[Federal Register Volume 76, Number 198 (Thursday, October 13, 2011)]
[Notices]
[Pages 63702-63714]
[FR Doc No: 2011-26465]

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DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

[Docket No. FAA-2010-0109]

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

ACTION: Notice of grant of petition with conditions.

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SUMMARY: The Secretary and the Federal Aviation Administration (FAA)
are granting the joint waiver request of Delta Air Lines, Inc. (Delta)
and US Airways, Inc. (US Airways) (together, the Joint Applicants or
the carriers) from the prohibition on purchasing operating
authorizations (slots) at LaGuardia Airport (LGA). The waiver permits
the carriers to consummate a transaction in which US Airways would
transfer to Delta 132 slot pairs (265 slots) at LGA. In exchange, Delta
would transfer to US Airways 42 slot pairs (84 slots) at Ronald Reagan
Washington National Airport (DCA), convey route authority to operate
certain flights to S[atilde]o Paulo, Brazil, and make a cash payment to
US Airways. The waiver is subject to a number of conditions, including
that the carriers dispose of 16 slots at DCA and 32 slots 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.

DATES: The waiver is effective October 13, 2011.

FOR FURTHER INFORMATION CONTACT: Rebecca MacPherson, Assistant Chief
Counsel for Regulations, by telephone at<PHONE_NUMBER> or by
electronic mail at<EMAIL_ADDRESS>
SUPPLEMENTARY INFORMATION:

The Proposed Transaction and the Waiver Request

    The FAA limits the number of scheduled and unscheduled operations
during peak hours at LGA pursuant to an Order that was originally
published in December 2006 and that has been extended several times
since (the Order).\1\ The Order allocates operating

authorizations (commonly known as slots) to carriers and establishes
rules for the use and operation of slots. The Order allows temporary
leases and trades of slots between carriers, provided that they do not
extend beyond the duration of the Order.\2\ Most importantly for
purposes of this waiver request, the Order does not permit the purchase
and sale of slots at LGA. The only way for a carrier to sell or
purchase a slot at LGA is through a waiver of the Order.
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    \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); 76 FR
18,616 (Apr. 4, 2011) (extending the expiration date until the
effective date of the final Congestion Management Rule for LaGuardia
Airport, John F. Kennedy International Airport, and Newark Liberty
International Airport, but not later than Oct. 26, 2013).
    \2\ As previously noted, the Order expires upon the effective
date of the final Congestion Management Rule at LaGuardia Airport,
John F. Kennedy International Airport, and Newark Liberty
International Airport, but not later than October 26, 2013.
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    A different legal regime governing slots exists at DCA. The High
Density Rule (HDR) \3\ limits scheduled and unscheduled operations
there. The HDR permits carriers to sell or purchase slots at DCA freely
with only FAA confirmation of the transaction.
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    \3\ 14 CFR part 93, subparts K and S.
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    On May 23, 2011, the Joint Applicants submitted a joint request for
a limited waiver from the prohibition on purchasing slots at LGA. The
carriers requested the waiver to allow them to consummate a transaction
in which US Airways would transfer to Delta 132 slot pairs (265 slots)
at LGA, and Delta would transfer to US Airways 42 pairs (84 slots) at
DCA, together with route authority to operate certain flights to
S[atilde]o Paulo, Brazil, and make a cash payment to US Airways.

FAA's Tentative Determination

    On July 21, 2011 the FAA issued a Notice of petition for waiver and
solicited comments on the proposed grant of the petition with
conditions, through August 29 in this Docket. 76 FR 45,313 (July 28,
2011). In that notice, we tentatively approved the proposed transaction
subject to certain conditions (July 2011 Notice).\4\ At that time, we
tentatively found that the proposed transaction offered important
benefits to the public. At the same time, we were concerned that the
proposed transaction could have an adverse impact on competition
because of the reduction in competition between the two carriers and
their increased market share at the two airports, among other
factors.\5\ We evaluated the public interest in this transaction,
examining both the benefits that were likely to be attained and the
possible adverse consequences that could result from the proposed
transaction, and tentatively concluded that the waiver should be
granted with certain conditions.
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    \4\ 76 FR 45313.
    \5\ 76 FR at 45315.
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    To mitigate the competitive harms that may accrue from the
transaction, we proposed conditions that included the divestiture of 32
slots at LGA (16 arrival and 16 departure) and 16 slots at DCA, by a
blind, cash-only sale through an FAA-managed Web site, to limited
incumbent and new entrant carriers having fewer than five percent of
the total slot holdings at DCA and LGA respectively, and that do not
code share to or from DCA or LGA with any carrier that has five percent
or more slot holdings. We also proposed that carriers eligible to
purchase the divested slots not be subsidiaries, either partially or
wholly owned, of a company whose combined slot holdings are equal to or
greater than five percent at DCA or LGA respectively.\6\
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    \6\ We proposed an exception from the subsidiaries rule for
Frontier Airlines, which while wholly-owned by Republic has a
discretely different low-cost carrier business plan, and whose
operations were confirmed to be consistent with LCC yields. 76 FR at
45328.
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    We proposed that the carriers notify the FAA as to whether they
intend to proceed with the transaction and, if they do, that they
provide certain information regarding the slots to be divested. We also
proposed that the FAA would post a notice of the available slot bundles
on a Web site and provide for eligible carriers to register to purchase
the slot bundles. The FAA would assign each registered bidder a random
number, so no information identifying the bidder would be available to
the seller or public. A bidder would be allowed to indicate its
preference ranking for each slot bundle as part of its offer. The FAA
would specify a bid closing date and time. All offers to purchase slot
bundles would be sent to the FAA electronically; offers would have to
include the prospective purchaser's assigned number, the monetary
amount, and the preference ranking for that slot bundle. The FAA would
review the offers for each bundle and would post all offers on the Web
site as soon as practicable after they are received. Each purchaser
would be able to submit multiple offers until the closing date and
time.
    Additionally, to allow the new entrant and limited incumbent
carriers purchasing the divested slots to establish competitive
service, we proposed to prohibit both Delta and US Airways from
operating any of the newly acquired slots during the first 90 days
after the closing date of the sale of the divested slots and from
operating more than 50 percent of the total number of slots included in
the Joint Applicants' Agreement between the 91st and the 210th day
following the close date of the sale of the divested slots, after which
time the transferee would be free to operate the remainder of the
slots.
    To enable purchasing carriers to achieve a critical mass of slots,
we also proposed to package the slots into bundles of 8 slot pairs.
(Thus, there would be two slot bundles at LaGuardia of 8 pairs each,
and one slot bundle at Reagan National consisting of 8 pairs.) An
eligible carrier may, under our proposal, purchase only one slot bundle
at each airport (while indicating preference ranking for each slot
bundle as part of its offer). However, should one carrier make the
highest bid on both bundles at LaGuardia, we proposed that the seller
would have the option of accepting both high bids, thus overriding the
one bundle per carrier proposal.
    We further proposed that the slots purchased in the auction would
be subject to the same minimum usage requirements as provided in the
LGA Order and HDR, that is, 80% over a two-month reporting period. The
minimum usage would be waived, however, for six months following
purchase to allow the purchaser to begin service in new markets or add
service to existing markets. Additionally, we proposed that the
purchaser may lease the acquired slots to the seller until the
purchaser is ready to initiate service to maximize operations at the
airports. However, we would require that the slots not be sold or
leased to other carriers during the 12 months following purchase
because the purchaser must hold and use the acquired slots.
    The July 2011 Notice invited interested parties to submit their
comments by August 29, 2011. The comments we received are summarized in
the Appendix. We grant all motions for leave to file late comments, and
all comments to date were accepted into the docket.

2009 Proposed Transaction and Waiver Request

    This petition for waiver follows a prior joint waiver request by
the same Joint Applicants.
    On August 24, 2009, US Airways and Delta requested a waiver of the
Order to allow a similar transaction to proceed. We responded to that
petition in a

February 2010 Notice,\7\ in which we tentatively found that the
transaction should not proceed unless the Joint Applicants made more
slots available for new entrants. Based on our analysis of competitive
factors present at that time, we proposed to approve the transaction
subject to the Joint Applicants disposing of 20 slot pairs (40 slots)
at LGA and 14 pairs (28 slots) at DCA. Extensive comments were
received, including from the Joint Applicants. After review of the
comments, we granted the waiver request in a Notice dated May 11, 2010
(May 2010 Notice), subject to the conditions set forth in the February
2010 Notice.\8\ Delta and US Airways did not choose to go forward with
the transaction subject to our proposed conditions, but instead
appealed our decision to the U.S. Court of Appeals for the D.C.
Circuit.\9\
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    \7\ Notice of a Petition for Waiver of the Terms of the Order
Limiting Scheduled Operations at LaGuardia, 75 FR 7306 (Feb. 18,
2010).
    \8\ Notice on Petition for Waiver of the Terms of the Order
Limiting Scheduled Operations at LaGuardia Airport, 75 FR 26,322
(May 11, 2010).
    \9\ Delta Air Lines and US Airways v. FAA and U.S. Dep't of
Trans., Case 10-1153 (D.C. Cir. filed Jul. 2, 2010). On May
25, 2011, the U.S. Court of Appeals dismissed this suit by mutual
agreement of the parties.
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2011 Proposed Transaction

    The transaction as now proposed by the carriers is structurally
similar to the transaction proposed in 2009. The carriers have
presented the Department with an analysis of the benefits they assert
will accrue from the transaction, and claimed that changes in the
economy and structure of the aviation industry at DCA and LGA since
2010 have dramatically reduced the economic harms that we viewed as
potential adverse consequences of the original transaction.
    Among those changes are the market penetration of low-cost carriers
(LCCs) at both DCA and LGA. The carriers state that JetBlue, AirTran,
and Frontier have increased the number of LCC slots at DCA by 46,
thereby increasing the LCC slots at that airport from 3.3% to 8.6%,
exceeding the 6.5% share that would have been obtained under the
divestiture terms of our May 2010 Notice. At LGA, the carriers point
out that Frontier, AirTran, and Southwest recently acquired slots, for
a net increase of 18 LCC slots, increasing the LCC slot share from 6.8%
to 8.5%, closer to the 10.3% LCC slot share sought in our May 2010
Notice. The carriers also state that the Southwest/AirTran merger will
intensify competition in these markets.
    Furthermore, the carriers assert that the recent United/Continental
merger enhanced United's competitive profile at both Newark Liberty
International Airport (EWR) and Washington Dulles International
Airport, as well as at LGA and DCA. Delta also states that this
transaction will allow it to establish a hub at LGA and address the
competitive advantage secured by American Airlines/British Airways
through their antitrust immunity alliance.

