BEFORE THE DEPARTMENT OF TRANSPORTATION FEDERAL AVIATION ADMINISTRATION WASHINGTON, DC ) Notice of Proposed Rulemaking ) ) Slot Management and Transparency ) Docket FAA-2014-1073 for LaGuardia Airport, ) John F. Kennedy International Airport, ) and Newark Liberty International Airport ) ______________________________ ) COMMENTS OF FRONTIER AIRLINES, INC. Communications with respect to this document should be addressed to: Howard M. Diamond Stephen H. Lachter Senior Vice President, Mark W. Atwood General Counsel and Secretary Cozen O'Connor Frontier Airlines, Inc. The Army & Navy Club Building 7001 Tower Road 1627 I Street, NW Denver, CO 80249 Suite 1100 Washington, DC 20006 (202) 463-2513 [email protected] [email protected] Counsel for FRONTIER AIRLINES, INC. May 8, 2015 BEFORE THE DEPARTMENT OF TRANSPORTATION FEDERAL AVIATION ADMINISTRATION WASHINGTON, DC ) Notice of Proposed Rulemaking ) ) Slot Management and Transparency ) Docket FAA-2014-1 073 for LaGuardia Airport, ) John F. Kennedy International Airport, ) and Newark Liberty International Airport ) ________________________________ ) COMMENTS OF FRONTIER AIRLINES, INC. Frontier Airlines, Inc. ("Frontier'') submits the following comments on the Federal Aviation Administration ("FAA") and Department of Transportation ("DOT") Notice of Proposed Rulemaking ("NPRM"), issued January 8, 2015, to provide a longer-term and comprehensive approach to slot management at LaGuardia Airport ("LGA"), John F. Kennedy International Airport ("JFK"), and Newark Liberty International Airport ("EWR") (collectively, the "NYC Airports").1 SUMMARY • For more than 40 years, and in order to address congestion and delays, the Federal Government has relied upon limitations, in the form of departure and arrival "slots," to allocate access to the New York City Area Airports, an admittedly scarce economic resource. • On multiple occasions, attempts have been made by the FAA, DOT and Congress to accommodate new entry, particularly low fare entrants, that would benefit consumers of airline services originating and terminating at EWR, JFK 1 Slot Management and Transparency for LaGuardia Airport, John F. Kennedy International Airport, and Newark Liberty International Airport, Proposed Rule, Docket FAA-2014-1073, 80 Fed. Reg. 1274 (Jan. 8, 2015) ("NPRM"}. Comments of Frontier Airlines, Inc. Page 2 and LGA; unfortunately, very little new entry has occurred, and the airports have become almost entirely controlled by the largest carriers. • While the latest proposal attempts to balance the interests of incumbents and new entrants. it is too modest. If enforced vigorously, the proposal would provide for a small measure of new entry, but it does not address sufficiently the needs of low fare and new entrant carriers and the traveling public. • The increased concentration in the domestic airline industry, resulting from mergers and acquisitions, and the increased hoarding of a very large portion of the allocated NYC Airports slots in the hands of just three incumbent carriers, has severely and adversely affected the traveling public. • The large incumbent carriers have underutilized their slots by providing inefficient schedules using smaller aircraft than is justifiable given the scarcity of the resource. Fully 69 percent of American and Delta flights from LGA are on sub- 100 seat aircraft. Their strategy is akin to building single family homes in midtown Manhattan. • As a result of this approach consumers are paying higher fares. The average yield in 2014 on American and Delta from LGA was 19 percent higher than the average domestic yield for the year. In short, legacy incumbents have not provided the highest and best use for this limited resource and have rarely been required to return slots for reallocation. • The FAA needs to prioritize new entry to ensure the most economic use of this scarce resource by increasing competition -- the over-arching mandate of the Airline Deregulation Act that governs DOT/FAA regulatory activities. • Frontier Airlines, a new entrant carrier currently holding just two slot pairs at LGA, is prepared to offer immediately significant new service using 150-seat or larger aircraft from both JFK and LGA with very low fares, assuming slots were made available. Frontier's new low-fare service would provide enormous economic benefits to the traveling public by increasing competition, service options and frequencies. • The NPRM does provide a small, incremental step to force incumbents to more effectively use their current slot holdings. The proposal does not, however, go nearly far enough to offer new entrants and the traveling public sufficient new service opportunities. Comments of Frontier Airlines, Inc. Page3 • Frontier supports that portion of the NPRM that tightens and more effectively enforces current slot utilization requirements, provides for a higher threshold definition of "new entrant" and proposes to create a transparent and robust secondary market -- actions that would limit the ability of incumbents to "game the system." • Significant further action, however, is necessary to make sufficient slots