf by Compass/Lexecon, entitled ``Analysis of 
Relevant Airport Groupings,'' which was submitted to the docket. The 
study addressed ``whether the relevant origin (destination) points in 
New York and Washington are individual airports or groups of airports 
that passengers are willing to use interchangeably.''
    While the study never concluded per se that the airports were 
``interchangeable,'' it concluded that there were ``statistically 
significant relationships between fares at the three major New York 
airports, and separately, between fares at the three major Washington 
area airports * * * [indicating] that fares at each airport * * * are 
affected by competitive conditions at the other airports'' in the same 
metropolitan area.\70\
---------------------------------------------------------------------------

    \70\ US Airways and Delta also asserted that the Department of 
Transportation and the Department of Justice have effectively 
treated the three Washington area airports as economic substitutes, 
Comments of Delta and US Airways at p. 34 and 35. With regard to 
DOT, they cited Order 2006-6-17 (June 12, 2006) as evidencing such a 
position. In that case, three applicants competed for an award of 
two slot exemptions at DCA to serve a community within the 1,250-
mile perimeter. DOT found the case to be ``extremely close'' between 
Comair's proposal to serve Savannah and US Airways to serve Sarasota 
Bradenton, as each satisfied two of the statutory criteria and 
offered similar benefits to the respective communities. In weighing 
the advantages and disadvantages of the proposals, we ultimately 
selected the US Airways proposal because the population in the 
Sarasota MSA was larger than Savannah's, US Airways' proposal 
included a right-sizing of aircraft to reflect the seasonality of 
the Sarasota market, and Savannah had better access to the 
Washington area with three nonstops to IAD versus Sarasota's one to 
BWI. In no way was the Department by doing so stating or implying 
that service between DCA, IAD and BWI was interchangeable. Order 
2006-6-17 at 7, 8. With regard to DOJ, Delta and US Airways cited a 
DOJ 2001 press release and a 1996 speech by an Assistant Attorney 
General. In these instances concerns were raised about prospective 
transactions that would increase concentration by carriers at DC-
area airports. Again, these did not state that the airports were 
economic substitutes for one another. DOJ's position on the issue is 
clearly set forth in its filings in this matter, which support DOT's 
proposed action.
---------------------------------------------------------------------------

    We have both reviewed the Compass/Lexecon study, as well as 
comments offered to the docket on this issue, and we are confident in 
concluding that, while fares at one of the three DC-area or NYC-area 
airports can exert a minor influence on fares at the others in some 
markets, it is quite clear that the airports are not economic 
substitutes. We further conclude that the presence of less costly 
service alternatives from BWI and IAD in Washington and EWR and JFK in 
New York are not sufficient to mitigate the harm to consumers that can 
occur from significantly reduced competition at DCA and LGA.
    The Compass/Lexecon analytical approach was to compare fare trends 
over time between the three New York and three Washington area airports 
and common destinations. They found them to be systematically linked 
over time, such that a change in fare levels at one New York airport is 
associated with an increase in the fare at other area airports. From 
these observed ``price linkages'' they concluded that the New York and 
Washington area airports are ``commonly accepted to be substitutes.''
    We believe the methodology of the study was flawed in a number of 
fundamental respects. Most significantly, while the study claimed a 
relationship in the movement of fares, it effectively admitted that the 
degree of relationship in the actual level of fare change was small. 
The results indicated

[[Page 26333]]

that an increase in the fares at one New York airport of 10% is 
associated with an increase in the fare at another New York airport of 
only about 2.8%. At Washington, the corresponding figure was only 2.1%. 
If the major New York and Washington airports are ``economic 
substitutes,'' as the authors contended, that appears to be at odds 
with the fact that a price change at one would produce a change at the 
others of only one quarter or one fifth as much.\71\
---------------------------------------------------------------------------

    \71\ The study also failed to control for changing macro or even 
regional economic trends. Moreover, in testing whether common 
airport markets are competitive, reliance should not be made simply 
on changes in fare trends alone over time, but rather should also 
examine whether passenger levels at each airport pair responds to 
changes in price over time at other area airport pairs in the same 
city-pair market. Finally, the study attempts to show that 
populations in the New York and Washington areas are dispersed in 
such a manner that many could drive roughly equal distances to 
``competing'' airports. However, in doing so it failed to reflect 
the drive time effects of congestion, or differences in the 
availability or cost of parking, accessibility to mass transit and 
airport amenities, although these factors clearly alter the 
practical substitutability (cost/value to consumers) of different 
airports to consumers.
---------------------------------------------------------------------------

    Also, in its comments the Department of Justice expressed criticism 
of the Compass/Lexecon study, observing that the study failed to define 
the level of correlation in fares that would place the airports in the 
same relevant market, such that market power could not be exercised at 
DCA (or LGA) independently of BWI and IAD (or JFK and EWR).\72\
---------------------------------------------------------------------------

    \72\ It is not surprising that there is some correlation among 
fares at nearby airports, and more correlation than one would find 
among three random airports. DOJ asserted that such correlation 
alone does not show whether fares at DCA or LGA are constrained by 
fares at nearby airports.
---------------------------------------------------------------------------

    However, given the issues raised by the Compass/Lexecon analysis, 
we also independently 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. Comparative yields, Standard 
Industry Fare Levels, and Fare/Demand data were all studied for the DC 
and New York airports. In our review of each of these metrics, we found 
that for a large portion of passengers, especially time-sensitive 
passengers in each respective metropolitan area, the New York and 
Washington area airports are not effective substitutes for each other.

a. Yield Analysis

    In analyzing both overlap and all markets at the airports, we found 
that yields (i.e., revenue per passenger mile) were substantially 
different among the airports. Specifically, we found the average yield 
in all markets at DCA is 27 cents per mile, vs. 17 cents at Dulles and 
14 cents at BWI. Similarly, the average yield at LGA is 20.5 cents per 
mile, vs. 18.7 cents at EWR and 14.7 cents at JFK. If the airports were 
effective economic substitutes for all passengers, we would expect to 
see a greater self-equalizing of yields and the yield spreads would not 
differ so significantly.\73\
---------------------------------------------------------------------------

    \73\ In its comments, United Airlines contended that the 
differentials in yield affecting LGA and DCA may be due simply to 
the added costs of slots and problems with delays. As a general 
point, airline fares are market-based rather than cost-based (as 
evidenced in the variance in SIFL ratios discussed above). However, 
the three Washington and three New York airports largely share the 
same weather, a major cause for delays, and DOT Ontime Performance 
data for the fourth quarter 2009 indicates that delays are more 
common at IAD than DCA or BWI, and more common at EWR than at LGA or 
JFK. (The percentage of delayed flights were 17.7% for DCA, 17.4% at 
BWI, and 19.4% at IAD, as well as 24% for LGA, 198.8% for JFK, and 
29.1% for EWR.). Further, the cost for slots could not explain the 
wide disparity between yields at DCA, IAD, and BWI on one hand and 
LGA, EWR, and JFK on the other. As noted above, DCA's all markets 
yield is 37% above IAD and 48% above BWI, while LGA's comparable 
figure is 8% higher than EWR and 28% higher than JFK. The value of a 
one cent yield difference per quarter on all scheduled passengers at 
DCA is estimated at $28.9 million, and $41 million at LGA--many 
times the value of a slot at those airports.
---------------------------------------------------------------------------

b. Standard Industry Fare Levels

    DOT conducted an analysis of the level of passenger weighted fares 
as a percent of SIFL at Washington and New York City airports to test 
the proposition that fares at these airports are essentially 
undifferentiated. The results are summarized at Appendix B.
    DOT found that the relationship of actual fares to the SIFL fare 
benchmark is very different at the respective area airports. At the 
Washington airports, actual fares are 65% of SIFL at BWI, 77% at IAD 
and 101% at DCA. At New York, the actual fares are 71% of SIFL at EWR, 
57% of SIFL at JFK, and 82% of SIFL at LGA.
    These disparities in weighted fares, consistent with our findings 
on yields, implies that price competition among the airports does not 
appear pervasive enough to discipline individual airport prices and 
thereby eliminate substantial price differentials.

c. Fare/Demand Data

    If the three DC and three NYC airports were economic substitutes, a 
change in the fare levels at one should produce a corresponding change 
in passenger levels both at that airport and the others in its area. 
(One would expect that passengers would book less travel at an airport 
where fares were increased and more travel at the others, if the 
airports were indeed ``competitors.'') \74\
---------------------------------------------------------------------------

    \74\ In order to test this proposition we conducted a time 
series analysis using O&D data for the same period as used in the 
Compass/Lexecon study. The regressions produced correlation 
coefficients (R \2\) for each set of airports that were very low, 
with levels not significantly differentiated from zero--indicating 
the lack of a relationship between fare differences at DCA/LGA and 
traffic differences at the other metropolitan area airports. Even 
when regressions were performed focusing on overlap markets where 
the fare difference between the reference airport market and the 
base airport market were the greatest and where highest fares exist 
at the base airport--where consumers would be most likely to seek 
lower fares by turning to an alternative or substitute airport--the 
correlation coefficients were not substantially differentiated from 
zero.
---------------------------------------------------------------------------

    We found no evidence of any significant substitutability existing 
among New York and Washington area airports. Substantial yield 
disparities and substantial differences in SIFL ratios were found to 
exist among the airports in both common and non-common markets, and 
there were very low levels of correlation between the fare differences 
and the traffic volume differences at the airports.
    The Department of Justice also supported the proposition that most 
passengers do not consider the airports to be interchangeable.\75\ DOJ 
noted that the sometimes significant differences in average fares at 
the various airports, and the high values attached to the slots and the 
carrier's efforts to protect these slots, ``show there is 
differentiation between LGA and DCA and other area airports.'' It 
further observed that ``Although other airports may be acceptable 
substitutes for some passengers (particularly price-sensitive 
passengers) they clearly are not close substitutes for other 
passengers, and competition among carriers at DCA and LGA matters.'' 
\76\
---------------------------------------------------------------------------

    \75\ Although supporting divestment of Delta slots at LGA in 
order to expand opportunities for new entrants and limited 
incumbents in the NYC metropolitan area, the Port Authority of New 
York and New Jersey contended that there were flaws in DOT's 
analysis of airport substitutability and stated that it operates its 
airports to serve one travel region, with each airport having 
overlapping market areas. While market areas may ``overlap,'' that 
does not mean that passengers within the market areas are 
indifferent as to which airport they utilize, or that fares at one 
discipline those at others. We believe the further discussion as 
presented above addresses the Port Authority's other concerns.
    \76\ Comments of the United States Department of Justice, March 
24, 2010, p. 16.
---------------------------------------------------------------------------

    In conclusion, we believe that the evidence presented by the 
parties in support of their contention that Washington and New York 
area airports are effective substitutes is unconvincing. Any low level 
of substitution that may be demonstrated is inadequate to effectively 
discipline prices among the area airports, leaving the traveling public 
vulnerable to high fares arising from lack of competition and high 
market concentration.

