[Federal Register Volume 86, Number 179 (Monday, September 20, 2021)]
[Notices]
[Pages 52285-52289]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-20399]


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DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

Office of the Secretary

[Docket No. DOT-OST-2021-0103]


Reassignment of Schedules at Newark-Liberty International Airport

AGENCY: Office of the Secretary of Transportation (OST) and Federal 
Aviation Administration (FAA), Department of Transportation (DOT).

ACTION: Notice of proposed reassignment of schedules at Newark Liberty 
International Airport.

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SUMMARY: By this notice, the U.S. Department of Transportation

[[Page 52286]]

(Department or DOT), including the Federal Aviation Administration 
(FAA), provides notice of its intention to approve schedule plans, for 
a single low-cost carrier (LCC) or ultra-low-cost carrier (ULCC), to 
operate the 16 peak afternoon and evening runway timings previously 
approved for operation by Southwest Airlines, Inc. (Southwest) at 
Newark-Liberty International Airport (EWR or Newark). The Department is 
seeking comment on the proposed process as well as the proposed 
eligibility and evaluation criteria described below. Comments are due 
no later than September 27, 2021.

DATES: Submit comments on or before September 27, 2021.

ADDRESSES: Submit comments to docket DOT-OST-2021-0103.

FOR FURTHER INFORMATION CONTACT: Todd Homan, Director, Office of 
Aviation Analysis, 1200 New Jersey Avenue SE, Washington, DC 20590 or 
(202) 366-5903; or Al Meilus, Manager, Slot Administration, AJR-G, 
Federal Aviation Administration, 800 Independence Avenue SW, 
Washington, DC 20591; telephone (202) 267-2822; email 
[email protected].

SUPPLEMENTARY INFORMATION: This notice and the actions the Department 
is proposing are in response to the Court of Appeals for the D.C. 
Circuit's decision in Spirit Airlines v. DOT, et al., and in 
furtherance of the whole of government approach to competition embodied 
in the President's Executive Order 14036.\1\
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    \1\ See Executive Order issued July 9, 2021, available at 
https://www.whitehouse.gov/briefing-room/statements-releases/2021/07/09/fact-sheet-executive-order-on-promoting-competition-in-the-american-economy/.
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Background

