u.s. department of transportation office …airlineinfo.com/ostpdf98/865.pdf · table of contents...

BEFORE THE U.S. DEPARTMENT OF TRANSPORTATION

OFFICE OF THE SECRETARY WASHINGTON, D.C.

_____________________________________ ) ) SLOT ASSIGNMENT PHASE OF THE ) Docket DOT-OST-2015-0070 DELTA – AEROMEXICO ATI PROCEEDING ) ) _____________________________________ )

APPLICATION OF SOUTHWEST AIRLINES CO. FOR MEX SLOTS

Communications with respect to this document should be sent to:

Mark Shaw Robert W. Kneisley Senior Vice President General Associate General Counsel Counsel and Corporate Secretary Leslie C. Abbott SOUTHWEST AIRLINES CO. Senior Attorney 2702 Love Field Drive SOUTHWEST AIRLINES CO. Dallas, TX 75235-1611 919 18th Street, N.W., Suite 600 Washington, D.C. 20006 Andrew Watterson [email protected] Senior Vice President, [email protected] Chief Revenue Officer (202) 263-6284 SOUTHWEST AIRLINES CO. 2702 Love Field Drive Dallas, TX 75235-1611 January 23, 2017

TABLE OF CONTENTS

I. Southwest’s Proposed MEX Service Will Benefit Consumers by Providing New, Low-Fare Competition with Delta/Aeromexico in Three Key U.S. – MEX Markets .................................................................................. 3

II. Southwest’s Proposed HOU-MEX Schedule Will Compete Directly with

DL/AM and United, Reduce Fares, and Create Additional Travel Options ............................................................................................................ 7

III. Southwest’s Proposed New FLL-MEX Service Will Benefit Consumers

by Reducing Fares and Increasing Passenger Traffic ................................... 9

IV. Southwest’s LAX-MEX Flight Will Reduce Fares and Increase

Passengers by Providing the Only U.S. LCC Competition in this Important Market ........................................................................................... 11

V. On Average, Southwest’s Proposed New U.S.–MEX Services Will

Reduce Fares 19% and Increase Passengers 33% ....................................... 12

CERTIFICATE OF SERVICE

DL-AM SLOT REQUEST FORM (Excel Spreadsheet)

EXHIBITS

APPENDICES

1


OFFICE OF THE SECRETARY WASHINGTON, D.C.

_____________________________________ ) ) SLOT ASSIGNMENT PHASE OF THE ) Docket DOT-OST-2015-0070 DELTA – AEROMEXICO ATI PROCEEDING ) ) _____________________________________ )

APPLICATION OF SOUTHWEST AIRLINES CO. FOR MEX SLOTS

On January 6, 2017, the Department of Transportation issued Order 2017-1-6

(Instituting Order) establishing the Slot Assignment Phase of the Delta-Aeromexico ATI

Proceeding to allocate 24 slot pairs at Mexico City’s Benito Juarez International Airport

(MEX) and four slot pairs at John F. Kennedy International Airport (JFK) being divested

by Delta and Aeromexico (the Joint Applicants).1 Consistent with the terms of DOT’s

Final Order in the ATI Proceeding (Order 2016-12-13, issued December 14, 2016), the

Instituting Order in this proceeding invites applications from eligible carriers, including

Southwest, to utilize the divested slots.

The Instituting Order states that the Department intends to allocate the slots in a

manner “that provide[s] the maximum competitive benefits possible from new

(preferably daily) services to/from JFK and MEX, taking into account a carrier’s ability to

exercise competitive discipline by:

Serving a monopoly and/or nonstop overlap route, including JFK-MEX;

Providing network benefits, including behind/beyond connections, as well as service to communities without existing nonstop service to the slot-controlled airport; and/or

1 Common names of carriers are used herein.

2

Enhancing the quality of competition, such as by offering additional frequencies

in major markets or introducing the benefits of new business models.” 2 Consistent with these criteria, Southwest hereby applies for the following four (4)

MEX slot pairs, in the order of preference shown below (see Exhibit WN-1 and attached

DL-AM Slot Request Excel Spreadsheet):

One daily slot pair for Houston (Hobby) – Mexico City (HOU-MEX-HOU)

o HOU to MEX (2050 arrival), MEX to HOU (0700 departure)

One daily slot pair for Houston (Hobby) – Mexico City (HOU-MEX-HOU)

o HOU to MEX (1045 arrival), MEX to HOU (1140 departure)

One daily slot pair for Fort Lauderdale – Mexico City (FLL-MEX-FLL)

o FLL to MEX (1245 arrival), MEX to FLL (1340 depature)

One daily slot pair for Los Angeles – Mexico City (LAX-MEX-LAX)

o LAX to MEX (2200 arrival), MEX to LAX (0750 departure)

Southwest requests that the two HOU-MEX slot pairs be awarded in Phase One of the

proceeding and the FLL-MEX and LAX-MEX slot pairs be awarded in Phase Two. If

either of the HOU-MEX slots are not awarded in Phase One, Southwest requests they

be awarded in Phase Two.