[[Page 26334]]

The Reputed Benefits of the Transaction Do Not Mitigate the Potential 
Harms

    The Joint Applicants have asserted that the FAA failed to consider 
the benefits of the proposed transaction, including improvements in 
service and increased competition among the parties. Specifically, the 
Joint Applicants claim that the transaction will result in a more 
efficient utilization of slots and facilities through upgauging of 
aircraft size at both LGA and DCA, thereby increasing throughput and 
competition while reducing congestion and delay. In addition, the Joint 
Applicants argue that the facilities transfer will enable Delta to 
create a seamless hub at LGA and will facilitate enhanced competition 
and preserve and enhance small community access at both LGA and DCA.
    By deciding to tentatively grant the waiver as conditioned in the 
Notice, we not only carefully considered these efficiencies, we also 
concluded that they would likely be realized if the transaction were 
implemented as remedied. It is clear from the record in this proceeding 
that the slots at issue in this transaction are currently being used 
sub-optimally and inefficiently, both from the perspective of the 
carriers holding them as well as from the perspective of the public 
interest.
    We concur that the transaction would provide a greater economic 
incentive to both carriers to achieve more efficient utilization of 
slots and facilities at both airports through upgauging aircraft size 
and that that would produce public benefits. However, we also concur 
with the Department of Justice in noting that, ``the parties' benefits 
estimations use incorrect baselines, or `but-for-world,' against which 
to compare their promised capacity and traffic gains.'' \77\ Rather 
than comparing the projected increase in capacity and traffic at 
current levels, the appropriate comparison is against alternatives to 
the current commercial situation faced by US Airways at LGA and Delta's 
planned operations absent the transaction at DCA.\78\ As such, we 
believe that the Joint Applicants have overstated the public benefits 
and understated the potential harms from the transaction. Indeed, in 
many airport-pair markets, the Joint Applicants are merely replacing 
each other's services at the two respective airports. Given that Delta 
and US Airways are currently primary competitors for each other at each 
of these airports, the loss in potential competition in the markets 
they both currently serve is particularly important. In addition, 
Delta's claimed public benefits of creating a hub at LGA are also 
overstated. For example, as Southwest notes, creating a hub at LGA 
would likely necessitate reliance on regional jets, as Delta uses at 
other hubs, potentially eroding the benefits of upgauging. Further, a 
hub at LGA would utilize a significant amount of its scarce capacity to 
accommodate passengers who have no need or desire to be at LGA but are 
only stopping there on a journey elsewhere.\79\
---------------------------------------------------------------------------

    \77\ Reply Comments of the United States Department of Justice, 
April 5, 2010, p 4, footnote 7.
    \78\ Comments of the United States Department of Justice, March 
24, 2010, p. 18.
    \79\ Comments of Southwest Airlines, p. 5.
---------------------------------------------------------------------------

    The Joint Applicants assert that one of the main benefits of the 
transaction is increased or enhanced service to small communities. 
While Delta and US Airways have made public some of their new intended 
services, including service to small communities, the carriers have not 
released all intended service changes and in no way are bound to 
implement any of the proposed services in new markets.\80\ Also, if 
service to small communities with an established history of nonstop 
service to these slot controlled airports is eliminated, while service 
is announced to other small communities with a history of unsustainable 
nonstop service, it is questionable as to whether the proposed service 
is really beneficial to small communities as a whole, or is merely 
beneficial to some small communities at the expense of others.
---------------------------------------------------------------------------

    \80\ Indeed, a market-by-market analysis using the carriers' own 
metrics of proposed services in new markets for Delta at LGA and US 
Airways at DCA gives rise to concern that, in some of the smaller 
markets, some of their services may not be sustainable over the 
longer term.
---------------------------------------------------------------------------

    The Joint Applicants have the flexibility to provide service to 
small communities, even when faced with the proposed remedies, by 
eliminating marginal new frequencies in existing medium and large 
markets and/or by upgauging existing frequencies to release slots to 
allocate to small communities. While there are competitive reasons for 
allocating a set number of frequencies to a particular market, if 
service to smaller communities is as important as the parties contend, 
the carriers will allocate the necessary resources to serve them. In 
fact, despite their threats that small community service is at risk in 
a remedied transaction, the carriers may determine that it is 
financially beneficial to serve small communities at the expense of 
fewer frequencies in larger markets because yields in smaller markets 
are less susceptible to the dilutive effects of LCCs. DOT, on multiple 
occasions, has stated in DCA slot exemption proceedings that US 
Airways, with its large portfolio of DCA slot holdings, has had the 
ability to add new service to smaller communities from DCA, but has 
chosen not to do so.\81\
---------------------------------------------------------------------------

    \81\ See, e.g., DOT Order 2008-2-28 Granting Within-Perimeter 
Slot Exemptions at Ronald Reagan Washington National Airport, 
February 22, 2008, p. 10; and DOT Order 2007-5-12 Granting Within-
Perimeter Slot Exemptions at Ronald Reagan Washington National 
Airport, May 23, 2007, p. 15.
---------------------------------------------------------------------------

    Unless mitigated, the potential harms in the proposed transaction 
are substantial. First, as explained above, the transaction will reduce 
competition between Delta and US Airways and competition from nearby 
airports will not completely offset lost competition between the two 
carriers at DCA and LGA. The Joint Applicants currently compete on a 
number of LGA and DCA nonstop routes and have competed on many others 
in the past. Scheduling plans submitted in the record indicate that 
Delta plans to withdraw from DCA nonstop routes on which it currently 
competes with US Airways, and US Airways plans to withdraw from certain 
LGA nonstop routes where it competes with Delta.\82\ We agree with DOJ 
that, ``In the longer run, competition between Delta and US Airways 
will be lost across a number of routes.'' This lost competition is 
unlikely to be replaced by other incumbent competitors because they 
have significantly fewer slots and therefore focus their services at 
these airports on core markets, particularly large hub or focus cities 
where they can connect passengers to additional destinations. As DOJ 
concludes, ``the transaction will reduce the number of carriers with 
`excess' slots to discipline a fare increase by the dominant carriers 
from two to one at LGA and from one to zero at DCA.''\83\
---------------------------------------------------------------------------

    \82\ Comments of the United States Department of Justice, March 
24, 2010, p. 13.
    \83\ Id., p. 16.
---------------------------------------------------------------------------

    Second, evidence in the record establishes that the transaction 
will inhibit new entry at LGA and DCA. The record shows that there is a 
pattern of slot hoarding by incumbent carriers at both LGA and DCA in 
order to prevent new entrants and limited incumbents from obtaining or 
expanding competitive service at those airports. In its Notice, the FAA 
noted the lack of robust entry by new entrants or expansion by limited 
incumbents at these airports. DOJ concludes that slots at both airports 
are ``highly concentrated in the hands of Delta and US Airways, both of 
which have little incentive to

[[Page 26335]]

sell or lease slots to other carriers that would compete with them.'' 
\84\ Noting that fares are especially high at DCA due to limited 
presence of low-cost carriers and slot controls, DOJ cites evidence in 
the record that shows that both US Airways and Delta believe that 
competitive entry by low-cost carriers ``would substantially lower 
their protected fares and profits at these airports.'' \85\ DOJ further 
notes that incumbent carriers are hoarding and babysitting slots at 
these airports by flying excessive frequencies using small airplanes. 
In an effort to discourage these anti-competitive practices the 80% 
use-or-lose rules were established.\86\ Legacy carriers, however, have 
effectively developed methods to bypass the use-or-lose provision by 
using their regional affiliates to downgauge equipment on existing 
routes while increasing frequency. While the carriers may claim that 
higher frequency service in a market can benefit consumers, the 
motivation for that may be simply covering more slots at a lower per 
departure trip cost and preventing the more efficient use of a finite 
number of slots. For example, in the LGA-Raleigh/Durham market, US 
Airways, Delta and American offer a total of 23 weekday departures with 
average seats per departure equaling just 49 (May 2010 schedules).
---------------------------------------------------------------------------

    \84\ Id., p .8.
    \85\ Id., p. 9.
    \86\ Id., p. 10, fn. 24.
---------------------------------------------------------------------------

    Also, the larger the slot portfolio of a given carrier, the greater 
the flexibility the carrier has to abuse the system, to bypass the 
provisions of the use-or-lose rules, and to block new entrants or 
limited incumbents from gaining new or improved access to these slot 
controlled facilities. The proposed transaction would give DL and US 
exactly that--larger slot holdings across many hours of the day, 
allowing these two carriers greater flexibility to bypass the 80% use-
or-lose rules and to cover as many slots as possible by maintaining 
small regional aircraft operations.
    Furthermore, we agree with DOJ that the transaction will reduce the 
availability of slots, given that US Airways and Delta will have: (1) 
Substantially increased slot shares at DCA and LGA respectively; (2) 
greater marketing and scheduling ``presence'' at both airports that 
will allow them to exact a price premium in both existing and new 
markets; and, (3) a greater interest in maintaining the price premiums 
that exist at those airports by forestalling new entry.\87\
---------------------------------------------------------------------------