Statutory Authority To Grant Waiver Subject to Slot Divestitures

    The Secretary and the Administrator have authority to grant the
requested waiver of the LaGuardia Order, and to grant the waiver
subject to certain conditions.\10\ 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.\11\
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    \10\ Petition for Waiver of the Terms of the Order Limiting
Scheduled Operations at LaGuardia Airport, 75 FR at 7307; 75 FR at
26,324-25; 76 FR at 45,313-14. The 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).
    \11\ 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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    Our decision to subject the Joint Applicants' waiver request to
certain slot divestitures is consistent with, and carries out, the
Department's Section 40101(a) pro-competitive public interest
factors.\12\ It also complies with the FAA's public interest goals and
objectives. Congress did not preclude the FAA Administrator from
considering the ``public interest'' to include factors beyond
``safety,'' ``national defense'' and ``security.'' Rather, Congress
expressly directed the FAA Administrator to consider those matters
``among others.'' Accordingly, as we articulated in our February 2010,
May 2010, and July 2011 Notices, the FAA may validly 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.
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    \12\ Neither the Joint Applicants nor other carriers arguing
against the waiver conditions cite any cases prohibiting the
Secretary or Administrator from considering pro-competitive
objectives as being in the public interest.
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The Proposed Transaction Serves the Overall Public Interest, Although
Divestitures Remain Necessary To Remedy Prospective Harms

    In the context of our public interest analysis here, we evaluate
the prospective economic benefits of the transaction together with any
potential resulting adverse economic consequences. We have not
determined that no economic harm would result from the transaction, but
rather that the adverse consequences that could otherwise result can be
sufficiently mitigated such that overall benefits can be realized.
    As noted above, the Joint Applicants contend that approval of the
slot swap would enable both carriers to more efficiently operate at the
airports and permit more passengers and destinations to be served, thus
creating tangible benefits to consumers. They argue that efficiencies
will occur through upgauging of aircraft size at both LGA and DCA,
thereby increasing throughput and competition while reducing congestion
and delay. In addition, they contend that the facilities transfer will
enable Delta to create a seamless hub at LGA, expand competition and
capacity, and preserve and enhance small community access at both LGA
and DCA.
    Most commenters did not object to the Joint Applicants' overall
transaction per se, and a number supported it as proposed by the
carriers. For example, the New York Travel Advisory Bureau and a number
of travel agents and corporate travel managers doing business in New
York expressed support for the Joint Applicants' waiver request,
generally citing the potential for greater benefits to the economy of
New York, the benefit of improvements proposed for the infrastructure
at LaGuardia, and prospects for improved tourism and travel
opportunities.

    However, other comments, especially from other air carriers, point
to the potential adverse competitive impacts of increased hub
operations at DCA and LGA. In particular, Southwest Airlines Co.,
citing a report prepared for it by Campbell-Hill Aviation Group, LLC,
argues that the transaction would permit Delta and US Airways to
``squander public resources'' by using their larger slot holdings to
establish hubs at LGA and DCA that will be dependent on an even larger
number of small regional aircraft feeder flights to establish and
maintain hub operations.\13\ Southwest maintains that hub development
at these slot-controlled airports would only reinforce the inefficient
slot utilization already in place that could best be remedied by
supporting divestitures to carriers that would efficiently operate
slots with large aircraft to support and benefit local Washington and
New York passengers. Moreover, Southwest contends that the consequences
for the public of this proposed reallocation of markets would be higher
fares, less competition, and fewer service options at both
airports.\14\
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    \13\ Comments of Southwest Airlines Co., FAA Docket 2010-0109 at
pp. 13-14 and Exhibit WN-115.
    \14\ Id., at 4-8.
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    While we acknowledge Southwest's claims regarding potential
inefficiencies resulting from hub development at slot controlled
airports, we must consider both potential operating inefficiencies and
expected network benefits typically resulting from hub development or
expansion. The Joint Applicants claim that numerous benefits will
accrue to consumers as a result of their transaction. Among the more
compelling benefits that they articulate, we are most convinced by
their arguments that development of a LGA hub will lead to enhanced
service to small communities (even with the small aircraft that
Southwest contends would be used) and improved competition versus other
east coast hubs, including United's Newark hub and US Airways' hub in
Philadelphia.
    In terms of preserving and enhancing small community access at LGA
and DCA, the Dane County Regional Airport, serving Madison, WI,
expresses support for the overall transaction, but maintains concern
that the nonstop service from Madison to LGA and DCA, currently
provided by Delta, could be discontinued if Delta were required to
divest some of its slots to other carriers. In addition, a number of
Virginia interests express concern about the overall transaction,
focusing on the possibility of losing established nonstop Roanoke-
LaGuardia service and other reductions in travel options at Virginia
airports. Mayor Bowers of Roanoke, and various other businesses,
educational institutions, and private citizens note that US Airways
currently serves Roanoke from LaGuardia with three daily roundtrips,
service that could be eliminated if the transaction were allowed to
proceed.
    We agree that grant of the waiver will lead to some alterations in
the Delta and US Airways service patterns and capacity per departure,
or average throughput. However, the carriers have asserted that primary
benefits of the transaction will include enhanced service to smaller
communities on an overall basis.
    In evaluating the public interest in this waiver petition, we have
carefully assessed the benefits and possible adverse consequences of
the transaction, seeking a balanced and proportional approach to
maintain or enhance access to small communities and to provide greater
efficiencies for Delta and US Airways that they will in turn pass on to
consumers. As we acknowledged in the Final Notice concerning the Joint
Applicants' initial proposal, the transaction does raise concerns as to
levels of airport concentration, the number of monopoly or dominant
markets in which increased pricing power can be exercised, and the
potential for use of the transferred slots in an anticompetitive
manner.\15\ However, as we believed then, the appropriate remedy for us
to adopt is not to deny the petition but rather to require divestitures
that address those concerns. We believe the transaction's promised
benefits for the public--particularly in light of the increased
penetration of low cost carriers at the airports since the time of our
last review--are sufficient for us to conclude that grant of the
requested waiver with specified remedies is in the public interest.
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    \15\ 75 FR at 26,324 (May 11, 2010).
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Adequacy of These Divestitures To Address the Transaction's Prospective
Harms

    The Department's July 2011 Notice, proposing to grant Delta's and
US Airways' renewed request for a waiver subject to the condition that,
among other things, the carriers divest 16 slot pairs at LGA and 8 slot
pairs at DCA, was premised on the view that circumstances had in fact
changed at the affected airports since the time of our initial
review.\16\ Several airlines in competition with the Joint Applicants
argue that circumstances have not changed substantially enough to merit
approval of the waiver request, and that, in any event, the Department
was aware of these circumstances when it issued the July 2011 Notice.
Believing the proposed slot remedy to be inadequate, some commenters--
including Southwest, Jet Blue, Frontier, and Spirit, as well as ACAA--
further urge us to require the divestiture of roughly 30% more slots,
as we did under different circumstances in our initial review.
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    \16\ 76 FR 45,315.
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    In our initial review of the proposed 2009 transaction, we
concluded that the concern about anti-competitive effects was
compounded by the fact that LCCs--which create the most competitive
impact by their ability to dramatically lower fares and increase the
volume of passengers in a market--had only a limited presence at the
affected airports. The Department's May 2010 Notice, and the
divestitures it would have required, were premised on data recited in
the Notice finding that collectively, LCCs had only 3.3% of slot
interest holdings at DCA and 6.8% at LGA.\17\ The Department was aware
at that time of JetBlue's transaction with American Airlines to acquire
its first DCA slots,\18\ but JetBlue's service was not initiated until
November of 2010,\19\ six months after the Final Notice was issued. Our
review and assessment of the needed number of divestitures was focused
on actual, not planned, service, recognizing the fact that agreements
can be modified and plans can change.
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    \17\ 75 FR 26,323.
    \18\ See 75 FR 26,323, n. 11, and 76 FR 45,315-45,316.
    \19\ See Comments of JetBlue, FAA Docket 2010-0109, Aug. 30,
2011 at 6.
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    Southwest also argued that DOT must have been ``fully aware'' at
the time of the Final Notice of the ``Republic to Frontier''
transaction, involving 18 slots at DCA and 13 at LGA.\20\ However, the
announcement was not made until mid-April 2010 that Midwest Airlines
(which had been acquired by Republic) would begin flying under the
Republic name, with the Midwest brand being phased out in 2011.\21\
And, regardless of the announcement, it was uncertain at that time
whether the Midwest operations assumed by Frontier would be marketed
with yields consistent with LCC operations, so it would have been
premature to then count Frontier's new slots as representing LCC slot
increases.
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    \20\ See Comments of Southwest Airlines, FAA Docket 2010-0109 at
p. 6.
    \21\ See, e.g., Milwaukee Sentinel-Journal, ``JSOnline,'' http./
www.jsonline.com/business/90750954.html, April 13, 2010.
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    The third major change in circumstances was the AirTran-

