DOT filing

August 23, 2006

The Honorable Maria Cino
Acting Secretary
U.S. Department of Transportation
400 Seventh Street, S.W.
Washington, DC 20590
Re: 2007 U.S. – China Combination and All-Cargo Frequency Allocation

Proceeding, Docket 2006-25275

Dear Madame Secretary,

The Business Travel Coalition (BTC) has a long track record of providing comments to the Department of Transportation (DOT) on international aviation issues that impact BTC’s members in terms of airline competition and service options. Most recently, for example, BTC supported the Northwest, KLM, Delta, Air France, Alitalia and Czech airlines “SkyTeam” application for antitrust immunity. It is in this context of BTC’s mission of promoting airline competition and increasing air travelers’ choices that it has decided to express its views to DOT regarding the upcoming award of a new route authority by DOT for U.S. to China air service to begin in March of 2007.

BTC has reviewed the various applications to DOT for this service, which combine airport and airline assets in different regions of the country, in an effort determine which application would best serve the interests of competition and the corporations that fund business travel activities.

After analyzing the applications of American Airlines at DFW, Continental Airlines at Newark, United Airlines at Dulles, and Northwest Airlines at Detroit, BTC believes that the highest and best use of this new route authority would be new service from DFW to Beijing provided by American Airlines. Businesses and communities from New Mexico to Iowa to the Carolinas would benefit substantially from efficient access to the critically important China marketplace. With the current U.S.-China gateways limited to San Francisco, Chicago, and Newark, business travelers in the South and Southwest for far too long have gone without a gateway to China. DOT must use this opportunity to rectify this imbalance.

The opportunity to compete for this new authority is only available to incumbent passenger airlines in the U.S.-China market, i.e. American, Continental, United and Northwest. In BTC’s view, there is little public interest benefit or rationale in adding to the dominant incumbents’ positions, namely Northwest and United. Indeed, awarding more authority to serve China to United or Northwest would work at cross purposes with the stated DOT goals of increasing competition and opening up commercial opportunities in China to businesses and communities in currently underserved regions of the United States.

United already flies daily to both Beijing and Shanghai from both Chicago and San Francisco and has applied to DOT to add to its four daily round trips in the U.S.- China market by adding a daily flight to Beijing from Washington Dulles. Granting United’s request would not only serve to make the biggest player in the U.S.-China market bigger but would also duplicate East Coast access to Beijing already provided by Continental via Newark.

Similarly, Northwest already has an abundance of China rights, though it has chosen to not use those rights for nonstop service. Instead, the carrier chooses to fly one-stop daily via Tokyo to Beijing, Shanghai, and Guangzhou from its U.S. service to Tokyo. Northwest is now asking DOT to add to its three times daily roundtrip service by giving it Detroit-Shanghai nonstop service, even though it could fly that today with its existing China frequencies. Such an unbalanced application should be dismissed out of hand by the Department. Moreover, very little is gained in terms of new market access by making Detroit a gateway to Shanghai when both United and American already fly to Shanghai from nearby Chicago O’Hare.

In stark contrast to United and Northwest, American and Continental only recently were allowed to enter the U.S.-China market, and each only have one daily flight (American from Chicago to Shanghai and Continental from Newark to Beijing). As such, in BTC’s view, the competition for this new authority distils down to the proposals of American and Continental, the two newest and smallest participants in the U.S.-China marketplace. It is in this analysis that the superior public benefits of an American/DFW application are made vividly clear.

The New York market is already adequately served with nonstop flights to China from Newark by Continental and from New York JFK by Air China. In contrast, the South and southwestern U.S. are woefully underserved, and are currently paying an economic penalty due to lack of efficient access to China . Service from DFW would shave 3 1-2 hours from the best possible itinerary for business travelers in this part of the country. This is hugely important to business travelers who must optimize their productivity so that their companies remain competitive.

Continental’s application would positively benefit businesses in 86 communities with air links to Newark Airport on Continental’s system. In contrast, American’s proposed service would offer benefits to businesses in 129 communities in 32 states and the District of Columbia that have service on American to DFW. This represents some 80 percent of the U.S. population. Continental’s proposal simply does not fully leverage the value of the scarce resource of a new authority to serve China in the same order of magnitude that American’s does.

From a competition perspective, it is exceedingly important that this new authority be used strategically to intensify competition in a marketplace long dominated by United and Northwest. American with its extensive network reach throughout the U.S. is in a superior position to offer effective competition to these incumbents generating pricing discipline and improved levels of customer service.

Madame Secretary, BTC views American’s application as best satisfying the two critical goals of such route proceedings: increasing international access for the greatest number of communities and air travelers, and promoting competition. Put simply, DOT should fill the gap in service to China from the south and southwestern United States as opposed to giving the New York area even more flights to China or duplicating U.S. gateway access from Chicago (by granting Northwest’s DTW application) or from Newark (by granting United’s Dulles application). On the merits, BTC respectfully suggests that the public interest is far better served by selecting American’s application from DFW.

Respectfully,

Kevin Mitchell
Chairman