    \87\ Id., p. 12.
---------------------------------------------------------------------------

    In order to discipline the increased concentration and additional 
pricing power for both US Airways and Delta and thereby mitigating the 
reduction in competition due to the transaction, significant additional 
competition is necessary. As analyses by both the Department, DOJ, and 
Southwest conclude, competition by new entrants and limited incumbents, 
particularly LCCs, will not only maximize the economic efficiency of 
the slots at both airports through the operation of more seats at lower 
fares per slot than by Delta or US Airways, but will also minimize the 
total number of slot divestitures required to remedy the 
anticompetitive effects of the transaction.
    We agree that there can be important benefits provided as a result 
of the proposed transaction, but it is at the margins, where those 
potential benefits are at their least, that divestitures have been 
proposed. US Airways and Delta have claimed that, overall, the proposed 
transaction would generate $153 million in savings. Yet, a study 
commissioned from Campbell Aviation Consultants for Southwest Airlines 
claims that, if Southwest operated the 20 slot pairs at LGA and the 14 
slot pairs at DCA, the passenger fare savings per year would total $193 
million compared to the use of those slots by Delta and US Airways. The 
Campbell study asserts that Southwest's average fare would be 33% lower 
than Delta's at LGA and 49% lower than US Airways' fare at DCA. In 
addition, it estimates that Southwest would carry more than 340,000 
additional passengers to and from each airport annually.\88\ We note 
that the thrust of this study is supported by the analysis performed by 
DOJ, discussed above, which found that increased low-cost carrier share 
at airports significantly reduces price premiums and significantly 
increases ridership.
---------------------------------------------------------------------------

    \88\ Comments of Southwest Airlines, p.10.
---------------------------------------------------------------------------

    We have concluded that the benefits of the Delta-US Airways 
transaction as proposed would not outweigh its potential for harm to 
the traveling public, but that the divestitures we have proposed will 
bring significant additional consumer benefits that would assure 
overall net benefit to the public.

The Counterproposal Offered by the Parties Fails To Meet the Essential 
Requirements for a Suitable Remedy

    The divestitures proposed by the FAA were designed to mitigate the 
competitive harm resulting from the transaction at the least cost to 
the transaction itself. While the Joint Applicants' counterproposal 
includes divestitures of 15 slots at LGA and 4.5 at DCA, Southwest 
argues that the FAA's proposed divestiture of 20 slot pairs at LGA and 
14 pairs at DCA is not enough, and that even greater divestitures 
should be required.\89\
---------------------------------------------------------------------------

    \89\ Comments of Southwest Airlines, p.7.
---------------------------------------------------------------------------

    We have concluded that the divestiture of 20 slot pairs at LGA and 
14 slot pairs at DCA are the minimum necessary to remedy the reduction 
in competition resulting from the transaction while preserving 
legitimate efficiencies obtained from it. While the divestiture of more 
slots than proposed in the Notice would make the market more 
competitive, we seek to minimize the numbers of slot pairs required to 
remedy the transaction by maximizing the competitive potential of the 
divestiture packages. This objective is accomplished under the specific 
circumstances of this case by balancing four essential components of an 
effective slot remedy package. The first component is a sufficient 
number of divested slots to allow other carriers to mount an effective 
competitive response to the increased dominance and reduction of 
competition that would occur as a result of the transaction. The second 
remedy component is to define the pool of competitors eligible to take 
up the remedy based on the carriers that would have the greatest 
economic incentive to use slots obtained as intensively as possible, 
thereby exerting the most competitive discipline per slot (by operating 
larger capacity aircraft and offering the most price competition at the 
affected airports). As DOJ points out in the Appendix to its comments 
\90\ it is widely recognized in the literature that low cost carriers 
exert maximum competitive pressure in the markets they serve by selling 
more seats at lower fares. The third remedy component is to ensure that 
the bundles of slots for divestiture are both suitable for a 
commercially viable pattern of scheduled service in the types of 
markets affected by the transaction and are constructed proportionate 
to the slots that were being transferred between the parties to the 
transaction. The fourth component is to ensure that a process for 
distributing the divested slot packages is not left to the parties 
themselves, given the overwhelming incentive for them to structure the 
divestitures to minimize the competitive impact on themselves and 
thereby the benefits to consumers.\91\ The counterproposal offered by 
the parties

[[Page 26336]]

fails to satisfy each and every one of these four essential remedy 
components, and therefore fails to meet the essential requirements for 
a suitable remedy.
---------------------------------------------------------------------------

    \90\ Comments of the United States Department of Justice, 
Appendix A at A-2.
    \91\ Reply Comments of the United States Department of Justice, 
April 5, 2010, p.8.
---------------------------------------------------------------------------

    Furthermore, while Delta and US Airways have offered a 
counterproposal for fewer divestitures, they have neither demonstrated 
that our number is arbitrary nor have they shown that their number 
better suits the public interest or addresses the competitive harm 
resulting from the transaction. We have noted that we agree with the 
Department of Justice that there will be a significant reduction in 
competition between US Airways and Delta on a number of overlap routes, 
based on their confidential post-transaction plans. Remedying this loss 
of competition alone substantiates the number of divestitures put 
forward by the FAA, even before other anticompetitive effects are 
considered, such as the effects of increased city and airport carrier 
``presence'' factors which impact capacity and pricing in other markets 
at the two airports.
    The Joint Applicants, Continental and the Delta Master Executive 
Council of ALPA argue that the remedy proposed for this transaction is 
substantially more onerous when compared with DOT's tentative decision 
in the oneworld antitrust immunity case involving American Airlines, 
British Airways, and Iberia \92\ or the final decision in the recent 
Star Alliance immunity case.\93\ However, the cases are not comparable. 
Antitrust immunity applications are governed by different statutes (49 
U.S.C. 41308 and 41309) and standards than those applicable to the 
transaction before us. Further, the facts and circumstances of each 
case are very different. Delta and US Airways seek a waiver from an 
Order allowing them to consummate a slot transaction involving a 
significant number of slots at two constrained domestic airports that 
would have a substantial impact on domestic competition. The antitrust 
immunity cases, on the other hand, involve cooperation on long-haul, 
inter-continental itineraries, in a context of inter-alliance 
competition for global traffic flows. There is no immunity grant 
possible for cooperation between two U.S. carriers on domestic 
routes.\94\ Foreign carriers partner with one or more domestic carriers 
to expand code-sharing and alliance opportunities to compete with other 
alliances of foreign and domestic carriers, many of which are already 
exempt from the antitrust laws. If the Department determines that an 
exemption from the antitrust laws is necessary, the Department next 
considers whether those benefits can be achieved ``by reasonably 
available alternatives that are materially less anticompetitive.'' 49 
U.S.C. 41309(b)(1)(B). The Department therefore considers the 
substantial benefits that may result from the airline alliances and 
determines the extent of required slot divestitures or other remedies 
as a condition to the grant of immunity.\95\
---------------------------------------------------------------------------

    \92\ Joint Application of American Airlines, Inc., British 
Airways PLC, FinnAir OYJ, Iberia Lineas Aereas de Espana and Royal 
Jordanian Airlines under 49 U.S.C. 41308 and 41309 for approval of, 
and antitrust immunity for, agreements; DOT-OST-2008-0252; DOT Show 
Cause Order 2010-2-8; case now pending DOT final disposition.
    \93\ Final Order 2009-7-10 (Docket OST-2008-0234).
    \94\ Evaluating the competitive impact in international markets 
differs substantially from such an evaluation in domestic markets. 
It is widely accepted in the airline industry that connecting 
competition is much more effective at disciplining fares on long-
haul routes than on short haul routes, due to much longer journey 
times and the ratio of the non-stop elapsed journey time to the 
elapsed journey time of a connecting itinerary. Furthermore, factors 
such as circuity play a much more important role in the efficacy of 
connecting competition on short- and medium-haul routes and thereby 
on a competitive assessment of a reduction in competition on such 
routes. The relevant markets in this case are therefore considerably 
different, resulting in a fundamentally different competitive 
impact, and typically requiring different remedies.
    \95\ Delta and US Airways further claim that the recent 
American-JetBlue transaction should satisfy DOT's concerns with 
regard to low-cost entry at DCA. In that transaction, JetBlue will 
lease 8 slot pairs at DCA. However, the source of the slots is 
American, which would have the second largest number of slots and be 
second in departure share at DCA were we to approve the US-DL 
proposal. US Airways would retain the same level of concentration 
that cause our concerns here, and even obtains a more dominant 
position over its nearest rival at the airport.
---------------------------------------------------------------------------

    As proposed in the Notice, our remedy is designed to allow non-
aligned, new entrants and limited incumbents to establish new or 
complement existing patterns of services that are commercially viable 
at both slot-constrained airports. The Notice issued February 9, 2010, 
set forth a proposal under which slot interests at DCA and LGA would be 
bundled in a divestiture. The purpose of bundling the slot interests 
was to ensure that a purchaser would obtain a sufficient number of slot 
interests that would make it possible to initiate service in a way that 
provides meaningful new competition. We continue to believe that 
bundling provides the best opportunity to achieve this goal.
    However, after reviewing the comments submitted on the Notice and 
further consideration, we have slightly adjusted the four proposed 
bundles at LGA from one bundle of eight slot pairs and three bundles of 
four slot pairs each, to two bundles of six slot pairs each and two 
bundles of four slot pairs each. We noted that Delta and US Airways' 
counterproposal at LGA indicated an interest from two limited 
incumbents (AirTran and Spirit) and one prospective new entrant 
(WestJet) for five slot pairs each. The 6-6-4-4 arrangement may better 
accommodate the interest they demonstrated, as the individual bundles 
would allow existing slot portfolios and corresponding patterns of 
service to be expanded or new service to be launched with moderate 
frequency service. By making available for purchase from the existing 
slot holder two bundles of slots at DCA and four bundles of slots at 
LGA, limited incumbent carriers will have the opportunity to build on 
their limited presence at the slot constrained airports by adding 
frequencies to existing markets for better schedule coverage throughout 
the day, a key benefit to their customers, and a key defense against a 
dominant carrier that may choose to inundate markets in which it 
competes with new entrants and limited incumbents with excess capacity 
in order to force the smaller carrier from the market. Both new entrant 
and limited incumbents could also establish new service to other focus 
cities in their networks. Bundles of slots will also allow carriers 
with limited operations to improve efficiencies at these constrained 
airports in terms of better utilization of ground staff, equipment and 
facilities. Efficiencies will also be gained in the form of increased 
throughput, as new entrants and limited incumbents will offer on 
average more seats per departure than proposed by US Airways and Delta 
with their reliance on regional affiliates for over 80% of their 
proposed new flying from DCA and LGA.
    With only two limited incumbents currently serving DCA, the 
creation of two slot bundles provides for diversified penetration in 
the form of a new entrant or limited incumbent launching service in 
either high frequency business markets or multiple smaller markets.