Southwest merger, which was not announced until the Fall of 2010, well
after the May 2010 issuance of the Final Notice. Given the size of the
transaction and its potential to introduce Southwest's brand, passenger
loyalty, and route network to a broader array of customers, this merger
is an important changed circumstance that could not have been
considered in May 2010 but must be considered now.\22\
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    \22\ Southwest argued as well that a few smaller transactions
affecting LCC presence at Reagan National or LaGuardia had occurred
prior to the May 4, 2010 Final Notice that the Department must have
known about but did not raise until the July 2011 Notice was issued
in connection with the Joint Applicants' revised proposal. The
largest of these was a trade of slots between Continental and
AirTran: AirTran operated the slots but Continental remained the
holder. We generally looked at holdings in the Final Notice but
subsequently refined our analysis to include operations as
appropriate in the July 2011 Notice. In any event, the Department
clearly specified in the Tables in the July 2011 Notice the
distribution of slots actually considered in the May 2010 Notice and
the origin for each change that was reported. See Table 5 at 76 FR
45,323 and Table 6 at 76 FR 45,325.
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    In our subsequent review, the Department focused on actual LCC
penetration and determined that the LCC shares at the affected airports
had increased markedly. At DCA it had gone from a de minimis share of
3.3% to 8.5%; at LGA it increased modestly from 6.9% to 8.2%.\23\ These
changes in LCC holdings, notably the addition of a new competitor at
DCA in JetBlue and the larger portfolio of a merged Southwest/AirTran,
portend a gradual shift in the competitive dynamics. While the changed
circumstances between our initial and subsequent reviews fall well
short of addressing all concerns at the affected airports, they are
significant and cannot be overlooked. The changes show that LCCs have
gained a competitive beach head at DCA and LGA that is not likely to be
reclaimed any time soon.
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    \23\ See 76 FR 45323-45325. See also 76 FR 45327. Due to minor
inconsistencies in rounding, the May 11, 2010 Notice indicated that
the pre-transaction LCC share at LGA was 6.8%, while the July 28,
2011 Notice indicated a 6.9% share.
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    Aside from the timing of the events, the Department also considered
the magnitude of the changed circumstances. We supplied evidence to
show that our reliance on LCC penetration to discipline fares justified
a departure from the initial decision. For example, in the July 28,
2011 Notice, we determined that average weighted yields, used as a
proxy for fares, had decreased in the DCA-BOS market as a result of
JetBlue's entry in 2010, and had continued to decrease in the LGA-IND
market following AirTran's entry in 2009.\24\ At DCA, we supplied data
and analysis to show that fares across all markets had fallen.\25\ The
commenters do not challenge these data. Their opposition to the remedy
now being proposed focuses on the number of LCC holdings as a
percentage of total holdings. However, we view the increasing levels of
LCC penetration and the associated favorable effects on fares across a
number of markets as more significant, and these important developments
support our decision to allow the slot swap to proceed so long as there
is an appropriate divestiture of slots auctioned in sufficient numbers
to qualified new entrants or limited incumbents to mitigate the
potential competitive harm resulting from the transaction.
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    \24\ See 76 FR 45,327.
    \25\ See 76 FR 45,327.
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    A number of commenters contend that we could do more to enhance
competition at both these airports than we proposed last July, by
requiring more slots to be divested. However, in the particular
circumstances of this case, we believe it appropriate for us to proceed
with a remedy that reallocates only the number of slots necessary to
address the competitive harm caused by the transaction, while still
preserving the benefits of the transaction.
    Our approach focuses on the incremental competitive change and the
potentially strong effect of new entrant competition that is possible
with a critical mass of slots. It does not address pre-existing
conditions that affect competition at the airports and, in all
likelihood, would continue to affect competition even if we required
30% more slots to be divested. Stated another way, our objective has
not been to add as much new service by new entrants and limited
incumbents as possible but rather to rely to the maximum extent on the
introduction of a critical mass of new services, anticipating that
those services will have an oversized effect on competition across a
number of markets sufficient to address the potential competitive harm
resulting from the transaction. The Department laid a foundation for
this approach by emphasizing the effect of new entrant/LCC services on
prices across a number of markets. That foundation is not in dispute.
Seen in this light, the final slot remedy need not necessarily be
mathematically congruent with the increased LCC penetration, as
commenters suggest. The remedy is proportional and effective to address
the possible adverse consequences of the transaction, while still
preserving its public benefits.
    Southwest asserts that the remedy must be larger because the
transaction will ``permanently lock out'' low-fare competition.\26\
Southwest claims that it will be virtually impossible for LCCs to
expand at these airports because already-scarce slots will become even
less available, and after the transaction is consummated, Delta and US
Airways will become the most logical high bidders for any slots that
may come on the market.\27\ Southwest's assertions do not take into
account the full competitive landscape. While it is true that Delta and
US Airways will significantly increase their presence at LGA and DCA,
respectively, they will not be the only carriers with the resources to
acquire new slots, which are still likely to become available over
time, as they have thus far. Southwest and other carriers have cash on
hand, as well as developed route networks and other assets that can be
leveraged for greater access to LGA and DCA.
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    \26\ Comments of Southwest Airlines Co., Docket 2010-0109 at 4
(Aug. 29, 2011).
    \27\ Id., at 6.
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    In summary, we believe the approach taken in the July 28 Notice
remains appropriate under the current circumstances, and is justified
by recent changes in the competitive and operating environments at DCA
and LGA.

Carrier Eligibility for the Divested Slots

    Some commenters, including JetBlue and Virgin America, assert that
we may not direct the Joint Applicants to divest certain DCA and LGA
slots to new entrant and limited incumbent carriers having fewer than
five percent of the total slot holdings at the respective airports,
because the ``below five percent'' threshold is contrary to statutory
definitions of limited incumbents or otherwise outside the scope of the
FAA's statutory authority. We disagree. As an initial matter, the FAA
routinely imposes special conditions that must be met in order to
either assure an equivalent level of safety (not an issue in this case)
or to ensure that the public interest is met. Nothing in the
Administrator's authority to issue exemptions prevents the FAA from
tailoring those conditions to the circumstances surrounding the
exemption request. In the context of the July 2011 Notice, we used the
term ``limited incumbent'' in a generic sense to mean an airline with a
limited, or small, presence at the airport. We intend, of course, to
provide opportunities for competition and low-fare service at DCA and
LGA by allowing such carriers, as well as new entrant airlines, to
purchase divested slots.

    We are not obliged to confine the category of air carriers eligible
to purchase slots to those ``limited incumbent air carriers'' holding
or operating ``fewer than 20'' slots or slot exemptions, as JetBlue
suggests. Rather, that statutory definition of ``limited incumbent''
(49 U.S.C. 41714(h)(5)) applies only to specific circumstances not
relevant here.\28\ The ``limited incumbent'' definition applies, for
example, to the Secretary's criteria for awarding within-perimeter slot
exemptions at DCA. 49 U.S.C. 41718(b)(1). The definition also applies
to the FAA's High Density Rule (HDR) protocols for withdrawing slots
and distributing slots in a lottery at DCA. 14 CFR 93.213(a)(5),
93.223(c)(3), 93.225(h). Neither the statutory nor regulatory
definitions of ``limited incumbent'' cabin the Department's authority
to promote the public interest. The Department has determined that
fashioning a reasonable class of carriers that may purchase divested
slots for purposes of providing competition at congested airports is an
appropriate and proportionate remedy in these circumstances.
---------------------------------------------------------------------------

    \28\ 49 U.S.C. 41714 (h) provides that the definitions set forth
in that section, including the definition of ``Limited incumbent
carrier,'' only apply ``[i]n this section and sections 41715-41718
and 41734(h) * * *.''
---------------------------------------------------------------------------

    Moreover, Congress' directive to the Secretary to grant certain
slot exemptions to new entrant or limited incumbent carriers at LGA and
JFK expired upon the January 1, 2007 statutory termination of the HDR
at those airports. 49 U.S.C. 41716(b), 41715(a)(2). The Department is
under no statutory or regulatory directive to apply the ``fewer than
20'' threshold to determine the class of carriers eligible to purchase
the divested slots in this proceeding.
    In the Department's February 2010 Notice, in connection with the
Joint Applicant's initial request, we proposed the use of a five
percent threshold, because carriers having slot holdings above that
point provide a minimum level of competitive service sufficient to
affect pricing in the market.\29\ Restricting eligibility to new and
smaller carriers below that threshold would help attract carriers that
offered the prospect of increased efficiencies and innovations, as well
as the ability to increase throughput at the airports, so long as they
had a sufficient number of slots to establish sustainable patterns of
service.\30\ Moreover, use of a 5% standard, rather than setting the
threshold at a lower level, would enlarge the number of potential
competitors for the divested slots, creating a more robust market for
them and a greater likelihood that the awarded slots would be utilized
in an efficient and effective manner.
---------------------------------------------------------------------------

    \29\ See, e.g., Gimeno, 20(2) ``Reciprocal Threats in
Multimarket Rivalry: Staking out `Spheres of Influence' in the U.S.
Airline Industry,'' Strategic Management Journal 101 at 110.
    \30\ 75 FR at 7310-11.
---------------------------------------------------------------------------

    The ``five percent rule'' is the same as that adopted in the May
2010 Notice in which we granted the joint waiver request of the
carriers conditioned on divesting certain LGA and DCA slots to eligible
new entrant and limited incumbent carriers, which we defined as those:

having fewer than five percent of total slot holdings at DCA and/or
LGA, do not code share to or from DCA or LGA with any carrier that
has five percent or more slot holdings, and are not subsidiaries,
either partially or wholly owned, of a company whose combined slot
interest holdings are equal to or greater than five percent at LGA
and/or DCA.

