 

UNITED STATES OF AMERICA

DEPARTMENT OF TRANSPORTATION

OFFICE OF THE SECRETARY

WASHINGTON, DC

Issued by the Department of Transportation on May 11, 2005

   NOTICE OF ACTION TAKEN -- DOCKET OST-2005-20927  

________________________________________________________________________
_________________________________

This serves as notice to the public of the action described below, taken
by the Department official indicated (no additional confirming order
will be issued in this matter).

Application of ATLANTIC SOUTHEAST AIRLINES, INC. (ASA) filed 4/5/05,
for:

XX  Exemption for two years under 49 U.S.C. 40109 to provide the
following service:

Scheduled foreign air transportation of persons, property, and mail
between the terminal point Salt Lake City, Utah, and the terminal point
San Jose del Cabo, Mexico.  ASA states that it will use this authority
on a seasonal basis by placing the code of Delta Air Lines, Inc. (Delta)
on ASA’s 70-seat CRJ aircraft during the off-peak season (June 1,
2005, through November 30, 2005).  ASA states that Delta anticipates
that it will resume daily mainline service during the peak winter season
(December 2005 through May 2006).  ASA also requests authority to
combine this exemption with its existing exemption and certificate
authority, consistent with applicable international agreements.  

Applicant rep: Alexander Van der Bellen  (202) 637-8382   DOT Analyst:
Linda L. Lundell (202) 366-2336

D I S P O S I T I O N

XX  Granted (subject to conditions, see below)

The above action was effective when taken: May 11, 2005 through May 11,
2007. 

Action taken by:   Paul L. Gretch, Director	

		      Office of International Aviation

XX  The authority granted is consistent with the aviation agreement
between the United States and Mexico.

Except to the extent exempted or waived, this authority is subject to
the terms, conditions, and limitations indicated:  

XX Holder’s certificates of public convenience and necessity 

   	XX Standard exemption conditions (attached)

Responsive Pleadings:  United Air Lines, Inc. (United) and Frontier
Airlines, Inc. (Frontier) filed responsive pleadings to ASA’s
application.  ASA filed a consolidated reply to the responses of United
and Frontier.  Frontier filed a further response.  

Both United and Frontier oppose ASA’s application here.  United states
that it has previously noted the implications for competition policy in
awarding U.S.-Mexico designations to two carriers that market their
services under the same designator code.  United states that it would,
instead, be preferable to award a single operating carrier designation
to Delta and ASA to be shared between them, with each of them using it
in the season when it operates service.  United further states that, if
the Department decides that a “share designation” is not appropriate
and grants the request here, the Department should adopt an
earlier-expressed policy that it would be prepared to reconsider whether
such an award would continue to be in the public interest if a competing
U.S. carrier were to present a proposal to provide regularly-scheduled
service on the route with its own aircraft. 

Frontier similarly argues that, by granting this type of application,
the Department sets a precedent that a major carrier and a wholly-owned
subsidiary could obtain the only two designations available in any given
U.S.-Mexico city-pair market, blocking out all other carriers from
entering the market.  Frontier states that, although it is “not
prepared to file for this market today, it is a market that Frontier is
examining for future service.”  In this regard, Frontier proposes
certain alternatives for handling ASA’s request, such as: (1) to issue
the requested exemption authority to ASA a short period of time, not to
exceed six months; (2) “Delta could join ASA in a motion to allow ASA
to use Delta’s existing authority until Delta is prepared to resume
the service;” and (3) to allow ASA to use the authority for the period
between May 1, 2005, through December 1, 2005, at which time the
authority would be returned to the Department (rather than to grant the
authority for a full two-year term).