    In 2010, United Airlines, Inc. (United) and Continental Airlines, 
Inc. (Continental) announced plans to merge. In response to concerns 
raised by the Department of Justice (DOJ) over the transaction and its 
potential anticompetitive effects, particularly where Continental was 
the dominant carrier, United agreed to transfer 36 of its take-off and 
landing rights (operating authorizations or slots) at EWR to Southwest 
Airlines, Inc. (Southwest). DOJ found that, ``[t]he transfer of slots 
and other assets at Newark to Southwest, a low cost carrier that 
currently has only limited service in the New York metropolitan area 
and no Newark service, resolves the department's principal competition 
concerns and will likely significantly benefit consumers on overlap 
routes as well as on many other routes.'' \2\ United and Continental 
carried out their merger and the post-merger United became the dominant 
carrier at EWR.
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    \2\ ``United Airlines and Continental Airlines Transfer Assets 
to Southwest Airlines in Response to Department of Justice's 
Antitrust Concerns'', United States Department of Justice Press 
Release, August 27, 2010, https://www.justice.gov/opa/pr/united-airlines-and-continental-airlines-transfer-assets-southwest-airlines-response.
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    At the time of the merger, EWR was an FAA-designated Level 3 (slot-
coordinated) airport, meaning that, in order to perform a take-off or 
landing during most hours, an air carrier needed an FAA-allocated slot 
for the time of the operation. Under then-applicable rules, carriers 
that held slots could trade or lease them to other carriers.\3\ In 
2016, as the result of improved operational metrics, FAA re-designated 
EWR a Level 2 (schedule facilitated) airport.\4\ Under Level 2, slots 
are not allocated. Rather, carriers submit schedule requests for the 
upcoming season to FAA, and FAA works cooperatively with carriers to 
seek voluntary schedule adjustments from carriers to alleviate delays 
and other operational issues. Once agreed upon, FAA approves each 
carrier's schedule. Under Level 2, carriers generally retain schedule 
priority based on actual operations conducted as approved in the 
previous corresponding season, but such schedule approvals are not 
transferrable like slots (i.e., carriers cannot trade or lease their 
approved schedules to other carriers).
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    \3\ See Operating Limitations at Newark Liberty International 
Airport, 74 FR 51648 (Oct. 7, 2009).
    \4\ See ``Change of Newark Liberty International Airport (EWR) 
Designation'', 81 FR 19861, April 6, 2016.
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    On July 25, 2019, Southwest announced that it would cease 
operations at EWR effective November 3, 2019.\5\ As Southwest could not 
lease its approved runway timings to another carrier under Level 2 
rules, upon its cessation of service, Southwest's approved runway 
timings reverted to FAA. Sixteen of these operations were in peak 
afternoon and evening hours (specifically, the period from 14:00-21:59 
Eastern Time) at EWR when schedule approvals were generally not 
otherwise available. These operations were also in hours when approved 
schedules were generally at or above the 79/hour operational cap 
imposed by FAA, on average and considering offsets in adjacent periods. 
In an effort to improve performance at EWR, FAA lowered the scheduling 
limit effective with the summer 2018 season that commenced in March 
2018.\6\ Following this change, FAA approved flights above the 79/hour 
limit only if operated in the previous corresponding season by the same 
carrier and dating back to the higher limit.
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    \5\ ``Southwest Reports Record Second Quarter Revenues And 
Earnings Per Share'', Southwest Airlines Press Release, July 25, 
2019, https://www.swamedia.com/releases/release-424146113c6f2a2eebe84fb61d59a4ff-southwest-reports-record-second-quarter-revenues-and-earnings-per-share?query=newark.
    \6\ See Notice of Submission Deadline for the Summer 2018 
Scheduling Season, 82 FR 45938 (Oct. 2, 2017). The winter season 
limits were already at 79 per hour based on winter season capacity 
analyses. See also Notice of Submission Deadline for the Winter 2018 
Scheduling Season, 83 FR 21335 (May 9, 2018). The FAA had also 
previously targeted a scheduling limit of 79 operations per hour in 
the initial transition from Level 3 slot controls to Level 2 
schedule facilitation at EWR.
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    In a letter dated August 12, 2019, the Assistant Attorney General 
for the Antitrust Division stated that, ``[Southwest's] decision 
implicates the relief we negotiated with United Airlines as a condition 
of its merger with Continental in 2010. We are therefore committed to 
working with the DOT and FAA to evaluate how best to reallocate 
Southwest's capacity at the airport in a manner consistent with our 
enforcement decision in that matter.'' The letter goes on to state:

    Those divestitures indeed facilitated important competition at 
the airport. Southwest used the slots to introduce new low-fare 
competition to United on multiple routes resulting in substantially 
lowered fares and increased service . . . Given that United already 
holds approximately 66% of authorizations at Newark, and that 
competition for United is already in short supply at the airport 
(e.g., 81 of 148 routes at the airport are monopoly routes operated 
by United), we believe the DOT and FAA should seek to resolve the 
reallocation issue in a way that preserves competition at the 
airport. To do otherwise would undermine the goal of the remedy the 
DOJ negotiated with United as a condition of its merger with 
Continental.

    On October 2, 2019, as part of a routine scheduling notice, FAA 
announced that it would not replace or ``backfill'' all of Southwest's 
operations in the EWR schedule to the extent such operations exceeded 
the scheduling limits for purposes of the summer 2020 scheduling 
season.\7\ However, FAA also stated that it planned to assess the 
impacts of the peak period Southwest reductions and other schedule 
changes at EWR on performance, as well as the impacts on competition in 
close coordination with the Office of the Secretary of Transportation, 
in the upcoming Winter 2019/2020 and Summer 2020 scheduling seasons.\8\

[[Page 52287]]

Ultimately, for the 36 slots that were the subject of the 2010 United/
Continental divestiture, FAA reallocated 20 of Southwest's operations, 
but did not ``backfill'' 16 peak-hour operations.
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    \7\ See ``Submission Deadline for Schedule Information for 
Newark Liberty International Airport for the Summer 2020 Scheduling 
Season'', 84 FR 52580, October 2, 2019, at 52582.
    \8\ Ibid.
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    Spirit Airlines sought review by the U.S. Court of Appeals for the 
D.C. Circuit, challenging FAA's decision not to backfill the 16 peak-
hour operations, claiming that FAA's decision was arbitrary and 
capricious because FAA failed to consider the effect of its decision on 
competition and did not explain why it could not use a less burdensome 
tool (such as a schedule reduction meeting under 49 U.S.C. 41722), and 
lacked substantial evidence for its decision. On May 21, 2021, the D.C. 
Circuit vacated FAA's decision and remanded the matter to the agency to 
address the issue of competition.\9\ In doing so, the D.C. Circuit 
stated that ``the agency . . . ignored information about the 
competitive situation at Newark'' and that the ``record provides 
precious little insight into whether or how the FAA approached the 
competition problem.'' \10\ The D.C. Circuit also highlighted the fact 
that the agency did not discuss ``why it prefers miniscule reductions 
in delay more than competition that could lower fares for passengers.'' 
\11\ Finally, the Court cautioned that ``[i]f the FAA again decides to 
retire Southwest's peak-period slots, it should be prepared to provide 
a reasoned explanation for preferring to cut travel time an average of 
one minute rather than to cut the price of flying by as much as 45 
percent on routes that would gain a second carrier.'' \12\
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    \9\ Spirit Airlines Inc. v. DOT et al., 997 F.3d 1247, 1255 
(D.C. Cir. 2021).
    \10\ Id. at 1256.
    \11\ Id.
    \12\ Id. at 1257.
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Demand and Congestion at EWR

    Consistent with the delay modeling results included in the 
administrative record in Spirit Airlines v. DOT, et al. (D.C. Cir. 19-
1248), with demand at pre-pandemic levels, FAA estimates that 
``backfilling'' the 16 runway timings previously held by Southwest in 
peak afternoon and evening periods would increase delay at EWR by 5.9%, 
or by an average of 1.2 minutes per operation throughout the day. 
However, since the 16 runway timings are all in the peak afternoon and 
evening period; the added delay would be concentrated in these hours.
    EWR and LaGuardia Airport (LGA) are the two most delayed airports 
in the National Airspace System (NAS) as reported through Aviation 
System Performance Metrics (ASPM) delays compared to scheduled gate 
departures/arrivals. Congestion at EWR should be considered in context 
against the other NYC area airports as well as Philadelphia 
International Airport (PHL), airports within similar operational and 
passenger catchment areas.\13\ Compared to LGA, EWR has a slightly 
higher completion rate,\14\ but also a higher rate of delayed 
operations. In fiscal year (FY) 2019, EWR's completion rate (97.0%) was 
lower than the NAS average, but similar to the completion rate at LGA 
(96.8%) and PHL (97.4%). Also in FY 2019, EWR's rate of delayed flights 
was 29.4% compared to schedule for gate departures and gate arrivals, 
which is higher than LGA (26.1%), John F. Kennedy International Airport 
(22.5%), and PHL (20.4%).\15\
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    \13\ An airport's catchment area is the geographic area from 
which your airport can reasonably expect to draw commercial air 
service passengers. See ``Defining Your Airport's Catchment Area'' 
available at: https://crp.trb.org/acrpwebresource1/defining-your-airports-catchment-area/.
    \14\ Completion Rate refers to the percentage of scheduled and/
or planned air carrier arrivals that were not cancelled. Calculated 
as Metric Arrivals/(Metric Arrivals + Cancelled Arrivals). Cancelled 
Arrivals are determined next day using air carrier flight plan 
cancellation messages and scheduled flights not flown. Airline 
Service Quality Performance (ASQP) cancellation data are used when 
available. See ``ASPM Cancellations: Definitions of Variables'' 
available at: https://aspm.faa.gov/aspmhelp/index/ASPM_CancellationsDefinitions_of_Variables.html.
    \15\ See docket for ASPM data.
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    The FAA made significant progress smoothing and balancing the 
schedule at EWR under the Level 2 construct just prior to the COVID-19 
pandemic. The sudden, drastic disruption caused by COVID-19 affects the 
analysis and relevant long-term effects of operational, performance, 
and demand-related changes at EWR, including those changes resulting 
from Southwest leaving the airport. Access to EWR and the New York City 
area generally remains coveted, and schedule requests for flights at 
EWR have exceeded the desired scheduling limits in multiple hours. 
While the FAA would accommodate the reassignment of the 16 peak 
afternoon and evening operations as proposed in this notice, the FAA 
would continue to seek voluntary cooperation from all carriers to 
adjust schedules at EWR in an effort to manage the operation within the 
desired scheduling limits.
    FAA notes that the COVID-19 public health emergency has created 
uncertainty about the ultimate recovery of demand back to pre-COVID 
levels or the potential for a ``new normal'' in demand levels at EWR as 
the public's travel patterns have, and continue, to evolve, and 
carriers restructure their networks to accommodate this dynamic. Given 
this evolving situation, FAA will continue to monitor performance at 
EWR and review its capacity evaluation and targeted scheduling limits 
at EWR in the future. However, at the current time, the desired hourly 
scheduling limit at EWR remains at 79 operations per hour and 43 
operations per half-hour.\16\ Based on historical demand and an 
increase in operations in ``shoulder'' periods adjacent to the busiest 
hours before the COVID-19 public health emergency, most hours are now 
at the desired hourly scheduling limits. To help with a balance between 
arrivals and departures, the desired maximum number of scheduled 
arrivals or departures, respectively, is 43 in an hour and 24 in a 
half-hour. This would allow some higher levels of operations in certain 
periods (not to exceed the hourly limits) and some recovery from lower 
demand in adjacent periods. FAA will seek to work in coordination with 
the awarded carrier to adjust schedules within the peak afternoon and 
evening period, including minor changes between adjacent half hours, in 
the interest of optimizing efficiency and accommodating the carrier's 
schedule plans, consistent with the usual Level 2 process.
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    \16\ See 86 FR 24448 (May 6, 2021).
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Proposed Reassignment

    As stated above, FAA estimates that, in a pre-COVID-19 environment, 
reassigning the 16 peak-hour operations would result in additional 
delays, for all EWR operations, of approximately 1.2 minutes per 
operation throughout the day. United, by far the largest carrier at EWR 
by several measures, operates many routes on a monopoly basis. The 
Department has previously found that introducing LCC services in 
competition on monopoly routes significantly reduces fares on those 
routes.\17\ One study found that the presence of LCCs and ULCCs causes 
a decrease in average one-way fares of between $15-$36.\18\ Absent 
introduction of these LCC services, it is highly unlikely that there 
will be any significant reduction in fares. These potential savings to

[[Page 52288]]

consumers are important objectives of the President's Executive Order 
on competition, particularly in a concentrated market. There are many 
benefits of competition, including lower fares, more throughput, higher 
utilization of scarce assets, more opportunities to develop flexible or 
common use airport facilities, and reduced opportunities for 
exclusionary behavior such as ``babysitting.'' That will not change 
unless we introduce the LCC services and at the same time, seek 
necessary adjustments by incumbent carriers to mitigate the potential 
delays. The Department believes that the benefits of lower fares 
significantly outweigh the impacts of additional delays.
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    \17\ See ``U.S. DOT/FAA--Notice of a Petition for Waiver and 
Solicitation of Comments on Grant of Petition with Conditions'', 
FAA-2010-0109-0097, Jul. 21, 2011, at 33-34.
    \18\ Wittman, Michael D.; Swelbar, William S. (August 2013). 
Evolving Trends of U.S. Domestic Airfares: The Impacts of 
Competition, Consolidation, and Low-Cost Carriers at 20; see also 
Bennett, Randall D.; Craun, James M. (May 1993). The Airline 
Deregulation Evolution Continues: The Southwest Effect. Office of 
Aviation Analysis, U.S. Department of Transportation.
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    Given the court's decision, ongoing competition issues at EWR, and 
Executive Order 14036, the Department believes that it is necessary to 
reintroduce the competition that was previously provided by Southwest 
at EWR even though this will increase delays at EWR. Pursuant to the 
Department and FAA's authority under 49 U.S.C. 40101, 40103, and 41712, 
the Department is initiating a proceeding to reassign the 16 peak-hour 
runway timings at issue. The Department believes that reassigning these 
schedule plans to operate in the 16-peak hour runway timings, in a 
manner that would continue to satisfy DOJ's competition remedy related 
to the United/Continental merger, and as quickly as possible, best 
satisfies the public interest and addresses the concerns of the D.C. 
Circuit.
    This action is not a routine approval of schedule plans that would 
typically be handled under FAA's standard schedule facilitation 
procedures. The Department notes that this proceeding arises out of an 
unusual circumstance, where Southwest stopped operating at EWR, thus 
returning a large number of operations that Southwest acquired as a 
condition of the United-Continental merger. Thus, the Department is 
treating this matter as the reassignment and continuation of the DOJ-
approved competition remedy to the United-Continental merger. As such, 
the Department proposes to evaluate proposals from eligible carriers 
that can effectively carry out the goals of that competition remedy, 
namely to provide price and service competition to United, the dominant 
hub carrier at EWR, and for FAA to approve the peak-hour schedule plans 
of the carrier chosen based on that evaluation. In order to maintain 
the effect of the 2010 competition remedy, the Department has 
tentatively concluded that the schedule plans to operate in the 16 
peak-hour runway timings should be approved as a package to a single 
carrier able to provide the type and magnitude of competitive 
discipline at EWR contemplated by the DOJ remedy.
    Previously, DOJ found that the divestiture to Southwest of 36 slots 
at Newark (i.e., United's pre- merger holdings), including the 16 peak 
afternoon and evening period slots at issue in this notice, resolved 
its competition concerns with the transaction. By divesting all of the 
slots to a single carrier with a proven track record and the capability 
to provide a competitive pattern of frequent service in markets 
operated by United-Continental, DOJ was able to minimize the number of 
slots divested while maximizing the competitive impact of the remedy.
    Based upon current competitive conditions, the Department finds 
that, in order to provide price discipline for the services of a hub 
carrier in particular, the LCC or ULCC approved to operate in the 16 
peak-hour runway timings needs to have a sufficient pattern of service 
to achieve economies of scale in its operations at the airport 
consistent with its low-cost or low-fare business model, to protect 
itself from potential anticompetitive behavior from the dominant 
carrier(s), and to have sufficient incentive and ability to compete 
head to head with dominant carriers.\19\ Furthermore, we have 
previously found that a single carrier offering a broader competitive 
alternative to the hub carrier's customer proposition at the airport 
can extend the benefits of the low-fare service even in markets without 
LCC or ULCC services by changing passengers' perception of what a fair 
price is for a particular itinerary.\20\ When fares are substantially 
higher, customers tend to look for cheaper alternatives at other 
airlines or nearby airports to avoid paying ``above market'' prices. 
This ``halo effect'' tends to discipline high fares charged by the 
incumbent even in markets where the LCC does not operate, at the 
margin.
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    \19\ ``Restricting eligibility to these . . . carriers would 
assist new or small non-aligned carriers in defending themselves 
against increasingly dominant competitors, which, with the benefit 
of additional slot interests, could pursue anticompetitive 
strategies such as significantly increasing existing services in any 
new entrant/limited incumbent/low-cost/non-aligned carrier market.'' 
Petition for Waiver of the Terms of the Order Limiting Scheduled 
Operations at LaGuardia Airport, 75 FR 7306, February 18, 2010 at 
7310.
    \20\ See Bennett, Randall D.; Craun, James M. (May 1993). The 
Airline Deregulation Evolution Continues: The Southwest Effect. 
Office of Aviation Analysis, U.S. Department of Transportation; and 
Wittman, Michael D.; Swelbar, William S. (August 2013). Evolving 
Trends of U.S. Domestic Airfares: The Impacts of Competition, 
Consolidation, and Low-Cost Carriers.
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    For these reasons, the Department proposes to approve, as a package 
to an eligible LCC or ULCC, schedule plans to operate in the 16 peak-
hour runway timings previously approved for operation by Southwest. The 
Department seeks to finalize this process to enable a carrier to begin 
operations as soon as possible, as early as the start of the Winter 
2021/2022 scheduling season. To determine eligibility, the Department 
is proposing several criteria, described below.
    While approving an LCC or ULCC's schedule plans to operate in these 
16 peak-hour runway timings is necessary to address ongoing competition 
issues at EWR, the Department is not concluding by virtue of this 
process that such action will be sufficient to resolve all of those 
issues. In addition, the Department notes that, aside from this 
proceeding to reassign 16 operations historically approved for 
operation by Southwest, usual policies and procedures for Level 2 
schedule facilitation at EWR continue to apply.\21\ The FAA intends to 
provide responses to all pending schedule requests for the Winter 2021/
2022 scheduling season as soon as possible following issuance of this 
notice. Once this reassignment proceeding has been completed, the FAA 
will take action to approve the 16 additional operations for the 
benefit of the awarded carrier.
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    \21\ See e.g., Notice of Submission Deadline for Winter 2021/
2022 Scheduling Season, 86 FR 24428 (May 6, 2021).
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Eligibility and Evaluation Criteria

    In airline transactions involving constrained markets, where market 
concentration is at issue, the Department has found that LCCs and ULCCs 
have the greatest competitive impact upon entry by their ability to 
dramatically lower fares and increase the volume of passengers in a 
market.\22\ In the 2010 United/Continental divestiture, DOJ was 
satisfied that its competition concerns had been addressed by the 
transfer to Southwest, a LCC, of United's EWR slots and other assets.
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    \22\ See ``Petition for Waiver of the Terms of the Order 
Limiting Scheduled Operations at LaGuardia Airport'', 76 FR 63702, 
October 13, 2011 at 63705, and, Order 2016-11-2 at 21.
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    Given competitive conditions at Newark--including United's ongoing 
dominance at EWR and the relatively small number of operating 
authorizations being reassigned--the Department tentatively believes 
that continuing to limit eligibility to LCC or ULCC carriers would best 
serve the public interest by providing the

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maximum level of competition with the available public assets.
    In determining which LCC or ULCC would provide the maximum 
competition, the Department tentatively proposes to consider, among 
other factors, carriers' business model and track record to ensure that 
they have the ability and stamina to provide the level of competition 
required. The business model and track record will be determined by 
analysis of revenue, traffic, and schedule data. More specifically, the 
Department will consider:
     Business model and product offering that allow the carrier 
to effectively compete, including the extent to which offering low 
fares to large numbers of travelers is core to its business proposition 
across markets;
     Record of entering and effectively competing in markets 
like those served by dominant carrier(s) at Newark;
     Staying power and track record in highly competitive 
markets, especially vis-[agrave]-vis the specific hub carrier and at 
network carrier hubs and focus cities where the competitive responses 
from incumbent airlines to new entry by price competitors may be 
particularly aggressive; and
     Ability to appeal to a broad cross section of passengers 
by offering a competitive schedule with (at least) minimum levels of 
daily and weekly frequency appropriate for the market(s) at issue, 
along with reasonably competitive onboard products and services and the 
ability to deliver them to customers consistently over time.
    The Department tentatively proposes to evaluate eligible carriers 
based on the above criteria.

Comments Requested

    The Department requests comments on various aspects of the proposed 
process outlined in this notice. Specifically, the Department seeks 
comments on its tentative decision to approve schedule plans, for a 
single carrier, to operate in the 16 peak-hour runway timings as soon 
as possible; its tentative decision to limit eligibility to LCC and 
ULCC carriers; and its proposed evaluation criteria. The Department 
will consider comments outside of the scope of this request as 
nonresponsive. Comments must be filed in this docket and are due not 
later than September 27, 2021.
    Since the issuance of the D.C. Circuit's decision, the Department 
has received letters from interested stakeholders. Any correspondence 
related to the specific issues discussed in this notice have been 
included in the docket.
    The Department will consider all responsive comments received and 
issue a further notice finalizing its decision and soliciting proposals 
from eligible carriers. If no responsive comments are received, the 
Department may proceed directly to issuing a notice requesting 
proposals and providing instruction for doing so.\23\
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    \23\ The Department will solicit proposals on a confidential 
basis given the sensitive commercial information that they are 
likely to contain.

    Issued in Washington, DC, on September 16, 2021.
Carol Annette Petsonk,
Deputy Assistant Secretary for Aviation and International Affairs, U.S. 
Department of Transportation.

Virginia T. Boyle,
Vice President, System Operations Services, Federal Aviation 
Administration.
[FR Doc. 2021-20399 Filed 9-16-21; 4:15 pm]
BILLING CODE 4910-9X-P