75 FR at 26,337.

    JetBlue also states that our definition of carriers eligible to
purchase divested LGA slots unlawfully ignores a purported statutory
mandate to make up to 20 LGA slot exemptions available to new entrants
and limited incumbents.\31\ In making this argument, JetBlue claims
that the ``interim slot rules at New York airports,'' enacted by
Congress in the Wendell H. Ford Aviation Investment Reform Act of 2000
(AIR-21), entitled all new entrant and limited incumbent carriers to
receive up to 20 LGA slot exemptions. 49 U.S.C. 41716(b). JetBlue
suggests that the divestiture must first favor those carriers with less
than 20 slots before offering an opportunity for those with more than
20 slots to purchase the divested slots.
---------------------------------------------------------------------------

    \31\ Comments of JetBlue Airways, FAA-2010-0109, at 19-22 (Aug.
29, 2011).
---------------------------------------------------------------------------

    AIR-21 expired at LGA along with the HDR. Any articulation of
Congressional purpose in enacting AIR-21 simply no longer applies at
LGA. Thus, we reject JetBlue's argument for the reasons set forth
above. In addition, JetBlue's reading of Section 41716(b) is overly
generous to the new entrant/limited incumbents. This provision did not
entitle each applicant to 20 LGA slot exemptions, as JetBlue claims.
Rather, it directed the Secretary, subject to procedures set out in
Section 41714(i), to grant slot exemptions to new entrants or limited
incumbents at LGA ``if the number [ ] granted * * * does not exceed 20
* * *.'' 49 U.S.C. 41716(b). In other words, it prohibited the
Secretary from granting the LGA slot exemptions described in Section
41716(a) to any carrier whose LGA slots and slot exemptions would total
more than 20.
    JetBlue and Virgin America also comment on Frontier's eligibility.
Our July 2011 Notice tentatively found that Frontier, a carrier with
limited holdings at DCA and LGA, would qualify as an eligible bidder
for slots.\32\ We explained that it was appropriate for Frontier to bid
even though it was wholly-owned by Republic, which holds more than 5%
of slots at DCA. The Department noted that Frontier has a unique
business plan and relationship in the Republic structure, and confirmed
that its yields have remained consistent with those of LCCs.
---------------------------------------------------------------------------

    \32\ 76 FR 45,330, n. 40.
---------------------------------------------------------------------------

    JetBlue and Virgin America contend that Frontier should not be
eligible. JetBlue's argument centered on the assertion that the
Department must restrict bidding to carriers with 20 or fewer slots,
and that Frontier is owned by a carrier whose slot holdings far exceed
the ``20 or fewer'' threshold.\33\ The ``20 or fewer'' issue was
addressed above. Virgin America also cites Frontier's ownership as a
concern, but suggests that it would be too difficult for the Department
to monitor whether Frontier's business plan was, in fact, delivering
lower fares as intended.\34\
---------------------------------------------------------------------------

    \33\ Comments of JetBlue at 13 (Aug. 29, 2011); Reply Comments
of JetBlue at 3 (Sept. 13, 2011).
    \34\ Comments of Virgin America at 11-12 (Aug.29, 2011).
---------------------------------------------------------------------------

    However, Frontier's inclusion in the pool of eligible bidders is
consistent with our objective of crafting a remedy to mitigate the loss
of competition associated with the Delta/US Airways slot swap. Frontier
operates as a separate business within the Republic corporate
structure, with a low-cost carrier business plan and yields consistent
with low-cost operations. Republic's other slots are pledged for use on
a long term basis by Republic's other business, which operates regional
aircraft on behalf of mainline carriers, and the slots are therefore
not available to exert competitive discipline on incumbent carriers.
Should Frontier be successful in bidding on the slots being divested
here, the approval to operate them will be conditioned upon its
maintaining a low-cost carrier business plan and operating the divested
slots with yields consistent with LCC operations for the duration of
the five-year minimum hold requirement.
    A final eligibility issue concerns Southwest Airlines and AirTran.
In the July 2011 Notice, the Department recognized the merger of
Southwest and

AirTran,\35\ but Westjet and Spirit seek clarification of Southwest/
AirTran's status as potential bidders for divested slots.\36\ Southwest
and AirTran are merging, and therefore have every incentive and--unlike
Frontier--ability to combine their assets to exert competitive
influence in the market. Southwest and AirTran thus will be required to
bid as a single unit; they are eligible to do so because their combined
holdings do not exceed 5% at either airport.
---------------------------------------------------------------------------

    \35\ 76 FR 45,316.
    \36\ Comments of WestJet at 2, 9 (Aug. 29, 2011); Comments of
Spirit at 14, n. 23 (Aug. 29, 2011).
---------------------------------------------------------------------------

Slot Bundles of Eight Pairs Will Best Promote Competitive Discipline at
DCA and LGA

    In the Department's earlier analysis, we expressed concern over
increased levels of airport concentration, which together with (1) an
increase in the number of monopoly or dominant markets in which
increased pricing power could be exercised, (2) the prospect for higher
fares in some markets, and (3) the potential for use of transferred
slots in an anti-competitive manner, warranted conditioning approval on
the carriers' agreement to divest a number of slots. Given all of these
concerns, we asserted that limited divestitures at both airports would
lead to an injection of additional competition from other carriers,
which may effectively mitigate these prospective harms.
    In our May 2010 Notice we said that an effective remedy must (1)
provide a sufficient number of slots to allow other carriers to mount
an effective competitive response, (2) define the pool of eligible
carriers to include those with the greatest economic incentive to use
the slots as intensively as possible and exert competitive discipline,
and (3) ensure that the bundles of divested slots are suitable for a
commercially viable service pattern and structured proportionate to the
slots that are part of the slot swap.
    Working from these criteria, we proposed to bundle the slots in 8-
pair units at each airport, meaning that there would be one bundle at
DCA and two at LGA. In the May 2010 Notice, we expressed our tentative
belief that this approach would maintain high competitive discipline
levels and would be preferable to dividing the slots into smaller
packages that could cause underutilizations or inefficiencies.
    In response, several carriers that would be designated as new
entrants/limited incumbents filed comments regarding slot bundles.
Allegiant proposes smaller bundles to allow the largest number of
carriers with different types of operations to participate. JetBlue
argues that new LCC entry at DCA makes it no longer necessary for
bundles of slots to be spread throughout the day. Instead, JetBlue
states that eligible carriers should be able to bid on individual slot
pairs to complement their existing schedules. Virgin America claims
that the bundles are unnecessarily large and would likely increase
market concentration and impair competition. Sun Country contends that
it would be unable to utilize all of the slots in a given bundle and
that the price for the large bundles would be prohibitive. West Jet
proposes that smaller bundles would lead to increased participation by
smaller LCCs. Spirit, in its most recent filing, seeks a free
distribution of slots ``into sets of usable pairs.'' \37\ Finally,
Frontier states that it, along with every other LCC filing comments
with the exception of Southwest, supports smaller bundles, maintaining
that such a structure would expand the pool of LCCs and destinations
gaining new or enhanced access to DCA and LGA and would reduce the
relative concentration of slot holdings among just a few carriers.
---------------------------------------------------------------------------

    \37\ Comments of Spirit Airlines, Inc., Docket No. 2010-0109, at
5 (Aug. 29, 2011).
---------------------------------------------------------------------------

    Southwest contends that packaging slots into large bundles for
allocation would be the most effective competitive response to the
larger Delta and US Airways positions at LGA and DCA, especially if the
divested slots are concentrated in the hands of a single strong
competitor at both airports. Southwest maintains that the Department
should avoid trying to ``keep everyone happy'' by placing arbitrary
restrictions on the allocation process that will only result in slots
being under-used or even forfeited by carriers operating insufficient
frequencies and therefore unable to mount an effective response and
provide meaningful price discipline to the strengthened Delta and US
Airways. Southwest cites the Campbell-Hill report appended to its
comments that ``splitting the slots arbitrarily among multiple carriers
would only dilute the impact of the new service vis-[agrave]-vis the
incumbents and provide fewer competitive benefits to the public.'' \38\
Finally, Southwest concludes that dividing the small number of divested
slots among several low-cost, low-fare carriers, as Frontier supports,
would be counter-productive, as the modified bundles would generate
only weak and diffuse competition, thus benefiting the Joint
Applicants, and wasting a rare opportunity to inject strong and
sustainable low-fare competition at airports that desperately need it.
---------------------------------------------------------------------------