Southwest will operate all of its Mexico City service with 143-seat Boeing 737-

700 aircraft and will operate all slots seven days-a-week, year round. The details of

Southwest’s proposal are summarized in the attached Excel spreadsheet and exhibits.

Southwest is prepared to launch these new flights within 90 days of execution of signed

2 Instituting Order at 4.

3

slot transfer agreements for the slot pairs in question and any required Mexican

regulatory approvals.

As shown below, Southwest’s proposed new U.S. - MEX services meet the

Department’s decisional criteria and will: (1) produce enormous consumer benefits by

providing high-quality, low-fare service in direct competition with the Joint Applicants

and other legacy carriers; (2) maximize the benefits of the slots by offering numerous

convenient behind/beyond connections to communities without existing nonstop and/or

LCC service to MEX; and (3) permanently enhance the quality of competition in the

three MEX transborder markets by providing daily, year-round, large-jet service on the

preeminent U.S. low cost carrier.

I. Southwest’s Proposed MEX Service Will Benefit Consumers by Providing New, Low-Fare Competition with Delta/Aeromexico in Three Key U.S. – MEX Markets. Southwest’s service proposal will provide new, strong low-fare competition with

the Joint Applicants, and other legacy carriers, from three of the most important U.S.

gateways to Mexico City. In fact, all three of Southwest’s proposed markets are in the

top five largest U.S. markets to/from MEX (Exhibit WN-2). As the Department stated in

its Final Order:

[T]he importance of access to Mexico City cannot be overstated. Approximately two-thirds of all domestic and one-third of all international passengers in Mexico have their origin or destination at MEX. The main contested issue in this proceeding has been the ability, or lack thereof, of new entrant carriers to access the important Mexico City market. The record contains substantial evidence that the Joint Applicants exert significant market power at MEX, control approximately 50% of MEX slots, and are able to use the MEX slot allocation system to their advantage by leveraging its non-standard rules to preclude competitive entry by other carriers (internal citations omitted).3

3 Order 2016-12-13 at p. 3.

4

Southwest’s experience in serving MEX is entirely consistent with the

Department’s findings in this proceeding. Currently, Southwest’s only U.S. - MEX

service is limited to a mere three daily roundtrips in the HOU-MEX market. Moreover,

one of these slot pairs is not commercially viable, arriving in MEX at 11:30 pm, and

departing MEX at 5:30 am. Despite repeated efforts, Southwest has been unsuccessful

in acquiring slots at better times. So, effectively, Southwest has been able to provide

only two viable daily flights to/from MEX.4

Southwest’s first priority is to use one of the two requested HOU-MEX slot pairs

to replace the unmarketable 11:30 pm/5:30 am slot pair with more viable flight times,

and add a fourth roundtrip in the market with the other requested HOU-MEX slot pair.

Together, these new slot pairs will create an appealing schedule for business travelers

and enable numerous behind/beyond connections to/from other U.S. cities in

Southwest’s extensive domestic network. Southwest’s proposed FLL-MEX and LAX-

MEX services will be new routes for the Company and will add a low-fare travel option

and U.S. LCC competition in two key U.S. gateways, as well as tie into Southwest’s

extensive domestic networks in each location. Southwest’s new flights will provide

needed U.S. LCC competition to Delta/Aeromexico and other legacy carriers that

currently dominate these important transborder markets.

Southwest will integrate these flights into its comprehensive U.S. national and

local business development plans, which include print, television and online marketing

campaigns, Rapid Rewards frequent flyer outreach, customer engagement activities,

4 One of Southwest’s current HOU - MEX flights was transferred to HOU from SAT, and the other was transferred from SNA, because Southwest was unable to obtain marketable slot times for Houston – MEX service.