Terms of Final Waiver Notice

    This grant of waiver is conditioned on: (1) The divestiture by US 
Airways of 20 pairs of slot interests at LGA in the slot bundles 
identified below; (2) the divestiture by Delta of 14 pairs of slot 
interests at DCA in the slot bundles identified below (these slot 
interests will be made available for purchase by new entrants and 
limited incumbents as discussed later), and; (3) US Airways and Delta 
making available gates and other ground facilities on reasonable terms 
to the purchasers of divested slots if requested by the purchaser, and 
if

[[Page 26337]]

such gates and facilities are not available from the airport authority. 
The following discussion details these conditions and establishes the 
procedure for the purchase of divested slot interests. As we discussed 
in the February Notice, our goal of maximizing competition and consumer 
benefits will be realized most effectively by ensuring that the slot 
interest bundles are purchased by limited incumbents and new entrants 
(sometimes referred to herein as ``eligible carriers''). As described 
in the February 9, 2010, Notice, eligible carriers must be U.S. or 
Canadian air carriers having fewer than five percent of total slot 
holdings at DCA and/or LGA, do not code share to or from DCA or LGA 
with any carrier that has five percent or more slot holdings, and are 
not subsidiaries, either partially or wholly owned, of a company whose 
combined slot interest holdings are equal to or greater than five 
percent at LGA and/or DCA. Carriers that would not qualify include 
those who are involved in a code-share relationship at DCA/LGA with 
carrier(s) that also would not qualify as of the date of this Notice.
    As proposed, divested slot interests will be bundled for 
reallocation. This bundling ensures a purchaser can obtain sufficient 
slot interests to initiate or increase service in a manner that meets 
its operational needs and enhances competition. The sellers may not set 
a reserve price for the slot interest bundles.
    As discussed above, we have slightly adjusted the four proposed 
bundles at LGA from one bundle of eight slot pairs and three bundles of 
four slot pairs each, to two bundles of six slot pairs each and two 
bundles of four slot pairs each. For the DCA slot interests, there will 
be two bundles (one consisting of eight pairs and another of six 
pairs). For the LGA slot interests, there will be four bundles (two 
consisting of six pairs and two of four pairs). The following table 
shows the slot interest bundles as adopted.
    At DCA: Bundle A would consist of 8 pairs of slots at: 0700 (2), 
0800 (1), 1000 (2), 1100 (1), 1200(1), 1300 (1), 1400 (2), 1500 (1), 
1600 (2), 1900 (1), 2000 (1), 2100 (1), and
    Bundle B would consist of 6 pairs of slots at: 0700 (1), 0900 (2), 
1100 (1), 1200 (1), 1300 (2), 1700 (1), 1800 (1), 1900 (1), 2000 (1), 
2100 (1).
    At LGA: Bundle A would consist of 6 pairs of slots at: 0600 (D), 
0700 (D), 0800 (A), 0800 (D), 0900 (A), 1000 (D), 1300 (A), 1400 (D), 
1700 (A), 1800 (D), 2000 (A), and 2100 (A);
    Bundle B would consist of 6 pairs of slots at: 0700 (D), 0900 (A), 
1000 (D), 1100 (A), 1200 (D), 1300 (A), 1400 (D), 1500 (A), 1600 (D), 
1700 (A), 1700 (D), and 2000 (A);
    Bundle C would consist of 4 pairs of slots at: 0600 (D), 0800 (A), 
0900 (D), 1100 (A), 1200 (D), 1500 (A), 1600 (D), and 2000 (A); and
    Bundle D would consist of 4 pairs of slots at: 0700 (D), 1000 (A), 
1100 (D), 1300 (A), 1400 (D), 1800 (A), 1900 (D) and 2100 (A).
    Eligible carriers may be unable to use acquired slot interests if 
they cannot obtain access to gates, ticket counters, baggage handling 
services, loading bridges, and other ground facilities. If the 
purchaser lacks access to gates and ground facilities or is unable to 
obtain such access from the airport authority, the seller must make 
these available to the purchaser under reasonable terms and rates.
    The divested slot interests will be subject to certain limitations 
to ensure they achieve the competition goals discussed in this grant of 
waiver. These limitations on the LGA slot interests are effective until 
the termination of the LaGuardia Order (currently October 29, 2011), 
and they do not expire for the DCA slot interests. The FAA will waive 
the respective use or lose provisions of the LaGuardia Order and HDR 
for 6 months following purchase to allow the purchaser to begin 
service, but the purchaser must initiate service no later than 6 months 
following purchase. The purchaser may lease the acquired slots to the 
seller until the purchaser is ready to initiate service to maximize 
operations at the airports. The slot interests may not be sold or 
leased during the 12 months following purchase because the purchaser 
must hold and use the acquired slot interests. However, purchasers may 
engage in one-for-one trades of these slot interests for operational 
needs. The slot interest limitations would attach to the slot interest 
acquired by the eligible carrier in a one-for-one trade. Any one-for-
one trades are subject to the FAA notice requirements in the LaGuardia 
Order and HDR. After the initial 12 months, the slot interests may be 
sold (in the case of DCA slot interests), traded, or leased to any 
carrier that at the time of the sale, trade, or lease would have met 
the eligibility requirements to make an offer under this Waiver for the 
divested slot interests. Trades or leases of LGA slot interests may not 
exceed the duration of the LaGuardia Order as stated in that Order. Any 
of these transactions are reportable under the HDR and LaGuardia Order.
    Within 30 days of this grant of waiver, Delta and US Airways must 
notify in writing to the FAA whether they intend to proceed with the 
slot transfer transaction. If they intend to consummate the slot 
transfer transaction subject to this waiver, that notice must provide 
the following information for the divested slots:
    (1) Operating Authorization number (LGA) or slot number (DCA) and 
time;
    (2) Frequency;
    (3) Effective Date(s);
    (4) Other pertinent information, if applicable; and
    (5) Carrier's authorized representative.
    The FAA will post a notice of the available slot interest bundles 
on the FAA Web site at http://www.fly.faa.gov within two business days 
of receiving all required information for the sellers and, if 
practicable, will publish the notice in the Federal Register. The 
notice will provide seven business days for purchase offers to be 
received and will specify a closing date and time. Eligible carriers 
may register to purchase the slot interest bundles via e-mail to [email protected]. Registration must be received 15 days prior to the 
start of the offer period and must state whether there is any common 
ownership or control of, by, or with any other carrier and certify that 
no purchase offer information will be disclosed to any person other 
than its agent.
    An eligible carrier may purchase only one slot interest bundle at 
each airport, except at the seller's option as discussed later, as we 
seek to maximize the interest of eligible carriers in participating in 
the proceeding. This limitation will prevent any one carrier from 
acquiring all divested slots, which was raised as a concern in the 
comments. We are also incorporating specific procedures to facilitate 
the sales process on multiple slot interest bundles. An eligible 
carrier will register for each slot interest bundle that it wishes to 
buy, and it will be assigned a random number for each registration so 
no information identifying the purchaser is available to the seller or 
public. A purchaser will be allowed to indicate its preference ranking 
for each slot interest bundle as part of its offer. Finally, as 
discussed in more detail later, the FAA will review the offers for each 
bundle in order (i.e., bundles A and B for DCA and A, B, C, and D for 
LGA).
    All offers to purchase slot bundles must be sent to the FAA 
electronically, via the e-mail address above, by the closing date and 
time. The offer must include the prospective purchaser's assigned 
number, the monetary amount, and the preference ranking for that slot 
interest bundle. No extensions of time will be granted, and late offers 
will not

[[Page 26338]]

be considered. The FAA will post all offers on the Web site as soon as 
practicable after they are received. Each purchaser can submit multiple 
offers until the closing date and time.
    Once the sales period closes, the FAA will determine the highest 
offer for each bundle. If each bundle has only a single offer, the FAA 
will notify the seller by forwarding the purchaser's identification. If 
one eligible carrier has made the highest purchase offer on multiple 
bundles, the FAA will determine which offer will be valid based on 
preference ranking and bundle order. The FAA will identify the next-
highest offer from a carrier that remains eligible to purchase the 
bundle as the successful offer on the other bundles. This information 
will be forwarded to the respective seller. The FAA will also provide 
information about the amount of the highest offer, and the selling 
carrier may choose to accept the highest offer instead of the offer 
identified by the FAA. Upon acceptance, the FAA will notify the selling 
and purchasing carriers to allow them to carry out the transaction, 
including any gate and ground facilities arrangements. The seller and 
purchaser must notify the FAA that the transaction has been completed 
and certify that only monetary consideration will be or has been 
exchanged for the slot interest bundles. This notification must occur 
within five business days of notification by the FAA of the winning 
offer. A transaction is final, and the waiver will be effective, only 
when any issues related to gates or ground facilities have been 
resolved, although not all purchasers may need gates and facilities 
beyond what they already have. The FAA then will approve the 
transaction and will maintain and make publicly available a record of 
the offers received, the identity of the seller and purchaser, and the 
winning price.
    In the unlikely event that there are no offers for a slot interest, 
those slot interests will revert automatically to the FAA. If 
necessary, we will announce at a later date a means for disposing of or 
retiring a slot interest that attracts no purchase offer. We do not 
expect that this need will arise.
    The grant of waiver becomes effective upon FAA approval of all slot 
interest bundle transactions.