    \38\ Comments of Southwest Airlines Co., Docket No. 2010-0109,
App. at 15 (Aug. 29, 2011).
---------------------------------------------------------------------------

    After reviewing the competing arguments, we have concluded that
there is likely to be greater overall public benefit if the larger
(i.e., 8 slot pair) bundles are retained. Under their proposal, Delta
and US Airways are not committed to any particular markets for defined
periods. Each carrier would be free to discontinue any of the proposed
routes and initiate others. With that flexibility, they could choose to
use their increased slot holdings to target carriers with more limited
slot holdings, for example by increasing their roundtrips in
competitive markets and ``sandwiching'' competitor flights. A
restructured remedy consisting of smaller bundles of slots to more
carriers, as proposed by Spirit, JetBlue, Allegiant, WestJet and Virgin
America could make certain new entrants highly vulnerable to such
scheduling changes and frustrate the competitive responsiveness we are
seeking.
    Under the approach we take by this Notice, the bulk of the benefits
derived from the divestitures required as a condition to this waiver
will be from new entrant or limited incumbent carriers using the
divested slots, and in order to be effective the bundles of remedied
slots must be structured in such a way to enhance the likelihood of
sustainable service. Diminishing the size and extensive time of day
coverage of remedied bundles, an approach promoted by Spirit, JetBlue,
Allegiant, WestJet, and Virgin America, will not create the degree of
competitive impact required to compensate for the expected harm to be
generated from this transaction.
    We find that establishing bundles of slots for sale will enable an
eligible carrier to purchase a sufficient array of slots to operate and
maintain competitive service throughout the day. Bundling will assist
the purchasing carrier in initiating or increasing service in an
operationally efficient and pro-competitive manner. Packaging more
slots in fewer bundles is the best approach to optimize competitive
discipline. Furthermore, bundling eight slot pairs at DCA and two
bundles of eight slot pairs each at LGA will help to avoid
underutilization and inefficiencies of resources, including facilities,
aircraft and staffing, that may result from more bundles containing
fewer slot pairs.

Procedures for Transferring Divested Slots

    In connection with the proposed auction mechanics for the purchase
by eligible carriers of the divested slots, Southwest objected to the
imposition of a deadline for bids. It believes that a deadline such as
the one we proposed creates disincentives for early bidding and is
subject to manipulation through last-minute bidding. It proposes a
different approach, with features like minimum increases between offers
and time limits on submitting a higher offer following the most recent
offer.
    We disagree. In order to allow the sale to be completed, there must
be some closing time for offers. Southwest's system would create a
moving deadline based on how much time has elapsed since the previous
bid. Different buyers will have different strategies, and submitting an
offer at the last minute is just one such strategy. For example, a
bidder might equally attempt a high preemptive ``shut out'' offer. We
cannot predict the various strategies, and, therefore, choose not to
depart from our proposal, which will be easier for the FAA to manage.
    Once the sales period closes, the FAA will determine the highest
offer for each bundle. If each bundle receives only a single offer, the
FAA would notify the seller by forwarding the purchaser's
identification. If one eligible carrier had made the highest purchase
offer on multiple bundles at LGA, the FAA would determine which offer
is valid based on preference ranking. The successful bid for the other
LGA bundle will be the next-highest offer from a carrier that remains
eligible to purchase the slots. This information will be forwarded to
the respective seller. The FAA will notify the selling and purchasing
carriers to allow them to carry out the transaction, including any gate
and ground facilities arrangements. The full amount of the proceeds
could be retained by the selling carrier. The seller and purchaser will
be required to notify the FAA that the transaction has been completed
and certify that only monetary consideration will be or has been
exchanged for the slots.
    In the July 2011 Notice, we had proposed that if the highest bidder
for both LGA bundles was the same eligible carrier, the amounts of the
offers would be communicated to the seller and the seller could choose
to accept both highest offers instead of the highest offers of two
different eligible bidders as identified by the FAA. In its comments,
the Port Authority of New York and New Jersey (Port Authority) would
allow more than one bundle there to go to a single purchaser, and
Southwest argued that we should dispense with the proposed restriction
that an eligible carrier may purchase no more than one of the LGA
bundles. However, JetBlue asserted that our procedures should not
enable one carrier to purchase all of the available slots, but rather
should enhance the competitive benefits to the public by giving greater
opportunities to new entrants and limited incumbents in light of the
new and different services they provide. Frontier offered similar
comments. In response, the Joint Applicants afforded ``deference to the
Department on how it chooses to conduct the slot auction.'' \39\
---------------------------------------------------------------------------

    \39\ Response of Joint Applicants to Show Cause Order, FAA-2010-
0109, at 3 (August 29, 2011).
---------------------------------------------------------------------------

    Upon further reflection, we believe that having two carriers
receive slots at LGA achieves the better result, as it will
appropriately balance our goal of a remedy introducing additional
competition at the airports with our belief that the number of slots
obtained by each carrier must be sufficient to assure that they can be
used effectively to stimulate competition. Thus, we will modify the
position on this issue that we had taken earlier and require that the
carriers package the divested slot pairs at LGA into two bundles which
must be sold to two separate eligible carriers, as further discussed
below.
    In the unlikely event that there are no offers for a slot interest,
the slot interests will revert automatically to the FAA. If necessary,
the FAA may announce at a later date a means for disposing of a slot
interest that attracts no purchase offer. Alternatively, under the
Order, the FAA could simply retire the slot as a congestion mitigation
measure. We do not expect that this need will arise.
    We have adopted our proposal to conduct sales by a cash-only, FAA
``blind'' web site. A blind-only mechanism has the capability of
maximizing the competitive potential of the divestiture packages, as
that sale method would target the potential competitors with the
greatest economic incentive to use slots as intensively and efficiently
as possible.

Retention of the Sale Proceeds by the Joint Applicants

    A number of commenters, including several air carriers, question
our proposal to allow the Joint Applicants to retain the proceeds from
the slot sales we are requiring as a condition to this waiver. These,
and some others, argued that the current owners received the slots from
the FAA without payment, are not the owners of slots, and that any
divestitures should serve to benefit parties other than the
carriers.\40\ Additionally, Spirit asserts that limited incumbent
airlines are entitled to the divested slots at no cost under the pro-
competitive policies in Section 40101(a) and the prohibition on
purchases or sales of slots in the LGA Order. Spirit also expresses
concern that the Joint Applicants could enjoy a ``financial windfall''
by being able to retain the proceeds of a sale, citing a 2007 FAA
Notice regarding operating limitations at LGA indicating that rights
held under slot rules would end on December 31, 2006.\41\
---------------------------------------------------------------------------

    \40\ The Airports Council International (ACI-NA) argued that
slots should be treated as community assets that should be used to
benefit the communities and airports, rather than carriers, and the
Consumer Travel Alliance argued that the slots contemplated in the
transaction are not assets of the air carriers and should be treated
as property of the American public. These commenters commonly
referred to FAA's regulations that state that ``[s]lots do not
represent a property right but represent an operating privilege
subject to absolute FAA control.'' 14 CFR 93.223(a).
    \41\ Comments of Spirit Airlines, FAA-2010-0109, at 4, 10 (Aug.
29, 2011), referencing FAA's Notice of Order on Operating
Limitations at New York LaGuardia Airport, 71 FR 77854, 77857 (Dec,
27, 2007).
---------------------------------------------------------------------------

    The Joint Applicants respond that their application does not
contemplate that slots would be divested without compensation, and that
they would not have offered to divest any slots if they believed that
would be required.
    Allowing the Joint Applicants to retain the proceeds from the sale
of the divested slots in this case is within our authority. Since 1985,
the FAA has permitted carriers to purchase, lease, sell, and otherwise
transfer slots for consideration under the HDR's Buy-Sell Rule.\42\ The
FAA's regulatory permission to buy and sell slots is consistent with
the complementary HDR provision that slots do not represent a property
``right'' but a privilege subject to FAA control and encumbrances.\43\
Furthermore, a secondary market in slots conforms to the pro-
competitive policies of the Airline Deregulation Act by, among other
things, relying on ``competitive market forces'' and ``encouraging
entry into air transportation markets by new and existing carriers.''
49 U.S.C. 40101(a)(6), (12). Accordingly, the FAA is under no statutory
obligation to have the divested slots allocated to eligible carriers
free of charge. Additionally, a sale of the slots is not a financial
windfall but allows the Joint Applicants to maximize the value of their
slots as originally intended as part of the larger transaction. 75 FR
at

7311.\44\ Finally, the purchasers of the LGA slots will receive the
same interest that current slot holders at LGA have. This interest is
comparable to that which Delta will receive in connection with its
purchase of the US Airways' LGA slots. Our waiver of the LGA Order
transfers to Delta the same interests that US Airways currently holds
under the terms of that Order.
---------------------------------------------------------------------------

    \42\ 50 FR 52195 (Dec. 20, 1985); 14 CFR 93.221.
    \43\ 14 CFR 93.223.
    \44\ Spirit and the Air Carrier Association of America contend
that the Joint Applicants did not seek compensation for the divested
slots. Comments of Air Carrier Ass'n of Am., FAA-2010-0109, at 3
(July 1, 2011); Comments of Spirit Airlines, FAA-2010-0109, at 2
(June 24, 2011). The Joint Applicants dispute this allegation, and
state that ``[t]hey would not have offered to divest slots if they
had believed that they would be withdrawn and reallocated without
compensation.'' Response of Joint Applicants to Show Cause Order,
FAA-2010-0109, at 4 (Aug. 29, 2011).
---------------------------------------------------------------------------

    After review of these comments, we remain persuaded that both our
earlier position on these issues and our approach in granting the
petition with divestitures are the correct ones.