available to new entrants and to require incumbent carriers to utilize their current slot holdings in a more efficient manner to achieve essential consumer benefits. At a minimum, ten percent of current slots should be made available to new entrants at the three airports, by tightening use regulations, reducing the number of slots held by large incumbent carriers, and/or creating new slots by exemption. Such action could be phased in over time so as not to result in the congestion problems experienced in the past when new slots were made available. • As noted below, both the Department of Justice and the Government Accountability Office have issued reports that confirm Frontier's position that more significant action by the FAA is required, not the modest, incremental steps contained in the proposal at issue here. INTRODUCTION While the FAA has done a commendable job detailing the history and results of the on-going slot allocation rules at NYC Airports, the solutions proposed for a longer-term, comprehensive approach to slot management fall far short of the actions necessary to make sufficient slots available to new entrants? Frontier supports the proposal to the extent it tightens and more effectively enforces slot utilization requirements, provides for priority slot allocation under a high threshold definition of "new entrant," and proposes to create a transparent and robust secondary market. However, in light of the extreme concentration that has occurred in the domestic 2 The NPRM would define a "new entrant" as "a U.S. or foreign air carrier that holds or operates fewer than 20 slots on any day of the week, in any combination during the slot-controlled hours, at the respective airport." 80 Fed. Reg. at 1286 and proposed 14 C.F.R. § 93.36. Comments of Frontier Airlines, Inc. Page 4 air transportation market and the ability of large incumbent carriers to hoard a large pool of slots at all three NYC Airports under the present, more flexible ru les, entry at these airports has been, and remains, severely inhibited. The result is that consumers in the New York area pay much higher than necessary air fares, and are precluded from enjoying the benefits of competitive entry by low-cost carriers ('' LCC 's"). Frontier, an ultra-low cost new entrant that now holds only two slot pairs at LaGuardia, is prepared to offer significant new competitive seNice from both LGA and JFK if it can obtain sufficient slots at reasonable or no cost. At the present time, in order to enter these markets, Frontier would be forced to pay exorbitant sums to incumbents (many of whom were "grandfathered" the majority of their slots), even if reasonably timed slots were available. Previous government studies, however, show that slots are not available to new entrants and that incumbents would not sell slots to low-fare carriers in any event. Airport slots must be recognized for what they are - public resources - not the private assets of incumbent carriers. The Department must ensure that they are distributed and used for the maximum benefit of the public. I. The Department and FAA have an Obligation to Administer the New York Area Airport Slot System to Achieve Maximum Competition for the Benefit of the Public. The three New York area airports seNe the largest metropolitan area, and the most valuable air trave l market, in the United States. However, these airports are unlike any other airports in the United States (with the exception of Washington Reagan N ational Airport ("DCA")) because of the regulatory limitation on operations known as the "slot rule." In instituting these regulatory constraints, the Federal Government has created a very Comments of Frontier Airlines, Inc. Pqge 5 limited and very valuable cache of resources that have come to be held almost entirely by the three largest U.S. carriers- American, Delta ahd United. As discussed in the NPRM, the original 1968 "High Density Rule" ("HDR'') has been through a number of permutations, including the 1985 amendment to permit buying and selling of slots. Subsequent to the demise of the HDR at all but DCA, capacity at the three New York area airports was administered through FAA operating orders beginning in 2007. What did not change, however, was the stranglehold held by the major incumbent carriers on the vast majority of the slots. In fact, that concentration has grown even more extreme as the industry itself has grown more concentrated. The incumbent carriers continue to hold slots that were "grandfathered" to them -without charge - by the Federal Government. The Department's decision to allow the incumbents to continue to hold the slots they have operated historically is, in part, in recognition of the substantial economic investments made by these carriers in the services operated at the New York airports. Frontier realizes that the carriers have expended a great amount of money in developing facilities and services at the airports. They have built up enormous bases of operations there, and have integrated these operations into their systems. They are understandably zealous to protect the value of their investments.