5

corporate sales development and inclusion in Southwest Vacations packages. The

Company’s unique value proposition, centered on its unique policy of no-hidden-fees

and “Transfarency” in pricing, will continue to offer Southwest customers from both

countries low fares, no reservation change fees and no fees for two checked bags.

Southwest’s current U.S. – Mexico fares are a remarkable 39% below existing

legacy carrier fares (Exhibit WN-3). Southwest’s fares for its proposed new MEX

services will similarly undercut Delta/Aeormexico and other legacy carrier fares, and

stimulate new traffic as a result. Southwest retained the Campbell-Hill Aviation Group

to provide a detailed traffic forecast for each of the three routes it proposes to serve

using Campbell-Hill’s standard econometric models. As summarized below, Campbell-

Hill’s traffic analysis and forecast methodology show that Southwest will achieve load

factors averaging at least 83% in each market (Exhibit WN-4 and Appendix 2):

See Exhibit WN-4

Summary of Southwest’s HOU, FLL and LAX - MEX Service Proposal

HOU-MEX

FLL-MEX

LAX-MEX

Total

2

1

1

4

1,460

730

730

2,920

WN Daily Round TripFrequency

WN AnnualOne-Way

Flights

742

1,289

1,553

Distance

B737-7

B737-7

B737-7

Aircraft Type

208,780

104,390

104,390

471,560

WN AnnualOne-Way

Seats

143

143

143

AircraftSeat Size

173,408

92,559

88,829

354,797

WN AnnualOne-Way

Passengers

83%

89%

85%

85%

WN LoadFactor

Passengersper Flight

119

127

122

122

LAXLAXLAXLAXLAXLAXLAXLAXLAX

HOUHOUHOUHOUHOUHOUHOUHOUHOU

MEXMEXMEXMEXMEXMEXMEXMEXMEX

FLLFLLFLLFLLFLLFLLFLLFLLFLL

6

Moreover, Southwest’s proposal will also offer numerous convenient connections

to 50 other cities in Southwest’s extensive domestic network behind the HOU, FLL, and

LAX gateways,5 many of which have no nonstop or low-fare service to MEX today:

See Exhibit WN-5

Campbell-Hill has also estimated the consumer benefits that will accrue to

passengers in each of the three U.S. - MEX markets where Southwest proposes to add

service. These benefits include estimated reductions in market fares, increases in

passenger traffic, and annual fare savings to consumers. To be conservative,

Campbell-Hill has not included any traffic stimulation or fare savings in the beyond

gateway markets. A summary of these benefits is as follows:

5 For this purpose, Southwest considers only connecting markets within a 40% circuity limit and a four hour scheduled connection time.