Implementation in Tranches

    In the July 2011 Notice, the Department proposed to prohibit each
transferee Joint Applicant from operating any of the newly acquired
slots during the first 90 days after the closing date of the sale of
the divested slots. We further proposed to prohibit them from operating
more than 50 percent of the total number of slots included in the Joint
Applicants' Agreement between the 91st and the 210th day following the
close date of the sale of the divested slots. After that time, we would
allow the transferee to operate the remainder of the slots. The purpose
of these prohibitions was to allow the new entrant and limited
incumbent carriers that purchased the divested slots a sufficient
period to establish competitive service, without interference from new
operations of the Joint Applicants.
    The Joint Applicants have not objected to this proposal, nor have
others contended that it is unfair or impractical. We will therefore
finalize this aspect of the waiver as it had been proposed.

Availability of Facilities to Purchasing Carriers

    Our Notice proposed to require the selling carrier to make airport
facilities available to the purchaser under reasonable conditions only
if the purchasing carrier lacks access to facilities and is unable to
obtain such access from the airport operator. We see no need to change
this proposal or, as suggested by Southwest, to waive the use-or-lose
period until such time as the purchasing carrier actually occupies the
airport facilities. Nor do we agree with the Port Authority's
suggestion to extend the proposed six-month use-or-lose waiver due to
potential difficulties with arranging facilities for requesting
carriers.
    Rather, we fully expect both the Port Authority, as the operator of
LGA, a large hub, and the Metropolitan Washington Airports Authority
(MWAA), as the operator of DCA, also a large hub, to make facilities
available, with reasonable dispatch, to requesting carriers and within
the six-month period after the purchase of the divested slots. The Port
Authority and MWAA each are bound by DOT federal grant assurances to
provide reasonable and competitive access at their respective airport
facilities to requesting airlines and airlines wishing to expand
service at their airports. They must file competition disclosure
reports with the FAA if they fail to do so. Additionally, they have
each taken action, under their airport competition plans, to reduce
barriers to entry and enhance competitive access at their airports.
Furthermore, the Department and the FAA are available to facilitate
access at appropriate airport facilities if necessary.
    Additionally, we note that Airports Council International--North
America (ACI-NA) comments that the grant of this waiver, subject to the
conditions specified in the initial Notice, would ``unlawfully * * *
usurp the proprietary right of the Port Authority and the Metropolitan
Washington Airports Authority to control how their facilities at LGA
and DCA were used.'' \45\ Under 49 U.S.C. Section 40103(b)(1), however,
it is the FAA, not the airports, that has the 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.'' This power
includes the authority to limit flight operations at congested airports
and to distribute and allocate landing and takeoff reservations (slots)
to designated air carriers at controlled airports. Further, because the
airports are under federal obligations to make facilities available, on
a reasonable basis, to requesting carriers, we fully expect the
airports to work with the carriers as they have in the past, in
providing accommodation to requesting carriers.
---------------------------------------------------------------------------

    \45\ Comments of Airports Council Int'l--N. Am., FAA-2010-0109,
at 4 (Aug. 30, 2011). We note that neither the Port Authority nor
MWAA has made this assertion on their own behalf.
---------------------------------------------------------------------------

    Finally, WestJet filed comments urging that Customs and Border
Protection pre-clearance procedures be made available at the applicable
Canadian airport in the event that any successful bidder intends to use
its slots for service to Canada, or in the alternative that FAA extend
the six-month startup grace period in order to allow the bidder to
obtain the necessary pre-clearance privileges. The granting of such
privileges is within the purview of the Department of Homeland Security
(DHS), not FAA, and WestJet or any other interested party may make
appropriate inquiries on this issue with DHS. Should there be
extenuating circumstances with preclearance matters in connection with
compliance with the six-month startup provision, the Department will be
available to work with the carrier and other appropriate parties as
noted above.

Other Issues Raised by Commenters

    Among its other comments, Virgin America, Inc. urges the Department
to create a ``strategic slot reserve,'' with the divested slots, so
that if (1) the available slots were not purchased by eligible
participants in the divestiture process, (2) the purchasers did not
meet minimum utilization requirements in operating the slots, or (3)
the purchasers no longer met new entrant or limited incumbent
eligibility requirements, the slots would be reserved for allocation to
only eligible new entrants and limited incumbents.
    The Department had already proposed certain alienation limitations
in the Notice to ensure that the divestiture process did not enable or
result in transactions that undermined the pro-competitive purpose of
the proposal. Under our tentative proposal, the successful bidders
would not be permitted to sell or lease the slots for 12 months
following purchase, although one-for-one trades for operational
purposes would be permitted. The slots could, after the initial 12
months, be sold, traded, or leased to any carrier that, at the time of
the sale, trade, or lease, qualified as a new entrant or limited
incumbent, for four years thereafter, with all restrictions on
alienation thus ending five years following the initial sale. If by
some chance slots went unsold, they would revert to the FAA and, if
appropriate, it would announce at a later date whether it would retire
them to reduce congestion or make them available to other carriers.
    After considering Virgin America's comment, DOT believes the July
2011 Notice's approach better implements a pro-competitive market
environment at

the airports and better balances competing objectives in the bidding
process. Virgin America's proposal does not address sale, trade or
lease issues, and after review of other comments we are confident both
that the bidding process will attract robust competition for the slots,
and that the successful bidders will be highly motivated to maintain
high utilization rates. Moreover, creating permanent encumbrances on
the slots with ``in perpetuity'' restrictions would likely generate
greater caution by carriers in bidding, and produce greater burdens in
administering the slot rules.
    San Francisco International Airport expresses concern that the
grant of this waiver to the Joint Applicants would create an incentive
for carriers to create congestion at other airports that are not
currently slot-constrained, so as to cause those airports to become
slot-constrained, and allow those carriers to benefit from the sale of
the newly-created slots.\46\ We do not believe this concern is well-
founded. Carriers that intentionally over-schedule their operations at
an airport incur significant costs and delays in their own operations.
If the FAA is forced to reduce schedules, carriers should not expect
the FAA to accept any flights that perpetuate congestion. Moreover,
under the Buy-Sell rule, carriers have enjoyed the ability to sell
slots and retain the sales proceeds at certain slot-controlled airports
(and still enjoy that ability at DCA), and that has not resulted in any
effort by carriers to create other slot-controlled airports. Finally,
our decision in this case should not be viewed as a policy statement or
rulemaking with far-reaching effect; to the contrary, it is a waiver
based on the specific facts before us and the circumstances are
unlikely to be replicated at other airports.
---------------------------------------------------------------------------

    \46\ Comments of San Francisco Int'l Airport, FAA-2010-0109
(Aug. 29, 2010); see also Comments of Airports Council Int'l--N.
Am., FAA-2010-0109, at 4 (Aug. 30, 2010).
---------------------------------------------------------------------------

    In addition, Virgin America urges the Department to fulfill its
intention to establish and implement a rule to manage congestion issues
at Newark Liberty, John F. Kennedy, and LaGuardia airports. It also
comments that carriers that obtain LaGuardia slots in this process
should be able to seek to use those slots at other congested airports
(such as Newark Liberty, where Virgin America asserts that monopoly
conditions exist). While we appreciate these points, they are beyond
the scope of this proceeding. As Virgin America's own comments
acknowledge, a comprehensive rule to manage congestion at the three
airports is under development in a different rulemaking process, and
comments to this docket cannot serve as a substitute for participation
in the correct proceeding.

