[Federal Register: August 21, 2003 (Volume 68, Number 162)]
[Notices]               
[Page 50584-50587]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr21au03-102]                         

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DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

[Docket No. FAA-2003-15745]

 
High Density Traffic Airports

AGENCY: Federal Aviation Administration (FAA), DOT.

ACTION: Disposition of comments on the lottery procedures.

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SUMMARY: This notice addresses comments received on the lottery 
procedures to be used by the FAA in the allocation of limited air 
carrier and commuter slots at Washington Reagan National Airport on 
August 12, 2003. Additionally, this notice lists all carriers eligible 
to participate and provides the carriers' classification for slot 
selection in the lottery.

DATES: August 11, 2003.
    Date/Location of Lottery: The lottery will be held in the Federal 
Aviation Administration (FAA) Auditorium, 3rd floor, 800 Independence 
Avenue, SW., Washington, DC 20591 on August 12, 2003, beginning a 1 
p.m.

FOR FURTHER INFORMATION CONTACT: Lorelei Peter, Operations and Air 
Traffic Law Branch, Regulations Division, Office of the Chief Counsel, 
Federal Aviation Administration, 800 Independence Avenue, SW., 
Washington, DC 20591; telephone number (202) 267-3134.

SUPPLEMENTARY INFORMATION:

Background

    On July 9, 2003, the FAA published in the Federal Register a notice 
of lottery and allocation procedures for a limited number of air 
carrier and commuter slots at Reagan National Airport (DCA) (68 FR 
41037). A clarification regarding the applicable definition of a 
limited incumbent carrier was published in the Federal Register on July 
18, 2003 (68 FR 42796). On July 24, 2003, the FAA opened a docket for 
the lottery (FAA-2003-15745) and invited interested parties to comment 
on issues related to the lottery procedures by July 28, 2003. On July 
31, 2003, the FAA issued a notice rescheduling the lottery from July 
31, 2003, to August 12, 2003, in order to address these issues and 
others raised in the comments, prior to the scheduled lottery (68 FR 
47378; August 8, 2003).
    This notice responds to the comments received, explains the lottery 
procedures, and classifies the carriers eligible to participate in the 
lottery under our applicable regulations as new entrants, limited 
incumbents, and incumbents, as defined in 14 CFR 93.213. We also note 
which carriers are considered single operators for the purposes of slot 
allocation.

Discussion of Comments

    The FAA received comments from the Metropolitan Washington Airports 
Authority (MWAA), Air Canada, ATA Airlines (ATA), Spirit Airlines, US 
Airways, the Air Carrier Association of America (ACAA) and Congressman 
Regula, as well as several reply comments. The comments identified five 
major issues, which are discussed below.

1. Definition of New Entrant

    Under the applicable regulations, a ``new entrant'' carrier is an 
air carrier or commuter operator that does not hold a slot at a 
particular airport and has neither sold or given up a slot at that 
airport since December 16, 1985 (14 CFR 93.213(a)(1)) (emphasis added). 
A limited incumbent carrier is defined in 14 CFR 93.213(a)(5) and is a 
commuter operator or air carrier operator that holds or operates fewer 
than 12 air carrier or commuter slots, in any combination, at a 
particular airport (emphasis added). In determining who qualifies as a 
limited incumbent carrier, the definition requires that we exclude 
international slots, Essential Air Service Program slots, or slots 
allocated at DCA between the local hours of 2200 and 0659. A carrier 
that holds or operates 12 or more slots at an airport is an incumbent 
carrier.
    There are two carriers requesting to participate in the lottery 
that do not hold slots at DCA, but have a presence at the airport, and 
in fact, conduct operations at DCA. Chautauqua and Atlantic Coast 
Airlines operate slots, which are actually held by larger, incumbent 
carriers, through codeshare arrangements or by lease and conduct these 
operations on behalf of the incumbents.
    The definitions cited do create something of an anomaly in that a 
carrier that holds no slots but operates more than 12 cannot be a 
``limited incumbent'' under the lottery rule but could be a ``new 
entrant.'' Similarly, a carrier could be both a limited incumbent and a 
new entrant if it operates fewer than 12 slots but holds none. ATA and 
Air Canada urge the FAA to apply the term ``new entrant'' as plainly 
defined and argue that any carrier that does not hold slots in its own 
right at DCA should be included in the new entrant category regardless 
of its operations at the airport. ACAA argues that Air Canada and Mesa 
should not be allowed to participate either as a ``new entrant'' or 
``limited incumbent'' given that both operate more than 12 slots at the 
airport. ACAA argues if the regulations preclude a carrier from being a 
limited incumbent, the carrier logically cannot be a new entrant.
    In making the argument that the FAA should veer from the plain 
language of the regulation, ACAA selects a phrase from section 
93.225(e), the provision which sets out the lottery procedures and 
provides that ``any U.S. carrier or foreign carrier where provided for 
by bilateral agreement, that is not operating scheduled service at the 
airport * * * but wishes to initiate scheduled passenger service at the 
airport, shall be included in the lottery if it notifies the FAA.'' 
(Emphasis added.) ACAA contends that because this provision 
distinguishes carriers operating at the airport from those who do not, 
a ``new entrant'' must mean a carrier that is not already operating at 
the airport.
    A significant difference between a new entrant carrier and a 
limited incumbent carrier is that slots allocated under the Essential 
Air Service Program, for international operation or in the low-demand 
hours at DCA (2200-0659) are counted in determining whether a