TPATPATPATPATPATPATPATPATPA

BWIBWIBWIBWIBWIBWIBWIBWIBWIIADIADIADIADIADIADIADIADIAD

SNASNASNASNASNASNASNASNASNA

RDURDURDURDURDURDURDURDURDUCLTCLTCLTCLTCLTCLTCLTCLTCLT

BHMBHMBHMBHMBHMBHMBHMBHMBHM

MCOMCOMCOMCOMCOMCOMCOMCOMCO

PNSPNSPNSPNSPNSPNSPNSPNSPNS

LGALGALGALGALGALGALGALGALGAEWREWREWREWREWREWREWREWREWRPITPITPITPITPITPITPITPITPIT

STLSTLSTLSTLSTLSTLSTLSTLSTL

AUSAUSAUSAUSAUSAUSAUSAUSAUSSATSATSATSATSATSATSATSATSAT

ABQABQABQABQABQABQABQABQABQ

MAFMAFMAFMAFMAFMAFMAFMAFMAF

DALDALDALDALDALDALDALDALDAL

TULTULTULTULTULTULTULTULTUL

MCIMCIMCIMCIMCIMCIMCIMCIMCI

OMAOMAOMAOMAOMAOMAOMAOMAOMA

OKCOKCOKCOKCOKCOKCOKCOKCOKC

DENDENDENDENDENDENDENDENDEN

SLCSLCSLCSLCSLCSLCSLCSLCSLC

SEASEASEASEASEASEASEASEASEA

PDXPDXPDXPDXPDXPDXPDXPDXPDX

SJCSJCSJCSJCSJCSJCSJCSJCSJC LASLASLASLASLASLASLASLASLAS

RNORNORNORNORNORNORNORNORNO

SMFSMFSMFSMFSMFSMFSMFSMFSMF

OAKOAKOAKOAKOAKOAKOAKOAKOAKSFOSFOSFOSFOSFOSFOSFOSFOSFO





ATLATLATLATLATLATLATLATLATL

BNABNABNABNABNABNABNABNABNA

DCADCADCADCADCADCADCADCADCA

ECPECPECPECPECPECPECPECPECP

MDWMDWMDWMDWMDWMDWMDWMDWMDW

MEMMEMMEMMEMMEMMEMMEMMEMMEM

MSYMSYMSYMSYMSYMSYMSYMSYMSY

SJUSJUSJUSJUSJUSJUSJUSJUSJU

BOSBOSBOSBOSBOSBOSBOSBOSBOS

CHSCHSCHSCHSCHSCHSCHSCHSCHS

INDINDINDINDINDINDINDINDIND

BUFBUFBUFBUFBUFBUFBUFBUFBUF

ISPISPISPISPISPISPISPISPISP

PHLPHLPHLPHLPHLPHLPHLPHLPHL

PVDPVDPVDPVDPVDPVDPVDPVDPVD

Southwest’s Proposed Services at MEX Will Provide Nonstop orNonstop-to-Nonstop Connecting Service to 50 Airports Across the U.S.

Proposed Route

Existing nonstop market

Southwest’s Proposed Service Covers 72% of all

U.S. - MEX O&D Passengers

7

Market

MEX -

Projected

Reduction in

One-Way Market Fare

Projected Increase in Passengers After New Southwest

Service

Est. Annual Consumer

Fare Savings (Millions)

HOU/IAH $32 (21%) 155,852 +39% $12.9M

FLL/MIA $46 (25%) 223,846 +45% $24.3M

LAX $21 (10%) 92,936 +18% $10.3M

Total/Average $35 (19%) 472,634 +33% $47.5M Source: Appendix 2, pages 2, 4, 6 and 9. See also Exhibit WN-20.

As shown, the Southwest Effect of lowering fares and stimulating new passenger

traffic in these markets will save consumers nearly $50 million annually by the grant to

Southwest of just four MEX slot pairs. Southwest’s service proposal will provide these

enormous benefits to consumers by offering robust low-fare competition with the Joint

Applicants as well as new LCC service that would not otherwise be possible between

the U.S. and Mexico City. Southwest has the extensive network, financial strength, and

corporate commitment to serve and grow these markets over the long-term. Its

proposed service warrants the modest four MEX slot pairs it is requesting in this

proceeding.

II. Southwest’s Proposed HOU-MEX Schedule Will Compete Directly with DL/AM and United, Reduce Fares, and Create Additional Travel Options. Southwest is requesting two slot pairs for HOU-MEX service. One slot pair will

be used to add a fourth daily frequency, and one slot pair will replace a current, non-

viable roundtrip flight that operates outside the slot controlled hours. As noted above,

this trip arrives MEX at 11:30 pm, and returns from MEX at 5:30 am.6 The new

6 These flights are outside the slot controlled hours and do not count as slots per se.

8

(replacement) flight will arrive at MEX from HOU at 8:50 pm, and leave MEX to return to

HOU at 7:00 am (Exhibits WN-6 and WN-7). These times are vastly superior to the

flight times that will be replaced, and will allow Southwest to introduce a new,

commercially viable low-fare flight into the market.

With the two additional HOU-MEX slot pairs that Southwest is requesting,

Southwest will have an effective schedule for business travelers with flights spaced

conveniently throughout the day (Exhibit WN-7). Having a schedule that appeals to

business travelers will allow Southwest to compete with the immunized DL/AM alliance,

which is also focused on attracting business passengers. Southwest’s low-fare service

will force DL/AM to respond by lowering their fares as well. In fact, with four marketable

daily flights on this route, Southwest will match DL/AM’s capacity (Exhibit WN-8),

making Southwest a viable competitor and increasing its ability to place downward

pressure on all legacy fares in the market.

Because Southwest has provided service in the HOU-MEX market since 2014,

data on its market impact is publicly available. In its initial entry in the HOU-MEX

market, Southwest reduced average Houston (HOU/IAH) - MEX market fares by a

stunning 43% and increased total passengers by 24% (Exhibit WN-9). Southwest will

not only continue to exercise this level of market impact (via the Southwest Effect) but

will be able to exert even greater competitive influence with a more marketable

schedule.