Terms of the Final Waiver Notice

    Accordingly, we will grant the waiver requested by the Joint
Applicants, conditioned on: the divestiture of 32 slots at LGA (16
arrival and 16 departure) and 16 slots at DCA, through a blind, cash-
only sale through an FAA-managed Web site to limited incumbent and new
entrant carriers having fewer than five percent of the total slot
holdings at DCA and LGA respectively, and that do not code share to or
from DCA or LGA with any carrier that has five percent or more slot
holdings. We also require that, to be eligible to bid on the divested
slots, carriers not be subsidiaries, either partially or wholly owned,
of a company whose combined slot holdings are equal to or greater than
five percent at DCA or LGA respectively, with the exception of Frontier
Airlines for the reasons noted above.
    To enable purchasing carriers to achieve a critical mass of slots,
the divested slots shall, as proposed, be bundled into eight slot pairs
at each airport, with two such bundles at LGA and one at DCA. An
eligible carrier may, under our proposal, purchase only one slot bundle
at each airport (while indicating preference ranking for each slot
bundle as part of its offer). For the reasons outlined above, we are
not adopting our earlier proposal to allow the seller to opt to accept
both bids of the same purchasing carrier at LaGuardia. The selling
carriers may retain, in full, the proceeds of the sale of these slots.
    More specifically, as outlined in the July 2011 Notice, the single
bundle at DCA would include the following slots: 0700, 0800, 0800,
0900, 1000, 1000, 1100, 1200, 1300, 1400, 1600, 1700, 1800, 1800, 2000,
and 2100.
    At LGA, Bundle A would include slots at 0600D, 0630D, 0730A, 0830D,
0830A, 0930D, 1100A, 1230D, 1300A, 1400D, 1500A, 1600D, 1700A, 1830D,
2000A, and 2100A. Bundle B would consist of slots at 0630D, 0700D,
0800A, 0930D, 1000A, 1030D, 1230A, 1330D, 1430A, 1600D, 1630A, 1730D,
1830A, 1930D, 2030A, and 2130A.
    Within 30 days of this grant of waiver, Delta and US Airways must
notify in writing to the FAA whether they intend to proceed with the
slot transfer transaction. If they intend to consummate the slot
transfer transaction subject to this waiver, that notice must provide
the following information for the divested slots:
    (1) Operating Authorization number (LGA) or slot number (DCA) and
time;
    (2) Frequency;
    (3) Effective Date(s);
    (4) Other pertinent information, if applicable; and
    (5) Carrier's authorized representative.
    The FAA will post a notice of the available slot bundles on the FAA
Web site at http://www.faa.gov shortly after receiving all required
information from the sellers and, if practicable, will publish the
notice in the Federal Register. The notice will provide seven business
days for purchase offers to be received and will specify a bid closing
date and time. Eligible carriers may register to purchase the slot
bundles via e-mail to<EMAIL_ADDRESS>Registration must be
received 15 days prior to the start of the offer period and must state
whether there is any common ownership or control of, by, or with any
other carrier and certify that no purchase offer information will be
disclosed to any person other than its agent.
    The FAA will specify a bid closing date and time. The bidders'
identities will not be revealed. An eligible carrier will register for
each slot bundle it wishes to buy, and the FAA will assign it a random
number for each registration, so no information identifying the bidder
will be available to the seller or public. A bidder will be allowed to
indicate its preference ranking for each slot bundle as part of its
offer. Finally, the FAA will review the offers for each bundle in
order. All offers to purchase slot bundles will be sent to the FAA
electronically, via the e-mail address above, by the closing date and
time. The offer must include the prospective purchaser's assigned
number, the monetary amount, and the preference ranking for that slot
bundle. No extensions of time will be granted, and late offers will not
be considered. The FAA will post all offers on the Web site as soon as
practicable after they are received. Each purchaser would be able to
submit multiple offers until the closing date and time.
    Once the sales period closes, the FAA will determine the highest
offer for each bundle. If each bundle receives only a single offer, the
FAA will notify the seller by forwarding the purchaser's
identification. If one eligible carrier had made the highest purchase
offer on multiple bundles at LGA, the FAA will determine which offer is
valid based on preference ranking. The successful bid for the other LGA
bundle will be the next-highest offer from a carrier that remains
eligible to purchase the slots.

This information will be forwarded to the respective seller. The FAA
will notify the selling and purchasing carriers to allow them to carry
out the transaction, including any gate and ground facilities
arrangements. The full amount of the proceeds may be retained by the
selling carrier. The seller and purchaser will be required to notify
the FAA that they have entered into a binding agreement with respect to
the sale of the slots and certify that only monetary consideration will
be or has been exchanged for the slots. This notification must occur
within five business days of notification by the FAA of the winning
offer. The FAA then will approve the transaction and will maintain and
make publicly available a record of the offers received, the identity
of the seller and purchaser, and the winning price.
    Additionally, to allow the new entrant and limited incumbent
carriers purchasing the divested slots to establish competitive
service, we shall prohibit each transferee Joint Applicant from
operating any of the slots acquired by virtue of this waiver during the
first 90 days after the closing date of the sale of the divested slots
and from operating more than 50 percent of the total number of slots
included in the Joint Applicants' Agreement between the 91st and the
210th day following the close date of the sale of the divested slots,
after which time the transferee will be free to operate the remainder
of the slots.
    As discussed above and as proposed, if the purchasing carrier lacks
access to gates and ground facilities and is unable to obtain such
access from either the Port Authority, the operator of LGA, or from
MWAA, the operator of DCA, the selling carrier must make these
available to the purchaser under reasonable terms and rates. We also
direct the Joint Applicants to cooperate fully with the purchasing
carrier and the respective airports to enable the startup operations to
begin within six months after purchase.
    Slots obtained through this procedure will be subject to the same
minimum usage requirements as provided in the LGA Order and HDR.
However, we will waive the respective use or lose provisions of the LGA
Order and HDR for slots operated by the purchaser for six months
following purchase to allow the purchaser to begin service in new
markets or add service to existing markets. The purchaser must initiate
service no later than six months following purchase.
    The purchaser may lease the acquired slots to the seller until the
purchaser is ready to initiate service to maximize operations at the
airports. As proposed, however, slots may not be sold or leased to
other carriers during the 12 months following purchase, because the
purchaser must hold and use the acquired slots.
    Purchasers could engage in one-for-one trades of these slots for
operational needs. The limitations would attach to any slot acquired by
an eligible carrier in a one-for-one trade. Any one-for-one trades are
subject to the FAA notice requirements in the LGA Order and HDR. Any
trades or leases of LGA slots may not exceed the duration of the LGA
Order.
    After the initial 12 months, and for four years thereafter, the
slots may be sold, traded, or leased (as authorized by the HDR at DCA
and as otherwise authorized at LGA) to any carrier that at the time of
the sale, trade, or lease would have met the eligibility requirements
to make an offer for the divested slots under this waiver. These
alienation restrictions will increase the likelihood that the divested
slots are used and operated by carriers that will enhance competition
at LGA and DCA, lower fares, and benefit the traveling public. We
recognize, however, that restrictions on alienation of these slots may
depress their value for the carriers holding them. Accordingly, the
alienation restrictions on the divested slots will terminate five years
after initial sale. This will balance the need and desire of those
carriers to maximize the value of the divested slots with the
Department's desire to afford the traveling public a broad array of
competitive service.
    In the unlikely event that there are no offers for the slots, they
will revert automatically to the FAA. If necessary, the FAA may retire
the slots or announce at a later date a means for disposing of a slot
bundle that attracts no purchase offer. We do not expect that this need
will arise.
    The grant of waiver becomes effective upon the issuance of this
Notice. Failure by the Joint Applicants to comply with the terms and
conditions contained in this Notice may result in partial or complete
withdrawal of the waiver or other penalties.

    Issued in Washington, DC, on October 7, 2011.
Ray LaHood,
Secretary.
J. Randolph Babbitt,
Administrator, Federal Aviation Administration.

Appendix

Summary of Comments

    We received comments from numerous commenters, which are
summarized below.
    Southwest Airlines Co. argues that FAA should require
divestitures that are, at a minimum, in-line with DOT's May, 2010
Order, which was 20 slot pairs at LGA and 14 slot pairs at DCA.
Southwest urges FAA to eliminate the possibility of the Joint
Applicants playing a role in the selection process, to use a true
market-based auction where the highest cash bid on each slot bundle
wins, and to remove the restriction that an eligible air carrier may
only purchase one LGA slot bundle. Other options have the potential
of manipulation in that the seller may have the ability to choose
the weakest competitor and thereby the ability to act in an anti-
competitive manner. FAA should also amend its order to require that
the air carriers selling the divested slots should work with the
respective airport authorities to make airport facilities available
on no less favorable terms than those now afforded to the Joint
Applicants and that airport ground equipment is made available on
reasonable terms.
    JetBlue Airways Corp. commented on June 15, 2011, before our
Notice on the Joint Applicants' revised Petition was issued, and
again on August 30, 2011. JetBlue suggests that the Department
structure the auction so that the Joint Applicants have no ability
to select the winning bidders. Further, JetBlue argues that the
Department should make minor adjustments to the procedures defined
in its May, 2010 Final order. Specifically, DOT should: (1) Clarify
the rights associated with the divested slots; (2) auction off the
divested slots in pairs rather than bundles; (3) limit participation
in the auction to ``new entrant and limited incumbents'' in
accordance with 49 U.S.C. 41714(h)(5), i.e, generally, to carriers
having fewer than 20 slots and slot exemptions at the respective
airport; and (4) limit participants in the auction to purchasing two
slot pairs in the first round of bidding.
    Frontier Airlines, Inc. submitted initial comments urging the
Department to require divestitures consistent with our May, 2010
Notice, of no less than 28 DCA slots (14 slot pairs) and 40 LGA
slots (20 slot pairs). In order to maximize the number and
geographic diversity of LCC's, Frontier urged the Department to
reallocate the slots in bundles of no more than eight slots (or four
slot pairs) in each bundle. Frontier is supportive of the
Department's determination of its eligibility for the auction
process, but suggested a few modifications to that process.
Specifically, DOT should use a single round of bidding and require
eligible air carriers to submit their best and final offer, or
establish a multi-bid process with set deadlines for each round of
bids and require that bidders