[[Page 50585]]

carrier is a new entrant. Air Canada and ATA Airlines both hold slots 
in the low-demand hours. Mesa previously has held EAS slots at DCA. 
Consequently, Air Canada and Mesa are incumbents and ATA Airlines is a 
limited incumbent.
    For several reason we conclude that the definition of ``new 
entrant'' should be applied as written, with the result that carriers 
who do not hold any slots at the airport according to the FAA's records 
will be considered new entrants for purposes of this lottery, 
regardless of whether they also operate any slots at the airport. 
First, in 1985, when the definition of ``new entrant'' was promulgated 
as part of the ``buy/sell'' rule, (50 FR 52189; December 20, 1985), the 
industry operated much differently than today. At that time, most 
commuter service was provided by independent companies who held their 
own slots and entered into feeder or marketing relationships with the 
larger carriers. The Department did not want to define ``new entrant'' 
in such a way as to create a disincentive toward such arrangements by 
making it more difficult for carriers to conduct operations at the 
airport through leased slots to obtain permanent slots of their own. 
Chautauqua, and Atlantic Coast's access to DCA is a result of lease 
arrangements and neither of these carriers hold slots outright. The 
underlying policy goal that was the basis for first defining a new 
entrant in this way remains a valid consideration today.
    Second, leasing a slot that is necessary to enter competition is a 
far cry from holding the slot outright. Both air carriers who would be 
adversely affected by an interpretation that equated ``operations'' 
with ``holdings'' are independent companies who have entered into 
codeshare arrangements with larger carriers to operate commuter 
flights. We have no information to suggest that these carriers cannot 
conduct operations on their own, outside of their codeshare 
arrangements, competing against incumbents.\1\ ACAA's proposed 
interpretation of our rules would potentially inhibit competition.
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    \1\ Indeed, very recently one of these carriers--Atlantic Coast 
announced it anticipates that its longstanding relationship with 
United Airlines will end, and that it will establish a new, 
independent low-fare airline. See http://www.atlanticcoast.com/pressreleasearchive/2003/july/728.htm
.
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    Lastly, interpreting the definition of ``new entrant'' in the 
manner suggested by ACAA--that is, against its literal language--would 
necessitate a lengthier proceeding that we believe is warranted. It may 
well be that a review of this definition along with other important 
questions is justified in view of the changes that have occurred in the 
industry since 1985, and the plethora of arrangements by which slots 
are made available under the rule (common ownership, contracts, leases 
and multiple codeshare arrangements). For now, however, the FAA finds 
that the public interest lies in allocating these slots promptly. 
Therefore, the new entrant definition will be applied in its present 
form.