    Issued in Washington, DC, on May 4, 2010.
Ray LaHood,
Secretary.
J. Randolph Babbitt,
Administrator, FAA.

Appendix A

Summary of Comments

    We received comments from numerous commenters which we have 
summarized below.

 US Airways-Delta Response

    Delta and US Airways submitted comments in opposition to the 
FAA's divestiture conditions. The carriers asserted that:
    (1) Congress empowered FAA only to promote safety and the 
efficient use of airspace and, thus, it lacks the statutory 
authority to consider potential effects on competition in carrying 
out its other duties.
    (2) While the Secretary of Transportation has authority to 
consider competition-related factors, he is prohibited by 49 U.S.C. 
106(f)(2)(D) from directing the FAA to use its authority to do what 
it cannot do directly.
    (3) The proposed divestiture would constitute an unlawful taking 
under the Fifth Amendment, because restrictions on the sale are 
imposed that would make it impossible for the carriers to realize 
full market value.
    (4) DOJ is the agency best equipped to consider whether the 
transfer will hinder competition, acknowledging that DOJ is 
currently undertaking a review.
    (5) FAA cannot use a waiver applicable to LGA to force a 
divestiture at DCA.
    (6) FAA failed to analyze ``overwhelming evidence'' that the 
proposed transaction will benefit competition, such as service to 
new destinations, upgauging of aircraft, new connecting 
opportunities, etc.
    (7) FAA's proposed divestitures fail to consider the integrated 
nature of the transaction.
    (8) FAA's concerns about potential anticompetitive actions are 
mere speculation, as it did not point to specific instances of harm.
    (9) FAA based its analysis on a 1970s vintage measure (SIFL) 
that fails to take into account the major changes in the industry 
over the last 30 years, such as industry deregulation, emergence of 
LCC's, etc.
    (10) FAA failed to articulate and explain the level of airport 
concentration that causes it concern.
    (11) The three DC-area and three NYC airports are competitively 
linked, and FAA's contention that they are not substitutes is 
inconsistent with past positions of DOT and DOJ.
    (12) FAA did not sufficiently explain why divestitures of 14 
pairs at DCA and 20 pairs at LGA were appropriate, and that level of 
divestiture is inconsistent with DOT's recent action in the oneworld 
case in which only 4 pairs of slots were required to be leased for 
ten years.
    Notwithstanding these objections, US Airways and Delta stated 
that, as they were ``mindful of the concerns expressed by FAA'' and 
desiring of a solution that would permit them to move forward, they 
had entered into provisional divestiture agreements with four 
carriers that were eligible under the terms of the Notice for 15 
slot pairs at LGA and 4.5 slot pairs at DCA. The 15 slot pairs at 
LGA would be transferred, five each, to AirTran, Spirit, and WestJet 
over periods of up to 28 months; the 4.5 pairs at DCA would be 
transferred to JetBlue. The carriers added that these more limited 
divestitures, ``while diminishing the benefits of the transaction,'' 
would preserve enough of the benefits to permit them to go forward.
    US Airways and Delta stated that if the FAA grants the waiver 
subject to the proposed divestiture conditions, they would not 
consummate the transaction, and reserved the right to seek judicial 
review.
    Delta and US Airways submitted joint comments in another filing, 
together with the new entrant/limited incumbent carriers to which 
they would divest slots under their counterproposal: AirTran 
Airways, Inc., Spirit Airlines, Inc., JetBlue Airways, Inc., and 
WestJet, Inc. These commenters urge the FAA to approve the pending 
request, as modified by the slot transfer agreements. Additional 
details on the counterproposal were provided: (1) At DCA, JetBlue 
would acquire 4.5 pairs of slots (JetBlue intends otherwise to add 
one off-peak hour slot to complete a 5-roundtrip service pattern); 
(2) at LGA, AirTran, Spirit, and WestJet would acquire 5 pairs of 
slots each, respectively, for a total of 15 pairs; (3) in all cases, 
the acquisition would be conditioned on FAA's grant of the LGA 
Waiver request; (4) the JetBlue transfer would take place relatively 
soon, but Delta would continue service with the slots under a lease 
from JetBlue for a period; (5) the AirTran and Spirit transactions 
would occur over a 24-month period at dates of their choosing; and 
(6) the WestJet transaction would occur at a date of its choosing 
within 28 months. WestJet and Delta will be negotiating other 
commercial arrangements as well.
    Given the issues raised by the carriers' counterproposal, the 
FAA determined that it was in the public interest to reopen the 
comment period for seven days to give all interested parties 
additional time to file rebuttal comments. Comments filed by April 
5, 2010, were considered. For convenience and brevity, the comments 
described below include responses made both on the initial Notice 
and on rebuttal.

Summary of Comments From the United States Department of Justice

    The Department of Justice (DOJ) submitted comments in support of 
the FAA's tentative decision to grant the requested waiver with 
conditions. The Department cited several factors in its finding of 
support, including:
    (1) The availability of slots is a substantial barrier to entry 
at LGA and DCA. Air carriers holding large concentrations of slots 
have little incentive to lease or sell slots to low-cost carriers, 
thus stifling competition and depriving consumers of lower fares.
    (2) The slot transaction will reduce competition between Delta 
and US Airways at LGA and DCA. The Department contends that, post 
transaction, Delta will shrink substantially at DCA and US Airways 
will shrink substantially at LGA, thereby reducing

[[Page 26339]]

either carrier's ability to compete with each other.
    (3) The transaction will increase the slot holdings of the 
dominant carriers at LGA and DCA. US Airways will increase its DCA 
slot holdings from 44% to 54%, and Delta will increase its LGA slot 
holdings from 24% to 49%, thus producing a highly concentrated 
market and an enhanced premium fare structure in markets served by 
both airports.
    (4) Most low-cost carrier slot acquisitions at LGA and DCA have 
been the result of Congressional or DOT/FAA action rather than 
secondary slot market transactions. Despite FAA regulations designed 
to ensure that underutilized slots are reallocated to carriers that 
will used them efficiently, incumbent carriers continue to hoard 
slots, in part, to keep the slots out of the hands of new entrants.
    (5) The proposed slot transaction will exacerbate the 
disincentives of either carrier to sell or lease slots to other 
carriers. With increased slot shares at LGA and DCA, the carriers 
will have more revenue and profit at risk, and thus even less 
incentive than exists today to sell or lease slots to potential new 
entrants.
    (6) The FAA's proposed slot divestiture is not likely to 
interfere substantially with the purported increase in seat capacity 
at either airport. There is little evidence suggesting that a 
smaller transaction--as would result if the parties accepted the 
terms of the FAA's proposed waiver--would be unprofitable for the 
parties.
    (7) The consumer benefits from LCC entry that will likely result 
from the FAA's proposed divestiture almost certainly will outweigh 
any loss from Delta and US Airways making minor modifications to 
their proposed schedules.
    (8) DOJ favors an anonymous, cash-only sales of slots in which 
the FAA forwards the highest offer to the seller for acceptance or 
rejection if the method is implemented in a sound way. The 
Department advocates for the anonymity of potential buyers, but 
encourages the FAA to clarify what happens in the event that a 
carrier rejects the highest purchase offer. The Department also 
recommends expanding the restriction on re-sales and leases of slots 
purchased pursuant to the selected slot acquisition option.
    (9) The Department recommends precluding, for some reasonable 
period, purchasers from selling and leasing any slots to carriers 
not eligible under the terms of the final action taken on this 
proceeding in order to ensure that divested slots stay in the hands 
of new entrants or limited incumbents.
    (10) The Department notes that purchasers of divested slots will 
also need access to sufficient ground facilities, and recommends 
that the FAA should consider ways to ensure that the purchaser will 
obtain access to these facilities. In concluding its comments, DOJ 
finds that the FAA's proposed waiver with conditions will be in the 
public interest because it will free up slots for other carriers, 
facilitate entry at LGA and DCA, increase competition, and lower 
fares for consumers without interfering with the purported benefits 
of the transaction.