participate in each round of bidding in order to be eligible to
participate in the final round of bidding. Additionally, FAA should
be the sole entity controlling the selection of the winning bidders.
Frontier encourages the Department to treat Southwest and AirTran as
one single air carrier for the purpose of the auction, and urges the
Department to publicly disclose the winning bidder and amount of
each winning bid.
    Spirit Airlines, Inc. is supportive of the divestment of slots,
but urges the Department to modify the transaction process. Spirit
discourages the Department from using an auction based approach to
reallocate the divested slots, and proposes that FAA reallocate the
slots, without requiring compensation, to LCC incumbents that
operate less than five percent of the slots at DCA and LGA. Spirit
takes the position that the Joint Applicants have not sought payment
and according to 49 U.S.C. 40101(a), US Airways and Delta are
prohibited from selling such slots. Further, Spirit claims that the
Joint Applicants did not pay for the slots contemplated in the
proposed transaction; rather, those slots were allocated to the
Joint Applicants through AIR-21, and therefore the Joint Applicants
should not reap financial benefit at the expense of LCCs.
Additionally, Spirit claims that it is in the public's best interest
to distribute the divested slots without charge, and forcing
eligible LCCs to purchase the divested slots will result in higher
fares for passengers.
    Spirit further urges the Department to group the divested slots
into four bundles of four slot pairs each at LGA, and four bundles
of two slot pairs each at DCA. Spirit states that the proposed
auction method puts it at a disadvantage, and that the carriers with
the ``deepest pockets'' could acquire all of the available slots.
The air carrier claims it is 80% smaller than JetBlue and 95%
smaller than Southwest/AirTran, and urges the Department to adopt
the limited incumbent definition proposed in the Department's Final
Notice of May 2010.
    The Air Carrier Association of America (``ACAA'') supports
Spirit's proposal to distribute the divested slots without charge.
ACAA urges the Department to impose divestitures of 40 slots at LGA
and 28 slots at DCA, and to allocate those slots to LCCs with less
than five percent of the slots at DCA/LGA. ACAA asserts that there
has been no change in the level of competition at LGA or DCA since
the Department issued its previous Final Notice of May 2010.
    Allegiant Air asserts that it is eligible to acquire a portion
of the LGA slots, and encourages the Department to re-bundle the
divested slots into smaller groups.
    WestJet encourages the Department to modify the proposed
requirements that allow air carriers to bid on a minimum of eight
slot pairs. Additionally, in the event that LGA slots are obtained
by carriers proposing service to Canada, WestJet urges the
Department to assist in their obtaining authority to pre-clear
passengers through U.S. Customs and Border Protection at applicable
Canadian airports.
    Virgin America, Inc. urged the Department to mandate a greater
number of slots to be divested, and encourages the Department to
establish and implement congestion mitigation strategy at the major
airports in and around New York City. Additionally, Virgin suggests
that the Department modify its conditions in the following ways: (1)
Lower the definition of limited incumbent from fewer than five
percent; (2) not exempt Frontier Airlines from the ``no
subsidiaries'' requirement; (3) modify the number of bundles, which
are ``unnecessarily'' large; (4) establish a ``strategic slot
reserve'' as detailed in its comments in the docket; and (5) allow
air carriers to use the divested slots at other congested New York
airports such as Newark Liberty International Airport (``EWR'').
    Sun Country Airlines urges the Department to allow air carriers
the ability to purchase individual slots rather than bundles of
slots, and proposes that half of the divested slots should be
returned to the Department and subsequently reallocated to new
entrants or limited incumbents through a lottery system without
charge.
    San Francisco International Airport commented to express
concerns about (1) the future use and sale of slots at congested
airports, and (2) possible negative repercussions of allowing air
carriers to reap financial reward from the sale of slots.
    The Port Authority of New York and New Jersey offered a number
of suggestions regarding the proposed transaction: (1) Certain
aspects of the sale mechanism should be changed to increase
competition and reduce collusive behavior; (2) a six-month deadline
to commence use of the divested slots is unreasonable; and (3) the
Department should not allow any of the divested slots to be retired
in the unlikely event that no air carriers assumes control of the
divested slots.
    Airport Council International (``ACI-NA'') discourages the
Department from granting the waiver petition. ACI-NA urges the
Department to treat the divested slots as property of the community
and not assets of air carriers. ACI-NA contends that the Joint
Applicants should not be allowed to receive payment from the
divestment of slots, which potentially has negative repercussions.
    The City of Tallahassee, Florida encourages the Department to
move through the divestment process as expeditiously as possible.
    Dane County Regional Airport (Madison, Wisconsin) is supportive
of the transaction, but is concerned about possible loss of service.
    The New York Travel Advisory Bureau, and various travel agents
and corporate travel managers expressed support for the Joint
Applicants' proposed transaction, generally citing the potential for
greater benefits to the economy of New York, the benefit of
improvements proposed for the infrastructure at LaGuardia, and
prospects for improved tourism and travel opportunities.
    The Honorable Jeff Miller, Representative of the First District
of Florida, expressed support for the proposed transaction as
potentially leading to more air transportation connectivity between
Northwest Florida and DCA.
    Mayor Bowers of Roanoke, Virginia, and various other businesses,
educational institutions, and private citizens in and around
Roanoke, expressed strong concern about the potential loss of
nonstop service to LGA from their community.
    The Consumer Travel Alliance (``CTA'') urges the Department to
reexamine the proposed transaction from the taxpayers' point of
view. CTA argues that the slots contemplated in the transaction are
not assets of the air carriers and should be treated as property of
the American public. CTA has concerns about the repercussions of
incentivizing air carriers by allowing airlines to reap financial
reward in exchange for scarce slots. CTA urges the Department to
reallocate the divested slots to those air carriers that propose to
operate large aircraft with those slots, and to air carriers willing
to invest in equipping their fleet with NextGen technology.
Additionally, CTA urges the Department to consider the difficult
task of reallocating the limited airport facilities to the winning
bidders.

Supplemental and Responsive Pleadings

    The Joint Applicants submitted responsive comments in the
docket, and assert that they take no issue with JetBlue's position
on the subject of the Joint Applicants' role in the selection of
recipients of the divested slots. Furthermore, the Joint Applicants
take no position with comments regarding modifications to the
auction process. Delta and US Airways assert that they did not
contemplate divesting the slots without monetary compensation, and
would not have offered to divest such slots had they believed the
slots would be withdrawn and reallocated without compensation. The
Joint Applicants claim they have the authority to sell slots, and
argue that divestiture of 32 slots at LGA and 16 slots at DCA is
consistent with the public interest standard. The Joint Applicants
further argue that Frontier is not eligible to participate in the
auction without special dispensations.
    Spirit submitted additional comments in the docket on August 30,
2011, in which it opposes the transaction unless an additional four
slot pairs are divested. Spirit claims that 16 slot pairs at LGA
will not be an adequate number of divested slots to counter-balance
the anti-competitive impact of Delta's newly acquired LGA slots.
Spirit strongly opposes an action process that results in the Joint
Applicants receiving monetary compensation in exchange for the
divested slots. Spirit contends that Congress has defined ``limited
incumbents'' as air carriers holding fewer than 20 slots, and the
Department should adopt this definition.
    In its responsive submission, ACAA urges the Department to
require more divested slots than 16 slot pairs at LGA and 8 slots
pairs at DCA. ACAA argues that the Joint Applicants obtained control
of the slots contemplated in the transaction without payment and
therefore should not receive a financial windfall from low cost
carriers in exchange for the slots. ACAA encourages the Department
to promote competition at DCA and LGA by divesting slots to air
carriers that hold less than five percent of the slots at the
respective airports and proposes to use those slots to operate
aircraft with at least 110 seats.
    Frontier Airlines encourages the Department to define ``limited
incumbents''

as those air carriers that operate fewer than five percent of the
slots at DCA and LGA. Frontier urges the Department to allocate the
divested slots into smaller bundles than what was proposed in the
Notice of the revised Petition and prohibit an air carrier from
acquiring all of the slots. Additionally, Frontier argues that
divested LGA slots should not be transferable to EWR, and that
exempting Frontier from the ``no subsidiaries'' requirement is fully
justified and in the public interest.
    Southwest submitted responsive comments supporting the
Department's definition of ``limited incumbent'' in this proceeding,
pointing out that any other definition would be inconsistent with
the May 2010 Notice regarding the previous, similar transaction, and
arguing that the proposed definition ensures that the divested slots
are ``put to their best competitive use * * * to produce the maximum
public benefits and partially offset the anticompetitive effects of
the slot swap.'' Southwest further argues that this definition is
justified in order to ensure that the transaction is in the public
interest. It also claimed that smaller bundles of slots would
provide only ``weak and diffuse'' competition by low-fare carriers.
Southwest also supported a simple auction format in which the
highest bidder won each bundle of slots.
    Continental Airlines, Inc. and United Air Lines, Inc. submitted
responsive comments opposing Virgin America's suggestion that
divested LGA slots should be transferable to EWR.
    In a September 13, 2011 submission, JetBlue reiterated its
position that additional slot divestitures are required to
ameliorate the anticompetitive effects of the proposed transaction.
It also continued to argue that ``limited incumbent'' was defined in
statute by the Wendell H. Ford Aviation Investment and Reform Act
for the 21st Century (AIR-21), and that implementation of AIR-21 is
the core issue in this proceeding.
    ACAA responded to these comments in a September 21, 2011 filing,
and restated the benefits it believes accrue to the public from
allowing carriers with more than five percent of the slots at either
airport to participate in the auction.

[FR Doc. 2011-26465 Filed 10-11-11; 4:15 pm]
BILLING CODE 4910-13-P