2. New Entrant Preference

    ATA claims that the FAA's intended procedure, by which we will 
permit the first ranked new entrant carrier to select four of the 
available six air carrier slots, is inconsistent with the regulatory 
requirements and fundamentally unfair. ATA contends that the original 
rationale for our rule allowing new entrants to select four slots in 
the first sequence of the lottery--i.e., that four slots are minimally 
necessary for an economically viable operation--is clearly no longer 
justified. ATA would prefer that we remake the procedures so as to 
maximize the number of carriers who receive slots in the lottery, by 
allowing three new entrant carriers to select two slots each.
    The regulation governing slot lotteries establishes two preferences 
for new entrant carriers: (1) In the first selection sequence, 25 
percent of the slots available in the lottery, or no less than 2, are 
reserved for new entrants (``new entrant set-aside''); and (2) new 
entrant carriers may select four slots, if available in the first 
sequence. (See 14 CFR 93.225(h) and (f) respectively.)
    The upcoming lottery offers six slots in the air carrier category. 
A rank order of all carriers eligible to participate in the lottery 
will be established at the start of the lottery. Incumbent carriers may 
only select after all new entrant and limited incumbent carriers have 
made their selections. After the rank order is established, the first 
new entrant may select two slots. This will complete the new entrant 
set-aside. The lottery continues with the first selection sequence by 
starting at the top of the established rank order and moving to the 
first new entrant or limited incumbent carrier. If the first carrier in 
the rank order is a new entrant (that also selected two slots in the 
new entrant set-aside), that this new entrant is eligible to select 
only two additional slots, which completes its selection of four slots 
in the first selection sequence, as provided for in the regulation. 
Alternatively, after completing the new entrant set-aside selections, 
if the first non-incumbent carrier in the rank order is a limited 
incumbent carrier, then that carrier may select two slots. Following 
the rank order to the next new entrant or limited incumbent carrier, 
that carrier would in this case select the remaining two slots.
    ATA asks the FAA to disregard the governing regulatory provisions 
referenced above and instead adopt an ad hoc allocation approach that 
ATA argues will better achieve the policy goal of maximizing 
competitive services at DCA. In promulgating the lottery procedures, 
the FAA and the Department of Transportation specifically found that 
the two articulated preferences for new entrants were warranted to 
further policies enunciated in the Airline Deregulation Act of 1978 (50 
FR 52193; December 20, 1985). The resulting lottery provision is quite 
specific in this regard and the FAA does not find that it has the 
latitude suggested by ATA to arbitrarily change this provision, or 
ignore it. Given the limited number of slots available in this lottery 
relative to the number of participants, it may be that only a few 
carriers will get to select slots. As discussed below, the FAA and the 
Department are neither amending nor abandoning the agencies' position 
that the opportunity for a new entrant carrier to select four slots is 
preferable in meeting the stated goals.
    ATA also argues that all the new entrants already have some slots 
(or slot exemptions) and that four slots are not economically necessary 
for new entrants to establish service at the airport. ATA points to 
service conducted by Alaska Airlines and Frontier Airlines, which have 
both been successful conducting a single roundtrip at DCA. In recent 
FAA and Department proceedings however, several new entrant carriers 
have argued the opposite, contending that even four slots during peak 
hours are not enough today to launch viable service.
    We recognize that ATA successfully operates at DCA using only four 
peak hour AIR-21 exemption slots and two off-peak hour slots. Likewise, 
both Alaska Airlines and Frontier Airlines are the recipients of AIR-21 
slot exemptions by the Department for beyond the perimeter service at 
DCA. Frontier Airlines provides the only nonstop DCA/Denver service 
(Order 2000-7-1) and Alaska Airlines (Order 2001-6-20) provides the 
only nonstop DCA/Seattle service. That nonstop service from DCA to 
these markets can be operated successfully in the absence of other non-
stop competition is not surprising; new entrant carriers seeking to 
provide competitive alternatives on city-pairs already served by other