Furthermore, Southwest has a significant presence in HOU and with its two

requested MEX slot pairs it will connect with 39 behind/beyond destinations in

Southwest’s domestic network, including cities such as Denver (DEN), Dallas (DAL) and

9

Kansas City (MCI) (Exhibit WN-10).7 Allocation of two slot pairs for expanded and

improved Southwest service between HOU and MEX will generate 155,852 additional

one-way O&D passengers from HOU/IAH. In addition, two-thirds of Southwest’s

onboard passengers will be local and one-third will connect at HOU to at least 39 U.S.

cities on the Southwest network (Exhibit WN-10 and Appendix 2, p. 2). Of all the

eligible carrier applicants, only Southwest is able to leverage the limited MEX slot pairs

to passengers in so many U.S. cities, thereby providing convenient, low-fare, online

connections to a potential pool of millions of travelers.

III. Southwest’s Proposed New FLL-MEX Service Will Benefit Consumers by Reducing Fares and Increasing Passenger Traffic. Southwest operates more domestic seat capacity at FLL/MIA than any other slot-

eligible carrier (Exhibit WN-11). Southwest has built a major network at FLL consisting

of 73 daily departures to 37 nonstop destinations (Exhibit WN-12). In fact, Southwest’s

FLL seat-capacity has increased by 39% during the past year, some of which is

attributable to its three new routes to Cuba and its forthcoming new service to Cancun

and Grand Cayman plus four other Caribbean markets (Exhibit WN-13). To this end,

Southwest is nearing completion of a new five-gate FLL international terminal that will

support its Latin American/Caribbean gateway in South Florida. The $333 million

terminal is on schedule to open in early June 2017 and will enable Southwest to operate

up to 30 international departures per day. Comparing June 2016 to June 2017

schedules, Southwest will increase its number of nonstop Latin America/Carribbean

destinations form FLL from one to nine and daily departures from two to twelve (Exhibit

WN-13).

7 Note that this includes connections for only the proposed two new MEX slot pairs.

10

Southwest does not currently provide service in the FLL-MEX market due to the

lack of commercially viable MEX slots. Southwest is proposing to add a daily nonstop

flight between Ft. Lauderdale and MEX that will benefit residents of South Florida as

well as provide convenient connections to/from Southwest’s extensive domestic

network, including cities such as BWI, DCA, RDU, PIT and EWR (Exhibit WN-14).

Current service in the FLL/MIA-MEX market is concentrated at Miami with four weekday

American roundtrips, three by Aeromexico/Delta, and two roundtrips by Interjet. JetBlue

and Volaris each have one roundtrip in the FLL-MEX market (Exhibit WN-15). There is

a significant need for greater LCC capacity by a U.S. carrier that can leverage its U.S.

gateway position to deliver consumer benefits throughout its domestic network.

Southwest is best positioned to be that low cost carrier.

Southwest’s proposal will generate significant stimulation, partly due to its added

service, but primarily because of its reduction in average market fares (Appendix 2,

pages 4, 5 and 9). Total traffic stimulation in the FLL/MIA-MEX market from

Southwest’s service and fare proposal is forecast to be 224,000 passengers (Appendix

2, page 9), and 93,000 will fly on Southwest – 87% will be local O&D and 13% will be in

Southwest markets beyond FLL (Appendix 2, page 4). For its once daily service

Southwest projects a first year load factor of 89%. If load factor pressure becomes

significant in this market (or any other), Southwest can easily up-gauge to its B737-800

aircraft with 175 seats which is 32 seats, or 22% larger than its B737-700. The

proposed service is worthy of a slot pair allocation as Southwest will have an outsized

impact on this important market by leveraging just a single daily roundtrip flight.

11

IV. Southwest’s LAX-MEX Flight Will Reduce Fares and Increase Passengers by Providing the Only U.S. LCC Competition in this Important Market. In 2016 Southwest Airlines expanded its LAX-Mexico service by adding five daily

flights to/from CUN, SJD and PVR.8 It now proposes to further expand its LAX – Mexico

service by adding one daily roundtrip to/from MEX. Southwest has a very large

presence at LAX serving 31 nonstop markets with 125 average daily departures (Exhibit

WN-16). In fact, Southwest is by orders of magnitude the largest low cost carrier at LAX

and carries three times as many domestic onboard passengers as the next largest

eligible carrier (Exhibit WN-17). Legacy carriers (Delta/Aeromexico, American and

United) dominate the LAX-MEX market with all nine of the U.S. flag frequencies.