Summary of Other Comments

    Southwest Airlines, Inc. filed comments, arguing that:
    (1) The consequences for the public of this attempted re-
allocation of the markets by Delta and US Airways will be higher 
fares, less competition, and fewer service options.
    (2) Delta and US Airways have long been free to upgauge their 
aircraft, but they have done the opposite over the last decade 
(Delta's average aircraft size at LGA has declined to 105 seats, 
while US Airways' average aircraft size at DCA has sunk to 92 
seats--reflecting economic inefficiencies at both airports).
    (3) FAA's proposed carve-outs of 20 and 14 slot pairs are a good 
start, but are too limited to have a significant restraining effect 
on fares, except in a few markets.
    (4) If the divested slots are divided among several carriers, 
the resulting competition will be so diluted it will have no 
effective price discipline. A carve-out of at least 40 pairs at LGA 
and 20 pairs at DCA should be required.
    (5) DOT/FAA has ample legal authority to require carve-outs 
(Since DOT/FAA has the authority to grant the waiver request in 
full, it must also have the authority to grant it in part), and 
carve-outs here are ``in the public interest.''
    (6) Despite multiple efforts, Southwest has been unable to 
acquire DCA slots, or more than the 14 slots it has at LGA. Its 
average fares would be 33% lower than Delta at LGA and 49% lower 
than US Airways at DCA. If it had 20 pairs at LGA it would generate 
$84 million annually in consumer savings, and if it had 14 pairs at 
DCA it would generate $109 million per year in consumer savings. It 
would also serve 340,000 more passengers at each of the airports.
    (7) FAA should allocate the divested slots via a transparent 
sales process to the purchaser with the highest cash offer. Other 
options invite a manipulation of the process for anti-competitive 
purposes (e.g., selecting the weakest competitors).
    (8) FAA should amend its order to require US Airways and Delta, 
working with the respective airport authorities, to make airport 
facilities available on terms no less favorable than those now 
accorded to the two carriers.
    United Air Lines, Inc. opposes the FAA's proposed divestiture 
conditions. United's major arguments are: (1) FAA lacks the legal 
authority to impose the slot divestiture condition under the premise 
that FAA authority is limited to the safety of aircraft operations 
and efficient use of airspace, and that the policy goals outlined in 
Sec.  40101 do not apply to the Administrator's exercise of 
exemption powers; and (2) FAA has not shown that the transaction 
would adversely impact competition. United contends that the fact 
that the transaction increases the share of slots does not 
necessarily signify that the carriers will gain pricing power in any 
relevant market.
    United believes the FAA has not analyzed potential competitive 
effects in any relevant market, that FAA assertions of harm are 
speculation, and that the FAA has relied on flawed, outdated data in 
reaching its conclusions. The air carrier states that costs are 
higher at DCA due to the added costs of delays and the cost of 
acquiring slots.
    American Airlines, Inc. supports the FAA's proposed divestiture 
conditions, but expressed concerns regarding the rationale. 
American's major arguments are: (1) Offers reason for the failure of 
the secondary market at DCA and LGA as the current system of 
delegating slots to new entrants. American contends that there is no 
incentive to buy new slots when slots are readily distributed for 
free by the government; (2) disagrees that the proposed transaction 
will lead to higher fares. The air carrier cites the example of 
Continental Airlines having market dominance at EWR but maintaining 
lower fares than US Airways; and (3) supports a private sale 
arrangement for the slot divestiture.
    Continental Airlines, Inc. takes no position on the proposed 
transaction or whether other remedies are required, but argues that 
imposing conditions of divestiture exceeds FAA authority. 
Continental's major arguments are: (1) FAA has previously 
acknowledged that it lacked the authority to impose market-clearing 
charges for landings and takeoffs; (2) FAA slot rules require 
reallocation by lottery, should not be read to extend to 
divestitures for economic reasons, nor favor new entrants and 
limited incumbents; (3) requiring divestitures will violate 
carriers' property rights; (4) FAA's proposal conflicts with the 
Hart-Scott-Rodino review process; (5) DCA and LGA are not individual 
markets, and treating them as such is inconsistent with earlier DOJ 
conditions on domestic code-sharing and in DOT's Star Alliance 
carve-out (where the overlap was premised on defining EWR and JFK as 
a common origin and destination point); (6) holding a large 
percentage of slots at a carrier's hub is not inherently 
anticompetitive and is beneficial to consumers because it enables 
airlines to achieve economies of scope; and (7) FAA should not 
consider code-share relationships when calculating an individual 
carrier's slot position because code-share carriers are independent 
with respect to domestic service. Continental states that it should 
have the ability to acquire withdrawn slots at LGA despite its code-
share with United Air Lines.
    Virgin America, Inc. commends the FAA for taking steps to 
address the competitive situation at slot-controlled airports. 
Virgin believes the government has not only the authority but the 
responsibility to enhance competition, and believes that the FAA 
action in this proposed transaction is consistent with applicable 
precedents. The air carrier states that the FAA should be more 
proactive by creating a permanent mechanism for resolving secondary 
market problems at slot-controlled airports.
    The Delta Master Executive Council of the Air Line Pilots 
Association submitted comments in support of the waiver, but without 
the imposition of ``onerous and unjustified'' divestiture 
conditions. ALPA believes that approval of the original petition 
will promote job growth, slot utilization, and competition. The 
commenter contends that increased operations at an airport are not 
necessarily harmful, citing the example of Continental Airlines 
having a larger percentage of operations at EWR than other air 
carriers, but charges a lower percentage of

[[Page 26340]]

the standard industry fare level (SIFL). ALPA believes the FAA's 
proposed number of divestitures is inconsistent with oneworld, where 
just 4 pairs of slots were required to be divested.
    Parties representing two Florida airports filed comments in 
general support of the waiver. The airports include the Sarasota/
Bradenton International Airport (SRQ) and the Tallahassee Regional 
Airport (TLH). Both commenters expressed concern that the FAA's 
proposal could halt the transaction completely, thereby eliminating 
opportunities for expanded air service in the two communities. 
Additionally, the parties commented that the FAA proposal favors 
large airports and new entrant carriers over smaller communities who 
rely on network carriers.
    The Port Authority of New York and New Jersey (PANYNJ) filed a 
comment in support of the proposed divestiture conditions. PANYNJ 
compliments the FAA in its efforts to increase the presence of low-
cost carriers at LGA and preserving small community service. PANYNJ 
supports the proposal to suspend use-or-lose provisions for new 
entrants and limited incumbents that would obtain the divested 
slots, but disagrees with the FAA on its conclusions regarding 
airport substitutability. The commenter reinforced that it would put 
forth its best efforts to ensure that new entrants and limited 
incumbents are accommodated, but believes that the Final Order 
should not impose any additional requirements in this regard. PANYNJ 
also believes that any transfer of slots should be conditioned on 
its ability to accommodate the new carrier at a corresponding gate. 
Regarding the slot transfer process, PANYNJ endorses the proposal 
that would allow the FAA to maintain a Web site for offers to 
purchase and transmission of the highest offer to the seller.
    The Honorable Henry E. Brown, Jr., U.S. Representative of the 
1st District of South Carolina, submitted a comment in support of 
the original petition submitted by Delta and US Airways, but does 
not support the FAA's proposed divestiture conditions. Congressman 
Brown cites South Carolina's significant tourism industry as a 
reason to expand air service to the State. He notes that Horry 
County, the State's largest tourism revenue generator, is the only 
major tourist destination in the United States that is not served by 
the Interstate System. Congressman Brown recognizes the FAA's 
responsibility under the Airline Deregulation Act to maximize 
airline competition and opportunities for new entrants, but pointed 
out that the proposed divestiture of 14 pairs of slot interests at 
DCA would remove the possibility of expanded air service at MYR for 
the foreseeable future, which he believes is counter to the Act's 
directive to encourage air service to small communities. Congressman 
Brown also states that expanded direct air service to smaller and 
mid-sized communities serves the ``greater good'' of the country 
more than fostering competition between larger cities that already 
enjoy direct air service.
    The Honorable Louise M. Slaughter, U.S. Representative of the 
28th District of New York, submitted a comment in strong support of 
the FAA's proposal to require the divestiture of slot interests at 
DCA and LGA to new entrant and limited incumbent carriers. 
Congresswoman Slaughter commented that she would like to see an 
increase in the number of mandated slots to be divested, although 
she concurs that the proposal is a good first step to improving 
service to DCA and LGA. The Congresswoman expressed concern that the 
proposal does not force either carrier to commit to any particular 
market for a defined period of time, thus enabling the carriers to 
discontinue certain routes and use their added slot interests to 
initiate new routes to target smaller competitors and stifle 
competition.
    Edward S. Faggen, former Vice President and General Counsel of 
the Metropolitan Washington Airport Authority (MWAA), commented in a 
personal capacity expressing support for the FAA's decision not to 
grant the waiver without first imposing conditions that protect the 
competitive environment at either airport. Mr. Faggen cites the 
FAA's High Density Rule as a successful means for enabling DCA to 
manage capacity, promote schedule reliability, and allow airport 
officials to effectively plan for airside and landside capacity 
improvements. The commenter believes that a waiver, without 
conditions, will lead to a challenge to the DCA HDR by new entrants 
or low-cost carriers, who may perceive the HDR to be 
anticompetitive. Mr. Faggen would like to see the number of DCA 
slots to be divested to increase from the proposed minimum of 14 to 
a number that expands access to other incumbents, and commensurate 
with airfield capacity capabilities, if possible.
    Citizens and organizations of the Rochester, New York 
metropolitan area, which are represented by the Honorable Louise M. 
Slaughter, U.S. Representative of the 28th District of New York, 
submitted eleven comments in general support of the proposed waiver. 
The commenters unanimously agree that the proposal would increase 
competition, lower fares, and improve air service in the Rochester, 
New York passenger market. A majority of the commenters would like 
to see an increase in the number of slots to be divested.
    Three individuals submitted comments in support of the FAA 
position. The commenters unanimously agree that the proposed waiver 
would increase competition by decreasing excessive market 
domination, lower fares, and improved air service. One individual 
expressed hope that the slot divesture will reduce delays, spur 
economic growth, and lead to cheaper access to popular vacation 
destinations. One individual expressed support for the public 
benefit of expanded operations by Southwest Airlines at LGA.
    One individual submitted a comment in opposition to any type of 
waiver for the proposed transaction. The individual believes that 
Delta is anti-competitive in its practices and seeks to harm other 
airlines economically. The commenter further cites Delta's decision 
to transfer its pension liability onto taxpayers as reason not to 
reward it with a favorable slot swap arrangement.
    Two individuals submitted comments in support of the US Airways-
Delta Airlines position of granting the proposed waiver without 
conditions. One commenter assessed that the conditions intrude into 
the free market by forcing the divestiture of slots, and stated that 
it is not the role of government to ``create additional 
competition.'' Another commenter was concerned about air carrier 
profitability and the ramifications to jobs and air carrier access 
should either airline seek bankruptcy protection. The commenters 
urged DOT to allow the slot swap to proceed as originally proposed 
in order to do everything possible to help airlines bolster 
profitability and keep people employed.