[[Page 50586]]

carriers on a nonstop basis is a different situation.
    US Airways objects to any lottery, characterizes the lottery 
mechanism as ``anti-incumbent'' and argues that ``redistributive 
lotteries'' are not appropriate.
    One of the primary purposes of the lottery provision was to enhance 
competition by affording new entrant and limited incumbent carriers 
greater access to slot-controlled airports. Thus, the Department 
believed that allowing incumbent carriers to participate on equal terms 
with new entrants in seeking permanent allocation of slots would reduce 
the opportunities for new entrants or limited incumbents to introduce 
competitive service (57 FR 37309; August 18, 1992). Therefore, in 
promulgating this rule, the FAA and the Department restricted the 
permanent allocation of slots to incumbent carriers. Whether or not 
that policy should be revisited today, in light of the economic 
condition of incumbent carriers, the FAA is clearly bound to give it 
its full force and effect and to carry out the intent of our 
regulations.
    US Airways complains that the lottery provision is ``anti-
incumbent'' in that airlines that hold a substantial number of slots 
may only receive a temporary allocation through the lottery after all 
new entrant and limited incumbent carriers have finished their 
selections. However, incumbent carriers such as US Airways received a 
large base level of slots at the time the allocation rules were adopted 
in 1985; as a whole, arguably, the provisions benefited incumbents. 
Today, US Airways and its wholly owned subsidiaries hold 43 percent of 
the slots at DCA. the next largest slot holder at the airport is Delta 
and its wholly owned subsidiaries with approximately 14 percent of the 
slots. Thus, two carrier groups account for nearly 60 percent of the 
slots at the airport. Despite the buy-sell rule, the lottery provision 
in the regulations is the only mechanism that specifically addresses 
competitive access to slot-controlled airports such as DCA.
    The need for a lottery also stems from other aspects of our rules. 
The slots in question have never been allocated permanently, and the 
lottery allocation provision is the only means of allocating these peak 
hour slots on a permanent basis. US Airways and other carriers were 
allocated slots during peak hours on a temporary basis subject to 
recall by the FAA and distribution by lottery in accordance with the 
regulations. Consequently, this process is entirely appropriate to 
allocate available slots.

3. Lottery Allocation in Light of Other Related Proceedings

    Spirit Airlines points to the variety of pending proceedings 
concerning slots and slot exemptions and asks the FAA and the 
Department to end the practice of allocating slots on a piecemeal 
basis, saying this practice makes it difficult for any new entrant 
carrier to evaluate the true economics of potential operations at the 
airport. Spirit would defer the lottery until other agency actions on 
slots exemptions and/or the potential exemptions in pending 
legislation, in particular, H.R. 2115 ``Aviation Investment and 
Revitalization Vision Act,'' are allocated. Conversely, ATA argues that 
the public interest requires that slots be allocated whenever they 
become available and says that slots should be used once allocated. ATA 
and MWAA also oppose a delay of the lottery to wait for the potential 
allocation of slot exemptions currently under consideration by 
Congress. US Airways again questions the basis for any lottery and 
forecasts that it is likely that slots will become available after the 
current slot usage waiver terminates and that a lottery should be 
conducted at that time.
    The FAA has discretion to conduct a lottery when it determines that 
there are sufficient slots available for allocation. The fifteen slots 
that are available for allocation in this lottery are slots that were 
previously returned to the FAA or were allocated temporarily to 
carriers on a first-come, first-served basis on the express condition 
that they would be recalled when the FAA determines that it is 
necessary to allocate the slots permanently. Over the past many months 
the FAA received numerous inquiries and requests for slots at DCA by 
new entrant carriers. In light of the expressed demand for permanent 
allocation of the available slots at the airport, we believe that the 
spirit of our regulations require that we allocate whatever capacity is 
available at the earliest practical time. As indicted by the number of 
carriers that filed requests to participate in the lottery and by the 
comments submitted to the docket, it is evident that there is demand by 
many carriers for even this limited number of slots.
    We have no indication that slots at DCA will be returned to the FAA 
after the expiration of the slot usage waiver period, instituted in 
April 2003. (Temporary return of peak-hour slots for non-use during 
this waiver period has been minimal.) Some AIR-21 slot exemptions were 
recalled for non-use, however, their reallocation process is not done 
by lottery. We find it would be inconsistent with the regulatory 
allocation regime to indefinitely postpone the lottery. Consequently, 
the FAA will proceed with the lottery on August 12, 2003.