In its consolidated reply, ASA states that neither United nor Frontier
has any service plans for the market that “ASA urgently needs to
commence daily nonstop service between Salt Lake City and Los Cabos on
June 1, 2005.”  ASA maintains that its request for designation is
fully consistent with existing Department policy and precedent, and is
necessitated by the undisputed fact that the Government of Mexico
requires all U.S. carriers operating on a U.S.-Mexico transborder route
to be designated—regardless of whether or not they are holding out
service in their own right, or providing code-share service for another
carrier.  ASA maintains that the United/Frontier suggested alternative
approaches for handling its application do not allow ASA the necessary
flexibility to respond appropriately to market demand.  ASA further
states that, contrary to Frontier’s assertions, the designation of ASA
here would not “set a precedent” because there are already a host of
U.S.-Mexico routes where majors and their subsidiaries or code-share
partners hold dual designations.  ASA states that, in this regard, it
has no objection to the Department reserving the right to reexamine the
grant of the requested authorities should a competing U.S. carrier
present a proposal to provide regularly-scheduled service on the subject
route with its own aircraft.

Decision:   We have carefully examined the evidence presented in this
case, and have decided that it is in the public interest to grant the
exemption request of ASA for the proposed services, and designate ASA
for direct-carrier service in the Salt Lake City-San Jose del Cabo
market.

Under the U.S.-Mexico aviation agreement, up to two U.S. carriers may be
designated to operate direct-carrier service in a given city-pair
market.  Currently, Delta is the only carrier authorized to provide
direct-carrier service on the route.  Thus, there is one designation
opportunity available at this time.  

It is not our policy to allow valuable operating rights to go unused,
particularly when another carrier is interested in serving the route and
has firm plans to do so.  Both United and Frontier have suggested that
the Department consider alternate courses of action for handling ASA’s
application.  However, ASA has stated that those alternatives do not
allow ASA/Delta the flexibility to “tailor schedules to market demand
(including, for example, upgauging to mainline aircraft on peak weekend
travel days).”  

With respect to the concerns raised by United and Frontier about our
awarding designations to affiliated carriers, we have previously
acknowledged our recognition of such concerns.  Indeed, we have sought
Mexican aviation authorities’ acceptance of such services without the
need for separate designations.  However, such an arrangement has not
been forthcoming.  Neither United nor Frontier has presented firm plans
to serve the Salt Lake City-San Jose del Cabo market with its own
aircraft.  Under these circumstances, we believe that the public
interest is best served by granting ASA the requested authority for the
proposed services while we continue to work on this issue with the
Mexican aviation authorities.  Notwithstanding this, however, should a
competing U.S. carrier present a firm proposal to provide
regularly-scheduled service in the Salt Lake City-San Jose del Cabo
market with its own aircraft, we would be prepared to reconsider
whether, in the circumstances presented, award of the authority granted
here continues to be in the public interest.

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Conditions:  The U.S.-Mexico exemption authority granted is subject to
the dormancy notice requirements set forth in condition 7 of Appendix A
of Order 88-10-2.  Consistent with our policy, the dormancy notice
period will begin on June 1, 2005, ASA’s proposed start-up date for
the Salt Lake City-San Jose del Cabo service.   

The route integration authority granted is subject to the condition that
any service provided under this exemption shall be consistent with all
applicable agreements between the United States and the foreign
countries involved.  Furthermore, (a) nothing in the award of the route
integration authority granted should be construed as conferring upon ASA
rights (including fifth-freedom intermediate and/or beyond rights) to
serve markets where U.S. carrier entry is limited unless ASA notifies
the Department of its intent to serve such a market and unless and until
the Department has completed any necessary carrier selection procedures
to determine which carrier(s) should be authorized to exercise such
rights; and (b) should there be a request by any such carrier to use the
limited-entry route rights that are included in ASA’s authority by
virtue of the route integration authority granted here, but that are not
then being used by ASA, the holding of such authority by route
integration will not be considered as providing any preference for ASA
in a competitive carrier selection proceeding to determine which
carrier(s) should be entitled to use the authority at issue.