Supplemental and Responsive Pleadings

    The initial comment period closed on March 22, 2010. The FAA 
determined that it was in the public interest to reopen the comment 
period until April 5, 2010, to give all interested parties 
additional time to file supplemental and rebuttal comments.
    WestJet stated that, in the past, regulatory and operational 
constraints have prevented it from sustaining competitive service to 
LGA. As a result of the independently negotiated slot transaction 
with Delta, which provides WestJet with 5 slot pairs at LGA, the 
carrier believes that it is now in a good position to compete 
against established carriers in the U.S. and Canadian markets. 
Additionally, WestJet cites expanded passenger access to Delta's 
extensive domestic network, as well as Delta's willingness to 
provide supporting services and facilities as evidence that the 
carrier and its passengers stand to benefit from the transaction. 
Further, the carrier cites Section I of Annex II to the Air 
Transport Agreement between the governments of the United States and 
Canada, which specifies that Canadian air carriers be afforded equal 
access to slot controlled airports. Accordingly, WestJet urged the 
FAA to approve the Delta-US Airways waiver request, thus enabling 
WestJet's slot transaction with Delta to proceed.
    Transport Azumah expressed a belief that the LGA slots are being 
liquidated at below-market value and suspects that this is the 
result of air carriers not being allowed to sell slots on the open 
market. The commenter believes that ``hoarding'' of slots will 
continue as long as air carriers are not allowed to freely buy and 
sell slots as needed.
    The Spirit Airlines Master Executive Council of the Air Line 
Pilots Association urged the FAA to approve the LaGuardia waiver 
request, as modified by the slot transfers to AirTran, Spirit, 
JetBlue and WestJet. The Council believes that such a grant will 
permit the beneficial transaction to proceed and to enable Spirit 
and its pilots to benefit from significant new service expansions 
and enhanced job opportunities.
    The Southwest Airlines Pilots Association expressed support for 
the FAA's proposal to require the divestiture of slot interests at 
DCA and LGA to new entrant and limited incumbent carriers, and urges 
the DOT/FAA to deny the requested petition unless the proposed 
divestiture of 20 slot pairs and LGA and 14 slot pairs at DCA is 
enforced. The Association believes that hubs dominated by two legacy 
carriers would be created at LGA

[[Page 26341]]

and DCA, giving them unchecked market and pricing power. It also 
believes the revised slot transaction deal announced by Delta and US 
Airways on March 22, 2010 is a meager giveaway that would bar 
Southwest from an open, public, transparent proceeding that would 
enable Southwest to operate at these airports. The commenter stated 
that Southwest is interested in bidding on the slots to expand its 
low-fare service to consumers in a high-fare market, and cited its 
own economic expert as concluding that consumers would save 
approximately $200 million annually if Southwest were given the 
opportunity to acquire the slots to be divested under the FAA 
proposal. The Association added that the public interest is not 
served by allowing dominant carriers to distribute a handful of 
slots to a chosen few airline competitors.
    JetBlue Airways, AirTran Airways, Inc. (joined by the AirTran 
Master Executive Council of the Air Line Pilots Association) 
submitted comments largely reiterating the views they had expressed 
in their initial comments to the docket.
    The Delta Master Executive Council of the Air Line Pilots 
Association submitted comments reiterating its earlier support for 
the Delta-US Airways petition, but adding that it agreed with the 
legacy carriers that the FAA has no statutory authority to impose 
the divestiture condition and disagreed with opposing comments, 
particularly those of Southwest Airlines and the Department of 
Justice, that approval of the LGA waiver request will reduce 
competition. The commenter asserted as well that the proposed slot 
transfers to AirTran, Spirit, JetBlue, and WestJet adequately 
address the FAA's competition concerns and demonstrates that the FAA 
should not substitute its regulatory judgment for the competitive 
marketplace.
    The Consumer Travel Alliance submitted comments in strong 
opposition to the revised slot transaction deal with AirTran, 
Spirit, JetBlue, and WestJet as announced by Delta and US Airways on 
March 22, 2010. The Alliance supports the original DOT/FAA order, 
but believes that the most recent slot transaction proposal is 
unacceptable and would serve only to maintain the current status of 
pricing in the market. Further, the Alliance argues that the 
proposal should be rejected out of hand, or the proceeding should be 
reopened for further investigation and additional comments should be 
permitted on the new proposal.
    A Notice of Communication was submitted to the public docket, in 
accordance with 14 CFR Part 300, stating that Captain Doug Ralph of 
the Air Lines Pilot Association and James Van Woert of Delta Air 
Lines expressed support for the joint petition submitted by Delta 
and US Airways while attending an aviation roundtable at Stewart 
International Airport. The roundtable included Transportation 
Secretary Ray LaHood and Deputy Assistant Secretary for Aviation and 
International Affairs Christa Fornarotto. Captain Ralph expressed 
his hope that the Department would handle the proceeding 
expeditiously and asked about its status. Secretary LaHood responded 
that, because the matter was under active consideration, he could 
not comment on any aspect and further noted that any discussion of 
the case at that time would be inappropriate.
    Southwest Airlines submitted reply comments in response to the 
independently negotiated slot transactions between Delta and US 
Airways and four low-cost carriers, AirTran, Spirit, JetBlue, and 
WestJet. Southwest strongly opposes the slot transaction and argues 
that it is a calculated effort by Delta and US Airways to avoid the 
FAA's proposed divestiture conditions while producing no meaningful 
competition to either carrier at LGA and DCA. The carrier added to 
its earlier comments to the effect that the splintered and minimal 
slot transfers in the six-party deal will have no meaningful impact 
on competition or concentration at LGA and DCA, and that the parties 
to the deal will likely serve at most one or two routes each from 
LGA and DCA with the transferred slots. It further asserted that 
both Spirit and AirTran have a long history of abandoning service in 
both markets after unsuccessful attempts to compete with incumbent 
carriers. Contending that it would generate more public benefits 
than all four slot transaction partners combined, the carrier argued 
that its exclusion from the six-party transaction was no accident 
because Delta and US Airways know that Southwest can leverage even a 
small number of slots more effectively than the other eligible 
carriers, combined, because of its large domestic network. The 
carrier believes that, in order to assist airports in exercising 
their property rights and accommodating slot recipients, DOT/FAA 
should condition its waiver approval on the parallel divestiture of 
adequate and viably located ground facilities by Delta and US 
Airways. Asserting that LGA and DCA are separate markets that are 
effectively insulated from the competition at surrounding airports, 
Southwest contends that neither airlines nor passengers consider the 
three Washington/Baltimore area airports, or the three New York/
Newark area airports, to be economic substitutes for one another. 
Finally, in deciding whether proposed slot transfers are in the 
public interest, Southwest urged the FAA to consider the potential 
impact on competition in the airline industry, noting among other 
considerations that more than 70 years, Congressional policy has 
been to maximize competition and deter anticompetitive actions in 
the U.S. Airline Industry.
    Virgin America submitted rebuttal comments in response to the 
modified slot transaction, contending that the tentative agreement 
between the carriers falls short of the divestiture of 20 slot pairs 
at LGA and 14 slot pairs at DCA that the FAA tentatively concludes 
to be required of the public interest. Virgin America believes the 
petitioners' argument that the FAA lacks legal authority to 
condition the approval on divestitures misperceives the statutory 
basis upon which the FAA has relied, and expresses support for the 
various legal arguments recited by the FAA in the Notice. In 
particular, regarding the Joint Applicants claim that the DOT/FAA 
cannot rely on pro-competitive policies when administering slots, 
Virgin America believes that such argument was expressly refuted 
long ago by a Federal appeals court in Northwest Airlines v. 
Goldschmidt, 645 F.2d 1309 (8th Cir. 1980). Similarly, Virgin 
America believes that the arguments by the Joint Applicants, and 
other legacy carriers, that the FAA's proposed divestiture 
constitutes an unlawful confiscation lack sufficient merit.
    Spirit Airlines, Inc. submitted rebuttal comments in response to 
the ``pay-to-play'' solution for redistribution of slots as 
announced by the FAA in its February 18, 2010 Notice. Spirit 
believes the FAA's proposal is not in the broad public interest. 
Spirit states that it was able to obtain 22 slots at LGA only as a 
result of Congressional intervention via the Wendell H. Ford 
Aviation Investment and Reform Act for the 21st Century (AIR-21), 
which was enacted in 2000. Since then, Spirit states that it has 
been unable to obtain through purchase or lease an adequate number 
of slots to efficiently increase service at LGA. The air carrier 
contends that airlines with a small number of slots face unique 
operating problems, which harm their inability to compete, 
including: (1) During weather and FAA-imposed ground delays, small 
slot holders like Spirit are forced to cancel or delay their most 
important flights. In the event of a forced cancellation, because of 
the few flights they are able to offer, limited incumbent low-fare 
carriers may not be able to rebook passengers from canceled flights 
until flights leaving the next day, or may be forced to pay a 
substantial cost for re-accommodating passengers onto a flight on 
one of the large incumbents. Spirit asserts that, not only are the 
smaller, low-fare airlines disadvantaged, but so too are their 
passengers, many of whom require low fares to travel; (2) carriers 
with few slots have difficulty adjusting schedules. Slot trades are 
critically important for carriers to arrange flight schedules to 
enable their overall networks to function efficiently. Yet in the 
current circumstances the larger slot holders do not need to trade 
slot times with other carriers, and the small slot holders do not 
have sufficient slots to arrange workable trades with other smaller 
carriers; (3) low-fare carriers are seriously handicapped by their 
inability to acquire a number of slots sufficient to efficiently 
utilize a gate. The cost and difficulty of operating a shared gate 
if a carrier has only a few pairs of slots, in addition to staffing 
costs, makes it virtually impossible for low-fare carriers to add 
slots one or two pair at a time; and (4) with few slots it is 
particularly difficult to address new competition in one market 
without reducing or giving up service in another. Spirit believes 
that the ``pay-to-play'' process is the worst outcome for the 
carrier and its passengers, because it would not have the financial 
resources to compete with offers from major carriers for the 
released LGA slots regardless of how efficiently it could use them, 
the profit it could earn, and the low fare benefit it provides to 
consumers. Spirit argues that the alternative proposal of allowing 
it to consummate a transaction in which it would acquire 5 LGA slot 
pairs from Delta is in the best interest of consumers because the 
slots would provide some flexibility to respond to market changes 
like the new American New York-Fort Lauderdale service which is