4. Use of Commuter Equipment in Air Carrier Slots

    MWAA and the ACAA express concern over the increasing incidence 
with which air carrier slots are operated by carriers using commuter 
type aircraft that qualify for commuter slots. These parties argue that 
this practice has resulted in a decline of passenger activity at DCA 
even as the number of overall operations at the airport has remained 
relatively constant. MWAA asks that we require air carriers 
participating in the lottery not only to have aircraft that meet the 
definition of the equipment that may be operated in this category of 
slots, but also to have the stated intention to use these slots for 
operations with the larger aircraft.
    A carrier that wishes to participate in a lottery for either air 
carrier or commuter slots must hold the appropriate FAA operating 
authority for the slots the operator seeks to select (14 CFR 
93.225a(g)). The FAA has interpreted the existing provisions of Sec.  
93.225 to limit participation in air carrier lotteries to carriers 
capable of operating air carrier equipment within the meaning of 14 CFR 
93.123(c) (51 FR 21706; June 13, 1986). After air carrier slots have 
been allocated, a carrier may use smaller aircraft in air carrier slots 
in accordance with 14 CFR 93.221(c). While we are sympathetic to MWAA's 
position, the FAA cannot limit or condition approval on participation 
in the air carrier lottery in the manner suggested by MWAA, without 
amending the regulation.

5. ``Mandatory Participation''

    ATA complains that the FAA plans to include all carriers that 
currently operate at DCA in the lottery, even if those carriers did not 
actually notify the FAA that they want to participate in the lottery. 
ATA says this plan constitutes a ``mandatory participation'' regime 
that is not in accordance with either the regulations or the lottery 
notice.
    This argument reflects a misunderstanding of the rule. The rule 
expressly provides that ``participation in a lottery is open to each 
U.S. air carrier or commuter operating at the airport * * * as well as 
where provided for by bilateral agreement'' (14 CFR 93.225(e) (emphasis 
added). Participation is not mandatory. As a matter of procedure, the 
FAA includes every carrier at the airport as eligible to participate 
and each carrier receives a rank order. These

[[Page 50587]]

carriers also are not required to submit notice to the FAA of their 
intention to participate in the lottery; carriers that do not conduct 
scheduled service at the airport are required to submit notice to the 
FAA of intention to participate in the lottery no later than the date 
specified in the Federal Register notice, which was July 16. However, 
it is up each carrier as to whether it ultimately chooses to 
participate or select slots in the lottery. A carrier may advise the 
FAA at any time that it does not want to participate or it may simply 
pass at the lottery by not selecting available slots.

List of Carriers Eligible to Participate in the Lottery by Category

    The lottery for the air carrier slots will be conducted first and 
the lottery for the commuter slots will follow.


         Air Carrier Slot Lottery                     Category

Air Canada................................  Incumbent
AirTran Airway............................  New Entrant
Alaska Airlines...........................  New Entrant
ATA Airlines..............................  Limited Incumbent
Frontier Airlines.........................  New Entrant
Mesa Air Group (Air Midwest, Freedom,       Incumbent
 Mesa).
Spirit Airlines...........................  New Entrant
America West Airlines.....................  Limited Incumbent
American Airlines.........................  Incumbent
Continental Airlines......................  Incumbent
Delta Air Lines...........................  Incumbent
Midwest Airlines..........................  Incumbent
Northwest Airlines........................  Incumbent
United Airlines...........................  Incumbent
US Airways................................  Incumbent




           Commuter Slot Lottery                      Category

Air Canada................................  Incumbent
Atlantic Coast Airlines...................  New Entrant
Chautauqua Airlines/Shuttle America.......  New Entrant
Colgan Air................................  New Entrant
Corporate Airlines........................  New Entrant
Mesa Air Group (Air Midwest, Freedom,       Incumbent
 Mesa).
Allegheny Airlines/Piedmont Airlines/PSA    Incumbent
 Airlines (US Airways Express).
American Eagle............................  Incumbent
Atlantic Southwest/Comair (Delta            Incumbent
 Connection).
Midway Airlines...........................  Incumbent
Skyway Airlines...........................  Incumbent
Trans States Airlines.....................  Incumbent



    Issued on August 11, 2003 in Washington, DC.
Andrew B. Steinberg,
Chief Counsel.
[FR Doc. 03-21456 Filed 8-20-03; 8:45 am]

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