The code-share operations conducted under this authorization are subject
to the following conditions:

The code-sharing operations conducted under this authority must comply
with 14 CFR 257 and with any amendment to the Department’s regulations
concerning code-share arrangements that may be adopted.  Notwithstanding
any provisions in the contract between the carriers, our approval here
is expressly conditioned upon the requirements that the subject foreign
air transportation be sold in the name of the carrier holding out such
service in computer reservation systems and elsewhere; that the carrier
selling such transportation (i.e., the carrier shown on the ticket)
accept responsibility for the entirety of the code-share journey for all
obligations established in its contract of carriage with the passenger;
and that the passenger liability of the operating carrier be unaffected.
 

(b)	 The authority granted here is specifically conditioned so that
neither ASA nor Delta shall give any force or effect to any contractual
provisions between themselves that are contrary to these conditions.

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On the basis of data officially noticeable under Rule 24(g) of the
Department's regulations, we found the applicant qualified to provide
the exemption services authorized.

Under authority assigned by the Department in its regulations, 14 CFR
Part 385, we found that (1) our action was consistent with Department
policy; (2) grant of the authority was consistent with the public
interest; and (3) grant of the authority would not constitute a major
regulatory action under the Energy Policy and Conservation Act of 1975. 
To the extent not granted, we denied all requests in the referenced
Docket.  We may amend, modify, or revoke the authority granted in this
Notice at any time without hearing at our discretion.

Persons entitled to petition the Department for review of the action set
forth in this Notice under the Department’s regulations, 14 CFR
§385.30, may file their petitions within seven (7) days after the date
of issuance of this Notice.  This action was effective when taken, and
the filing of a petition for review will not alter such effectiveness.

An electronic version of this document is available on the World Wide
Web at:

  HYPERLINK "http://dms.dot.gov//reports/reports_aviation.asp" 
http://dms.dot.gov//reports/reports_aviation.asp 

U.S. Carrier Exemption Conditions

In the conduct of the operations authorized, the U.S. carrier
applicant(s) shall:

(1)  Hold at all times effective operating authority from the government
of each country served;

(2)  Comply with applicable requirements concerning oversales contained
in 14 CFR 250 (for scheduled operations, if authorized);

(3)  Comply with the requirements for reporting data contained in 14 CFR
241;

(4)  Comply with requirements for minimum insurance coverage, and for
certifying that coverage to the Department, contained in 14 CFR 205;

(5)  Except as specifically exempted or otherwise provided for in a
Department Order, comply with the requirements of 14 CFR 203, concerning
waiver of Warsaw Convention liability limits and defenses;

(6)  Comply with all applicable requirements of the Federal Aviation
Administration and with all applicable U.S. Government requirements
concerning security, including, but not limited to, 49 CFR Part 1544. 
To assure compliance with all applicable U.S. Government requirements
concerning security, the holder shall, before commencing any new service
(including charter flights) to or from a foreign airport, contact its
International Principal Security Inspector (IPSI) to advise the IPSI of
its plans and to find out whether the Transportation Security
Administration has determined that security is adequate to allow such
airport(s) to be served; and

(7)  Comply with such other reasonable terms, conditions, and
limitations required by the public interest as may be prescribed by the
Department of Transportation, with all applicable orders and regulations
of other U.S. agencies and courts, and with all applicable laws of the
United States.

The authority granted shall be effective only during the period when the
holder is in compliance with the conditions imposed above.

										  05/2004

    Frontier Reply, at 4.

    Frontier Reply, at 4-5.

    Consolidated Reply of ASA, at 1.

    Consolidated Reply of ASA, at 3.

    See Notice of Action Taken dated February 13, 2004 (Docket
OST-2003-16444), at 3-4, in the matter of the application of America
West Airlines, Inc., and Mesa Airlines, Inc., to serve the
Phoenix-Puerto Vallarta/San Jose del Cabo markets.

    Contrary to the suggestion that we would be setting a new precedent,
we have in fact granted comparable requests in the past.  See, i.e.,
Notices of Action Taken dated January 14, 2004 (Docket OST-2003-16529),
and February 13, 2004 (Docket OST-2003-16444). 