Interjet and Volaris each operate two daily roundtrips (Exhibit WN-18). Southwest

would be the only U.S. flag LCC serving the market, adding critical competition and

travel options for consumers.

Southwest’s LAX-MEX traffic forecast is presented in Appendix 2, pages 6 and 7.

Total market stimulation created by the Company’s service (one daily roundtrip) and its

low fares will be 93,000 annual passengers (Appendix 2, page 9). Its own volume of

annual passengers is forecast to be 89,000, of which 70% will be local LAX, and 30%

will be in convenient Southwest connecting markets (Appendix 2, page 6). The

forecasted load factor is 85%. Because Southwest has built a robust route network at

LAX (Exhibit WN-19), it will be able to market this new service to local consumers as

part of its growing LAX - Mexico service portfolio and also extend the benefits of the

8 https://www.swamedia.com/releases/release-3498f0a91c014df281e8e43d50e77604-southwest-airlines-announces-new-nonstop-service-in-u-s-cities-from-coast-to-coast-applies-for-new-international-service-between-los-angeles-lax-and-three-cities-in-mexico

12

new low-fare service to/from connecting markets. The grant of one slot pair for this

service is clearly in the public interest.

V. On Average, Southwest’s Proposed New U.S. – MEX Services Will Reduce Fares 19% and Increase Passengers 33%.

Empirical evidence has shown consistently over many decades that new

Southwest low-fare service causes high-fare carriers to reduce their fares in order to

remain competitive. Similarly in this case, Southwest’s new MEX service will result in a

meaningful reduction in market fares thereby stimulating considerable additional

passenger travel.

See Exhibit WN-20.

-19%

+33%

-30%

-20%

-10%

0%

10%

20%

30%

40%

% Change Yr/Yr

Decrease in Fares

Increase in Passengers

+472,633

-$35 Per Passenger

The Southwest Effect from Proposed MEX Slots WillDecrease Fares and Increase Passengers Significantly

13

Southwest’s low-fare entry generates not only new traffic for itself but also more

traffic for other carriers as the market responds to lower fares by all carriers. This is the

essence of the Southwest Effect. The volume of new, or stimulated, passengers is

shared by Southwest and other carriers. Fare savings accrue to existing passengers

(who would still have flown at the old (pre-Southwest) fare as well as to newly

stimulated passengers (who would not have flown except for the lower fares). Looking

at each of Southwest’s three proposed MEX markets shows that fares will decrease

between 10% and 25% for an average of 19% (Exhibit WN-21):

See Exhibit WN-21

$155

$187

$203

$123

$141

$182

$110 $115

$160

$0

$25

$50

$75

$100

$125

$150

$175

$200

$225

HOU/IAH FLL/MIA LAX

Market Fare YE Q3 2016

Market Fare with New WN Nonstops

Forecast WN Fare

The Proposed Southwest MEX ServicesWill Reduce Market Fares By 19% on Average

-21% -25% -10%Market Fare Change:

Avg. One-Way FareIncluding Avg. Fees Paid

14

Naturally, these significantly reduced fares will stimulate new passenger traffic in each

market. The Campbell-Hill model projects traffic increases between 18% and 45% in

the three markets, for an average increase of 33% (Exhibit WN-22):

See Exhibit WN-22

As noted earlier, the Campbell-Hill model estimates that consumers in the three

proposed markets will reap annual fare savings of nearly $50 million from Southwest’s

fare reductions: $12.9 million for Southwest’s HOU-MEX proposal, $24.3 million for its

new FLL-MEX service, and $10.3 million for the LAX-MEX market. (Exhibit WN-23).

These huge savings will be produced by an award of only four MEX slot pairs,

demonstrating the power of the Southwest Effect to generate enormous consumer

benefits in international markets as it has for decades in domestic markets.

396,361

502,485 525,835

552,213

726,331

618,771

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

HOU/IAH FLL/MIA LAX

CY 2018 O&D Passengers Before Stimulation

CY 2018 Passengers After WN Entry

Total O&D Passengers

Passengers in the Proposed Markets Are Forecast to Increase by 33% On Average After Southwest’s Service Introduction

+39%

+45%+18%

15

CONCLUSION

For the reasons stated above, Southwest’s proposed U.S. – MEX service will

maximize public benefits by providing new high quality, low-cost travel options for U.S.

passengers in direct competition with the Joint Applicants and other high-fare legacy

carriers. Given Southwest’s proven track record of introducing and maintaining

competitive low-fare, large-aircraft service, we urge the Department to grant all four of

the slot pairs requested in this Application for new and expanded U.S. – MEX service.

Respectfully submitted,

______________________ Robert W. Kneisley

January 23, 2017

CERTIFICATE OF SERVICE

I hereby certify that on January 23, 2017, a copy of the foregoing was served via e-mail on the following persons:

[email protected] (Alaska Airlines) [email protected] (Counsel for Alaska Airlines) [email protected] (American Airlines) [email protected] (American Airlines) [email protected] (Delta Air Lines) [email protected] (Delta Air Lines) [email protected] (Counsel for Frontier) [email protected] (Counsel for Frontier) [email protected] (JetBlue Airways) [email protected] (Counsel for JetBlue Airways) [email protected] (Counsel for JetBlue Airways) [email protected] (Counsel for JetBlue Airways) [email protected] (Counsel for Spirit Airlines) [email protected] (Counsel for Spirit Airlines) [email protected] (Sun Country Airlines) [email protected] (United Airlines) [email protected] (Counsel for United Airlines) [email protected] (Counsel for Aeromexico) [email protected] (Counsel for Aeromexico) [email protected] (Counsel for Interjet) [email protected] (Counsel for Volaris)

[email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected]

Amanda Hoff

Phase Rank Carrier Origin Dest Effective Date Days Operated Departure Time (local time) Arrival Time (local time) Arrival Day Aircraft Type Seats on Aircraft Forecasted PPD Min/Max Ground Time Existing Nonstops in Market RON Required?1 1 of 4 WN HOU MEX see FN 1 1234567 18:40 20:50 737-700 143 119 RON 3 Yes (replace existing)1 1 of 4 WN MEX HOU see FN 1 1234567 7:00 9:10 737-700 143 119 RON 3 Yes (replace existing)1 2 of 4 WN HOU MEX see FN 1 1234567 8:40 10:45 737-700 143 119 55/65 3 No1 2 of 4 WN MEX HOU see FN 1 1234567 11:40 13:50 737-700 143 119 55/65 3 No2 3 of 4 WN FLL MEX see FN 1 1234567 10:10 12:45 737-700 143 127 55/65 0 No2 3 of 4 WN MEX FLL see FN 1 1234567 13:40 18:05 737-700 143 127 55/65 0 No2 4 of 4 WN LAX MEX see FN 1 1234567 16:05 22:00 737-700 143 122 RON 0 Yes2 4 of 4 WN MEX LAX see FN 1 1234567 7:50 10:00 737-700 143 122 RON 0 Yes

FN1/ Southwest is prepared to launch these new flights within 90 days of execution of the signed slot transfer agreements and any required Mexican regulatory approvals.


SLOT ASSIGNMENT PHASE OF THE DELTA/AEROMEXICO ATI PROCEEDING

Docket DOT-OST-2015-0070

Direct Exhibits Supporting the Application of

Washington, D.C. January 23, 2016

Southwest’s Requested MEX Slot Pairs

Docket OST-2015-0070 Exhibit WN-1

1/ See Exhibit WN-6.

Source: Southwest’s MEX service proposal.

Rank Route MEX Slot Time Desired Phase Back-Up Phase

1 HOU-MEX 2050A/0700D 1 2

2 HOU-MEX 1045A/1140D 1 2

3 FLL-MEX 1245A/1340D 2

4 LAX-MEX 2200A/0750D 2

Southwest requests the four MEX slot pairs shown below. Southwest requests that the HOU slot pairs be awarded in Phase 1. If either of the HOU-MEX slot pairs are not awarded in Phase 1 Southwest requests they be awarded in Phase 2. Southwest requests the award of FLL and LAX slot pairs in Phase 2.

Southwest’s Proposed Markets of LAX, FLL and HOU Are All in the Top Five Largest U.S. Markets to/from MEX

YE Q3 2016 MEX O&D Passengers/1

437,656 418,221

370,740

329,894

290,680

222,369

189,582 181,681 180,380

156,008

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

500,000

LAX FLL/MIA JFK HOU/IAH MDW/ORD MCO SFO LAS DAL/DFW EWR

1/ Excludes Mexican Low Cost carrier data because MIDT data for these carriers is inaccurate. