[Federal Register: May 11, 2010 (Volume 75, Number 90)]
[Notices]
[Page 26322-26343]
[DOCID:fr11my10-154]

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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.

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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<PHONE_NUMBER> or by
electronic mail at<EMAIL_ADDRESS>or Jonathan Moss, Deputy
Assistant General Counsel for Operations, by telephone at (202) 366-
4710 or by electronic mail at<EMAIL_ADDRESS>
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

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.
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    \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.
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    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.
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    \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).
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    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.
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    \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.
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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.
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    \10\ 75 FR 7308 (Feb. 18, 2010).
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    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\
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    \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.
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    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\
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    \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.
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    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.
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    \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.
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    We also found that these differences in the level of yields at area
airports

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\
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    \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.
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    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.
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    \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.
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    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\
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    \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.
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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\

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\
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    \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).
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    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\
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    \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.
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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\
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    \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.''
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    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

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

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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''

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

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

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

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

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

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.
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    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.

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

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

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.
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    \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.
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    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\
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    \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