[[Page 26342]]

essential if Spirit is to remain a viable competitor in the New 
York-South Florida market, and the agreement gives it necessary 
flexibility to integrate the slots into its system in conjunction 
with aircraft acquisitions and seasonal route realignments, without 
disrupting its other services under pressure of the FAA use-or-lose 
requirements that could result in loss of slots.
    The Port Authority of New York and New Jersey (PANYNJ) filed a 
rebuttal addressing two subjects raised by other parties in response 
to the Notice that were not directly raised by the Notice: (1) Slots 
are not property of the airlines that have authority to conduct 
operations authorized by those slots; and (2) the Port Authority is 
the entity with the right to decide whether and how to allocate 
ground facilities at LGA. PANYNJ cites In re Braniff Airlines, 700 
F. 2d 935 (5th Cir. 1983), and other legal proceedings, in its 
contention that sufficient legal precedent establishes that slots 
``are actually the restriction of the use of property--the airplane; 
not property in themselves.'' The Port also cites 49 U.S.C. 
40103(b)(1), which provides that statutes under which the FAA issues 
slot orders and waivers preclude slots from being property. 
Regarding ground facilities, PANYNJ asserts the right to determine 
to whom and what circumstances to authorize use of airport 
facilities is an airport operator's proprietary power and right, as 
concluded in National Business Aviation Ass'n, Inc. v. City of 
Naples Airport, 162 F.Supp.2d 1343, 1348 (M.D. Fla. 2001), as well 
as the airport proprietor's rights to determine whether and under 
what terms and conditions access should be provided to an airline, 
as provided by 49 U.S.C. 41713(b)(3). Further, PANYNJ believes that 
if the FAA accepts these slot transfers as full or partial 
satisfaction of FAA's competition concerns, the benefits of the 
increase in the presence of new entrant/limited incumbent carriers 
at LGA should be maintained for the life of these slots, i.e., until 
October 29, 2011. Accordingly, the Port believes that if the FAA 
issues an order granting the waiver petition of Delta and US Airways 
based in whole or in part on the transfers of slots to JetBlue, 
AirTran, Spirit and WestJet, such an order should provide that those 
slots be subject to a restriction ``precluding the carriers 
purchasing the slot interests acquired pursuant to [those transfers] 
from re-selling, or leasing, them to any carriers that are not 
eligible'' to receive slots under the Waiver Proposal set forth in 
the Notice.
    Delta and US Airways submitted joint rebuttal comments in 
response to comments of the United States Justice Department and 
Southwest Airlines Co. The carriers reiterated many of the points 
they made earlier, particularly concerning their belief that the FAA 
has the authority to consider safety and efficient use of airspace, 
not competition. The carrier argues that both the DOJ and Southwest 
Airlines misinterpret regulatory guidance and legal precedent in 
their assertion that the FAA has statutory authority to condition 
the waiver grant on the divestiture of slots. The carriers also 
argued that: (a) There is no evidence that the transaction will 
reduce the likelihood of low-cost carrier entry; (b) the DOJ ignores 
undisputed evidence that the transaction will increase, not reduce, 
competition; (c) the DOJ offers no evidence that increases in slot 
ownership at DCA and LGA would produce competitive harm or increase 
fares; (d) the DOJ's assertion relating to market definition do not 
address the parties' evidence; and (e) the DOJ's assertion that the 
proposed divestiture will not interfere with the transaction's 
benefits suffers from numerous flaws. The commenters also urged that 
their privately-contracted slot transfers should be approved, as the 
various parties have entered into a transaction that satisfies the 
FAA's and the DOJ's desire to see the slots go to low-cost carriers 
and Southwest's comments reflect an untenable attempt to exploit the 
waiver request for its own benefit. They also asserted that 
Southwest has had ample opportunities to obtain DCA and LGA slots 
but has chosen not to do so, that it cannot complain about market 
concentration given its near exclusive presence at its dominant 
airports, including Love Field Airport, and that there is no basis 
for Southwest's suggestion that it would make more beneficial use of 
the slots than JetBlue, AirTran, Spirit, and WestJet.
    DOJ submitted rebuttal comments in response to public comments 
challenging the FAA's statutory, factual, and analytical basis for 
imposing the proposed divestiture conditions. The DOJ also 
reiterated its support for the FAA's tentative decision. DOJ offers 
the following comments in reply to some of the parties' key 
arguments: (1) FAA divestitures offset harm while preserving 
purported efficiencies. The Department counters claims that the 
conditions would provide more competitive harm than benefit, and 
furthers states that it used the same analytical scenario advanced 
by the opposing parties, while also taking into account the LCC 
factor, in conducting its analysis. The Department states that it 
reached a very different conclusion, that the aggregate impact on 
consumers from the proposed divestiture would be strongly positive; 
(2) the modification proposal warrants careful examination. The DOJ 
believes the circumstances and limited disclosed terms of the 
proposed transfers strongly suggest that the divestitures were 
structured to minimize the potential competitive effect on Delta and 
US Airways, and consequently potential benefits for consumers. The 
DOJ recommends that the FAA examine the details of the proposals, 
including the agreements themselves and surrounding circumstances, 
to evaluate their likely effects; (3) competition from nearby 
airports will not completely offset lost competition between US 
Airways and Delta at DCA and LGA. The DOJ contends that nothing in 
the parties' various submissions refutes the notion that flights out 
of DCA (or LGA) provide closer competition to other flights out of 
DCA (or LGA) than do flights out of IDA and BWI (or JFK and EWR), 
and thus that market power can be exercised at DCA (or LGA) against 
some passengers despite the presence of competition from the other 
two nearby airports; (4) DOT/FAA review of competition effects does 
not interfere with DOJ authority. The DOJ notes that it is 
particularly ironic that, before the Notice was issued in this 
matter, Delta urged DOT/FAA to undertake a broad analysis of the 
competitive effects of this transaction and only raised objections 
once the carrier saw the results of the FAA's competitive analysis. 
The DOJ concludes its reply comments by reiterating that the FAA has 
sufficient statutory, analytical, and factual basis to impose the 
conditions proposed in its Notice, and urged the FAA to subject the 
modified transaction proposed by the parties to close scrutiny.
    Delta and US Airways submitted a Motion for Leave to File 
Comments on April 7, 2010 in response to rebuttal comments of the 
DOJ. The carriers believe it is necessary to respond to comments 
included in the DOJ's rebuttal comment reply as a matter of 
correcting the record although the comment period has expired. The 
carriers offered the following rebuttals: (1) The DOJ's purported 
misgivings about the alternative slot transfers are misplaced. The 
carriers reiterate that the slot transaction will not go forward 
under the terms proposed by the FAA, and the modified slot proposal 
submitted by the six parties satisfies the FAA concerns while 
preserving the transaction. Further, the carriers disagree with the 
Department's favored cash-only winner-take-all process that, they 
believe, would virtually guarantee that all of the slots would go to 
better-capitalized Southwest; and (2) the DOJ has abandoned any 
defense of the FAA's consideration of competition. The commenter's 
believe that the DOJ has abandoned the view that it expressed in its 
initial comments that the FAA has authority to consider competition 
under 49 U.S.C. 40101(a), and has chosen instead to defer to the 
FAA's view of its own authority. Additionally, the carriers argue 
that the Department fails to offer any coherent explanation for how 
the FAA's exercise of competition authority can be reconciled with 
Congress's decision to remove Section 7 authority from the DOT and 
to delegate that authority exclusively to the DOJ. Delta and US 
Airways conclude their Motion for Leave to File Comments by 
reiterating that the DOJ's rebuttal comments confirm the FAA has no 
legal authority to impose a divestiture condition, and therefore the 
FAA should either grant the carriers an exemption from the LGA 
Order, or promptly approve the modified transaction. A subsequent 
filing was also received, urging that the transaction between 
American and JetBlue, by which JetBlue would obtain eight slot pairs 
at DCA and use them to serve Boston, Orlando, and Ft. Lauderdale, 
should serve to resolve the Department's concerns about low-cost 
carrier entry and competition at that airport.

Appendix B

Standard Industry Fare Level Analysis Washington and New York Area 
Airports

    The figures for Washington, depicted in the table below, show 
the percentage of total area O&D passengers using each of the WAS 
area airports, the passenger weighted percent of fares at each 
airport compared to the mileage adjusted SIFL expressed as a percent 
of SIFL, an identification of the largest passenger carrier at each 
airport, its percent of O&D traffic, and finally an indication of 
that

[[Page 26343]]

carrier's passenger weighted fare as a percent of passenger weighted 
SIFL fares.

             Washington Area Airports' Percent of SIFL, Largest Carrier SIFL and Percent of Traffic
----------------------------------------------------------------------------------------------------------------
                                     % of WAS       Apt % SIFL       Lgest Car     % of Traffic       % SIFL
----------------------------------------------------------------------------------------------------------------
BWI.............................              41              65              WN              48              65
DCA.............................              35             101              US              33             124
IAD.............................              23              77              UA              47              90
----------------------------------------------------------------------------------------------------------------
Note: If US Airways is removed from the DCA percent of SIFL calculation the airport average SIFL would decline
  to 88% of SIFL.

    As can be seen, the relationship of actual fares to the SIFL 
fare benchmark is very different at the three Washington area 
airports. Actual fares are 65% of SIFL at BWI, 77% at IAD and 101% 
at DCA.
    The comparable statistics for the NYC airports are summarized in 
the following table.

               New York Area Airports Percent of SIFL, Largest Carrier SIFL and Percent of Traffic
----------------------------------------------------------------------------------------------------------------
                                     % of NYC       Apt % SIFL       Lgest Car     % of Traffic       % SIFL
----------------------------------------------------------------------------------------------------------------
EWR.............................              30              71              CO              59              71
JFK.............................              34              57              B6              46              57
LGA.............................              35              82              DL              30              89
----------------------------------------------------------------------------------------------------------------
Note: If Delta is removed from the DCA percent of SIFL calculation the airport average SIFL would decline to 79%
  of SIFL.

    The results show that actual fares are 71% of SIFL at EWR, 57% 
of SIFL at JFK, and 82% of SIFL at LGA. Delta Air Lines is the 
largest carrier with 30% of traffic and a weighted average fare of 
89% of SIFL. We noted that if Delta is excluded from LGA figures the 
airport percent of SIFL would decline to 79% of SIFL.

[FR Doc. 2010-10978 Filed 5-10-10; 8:45 am]
BILLING CODE 4910-13-P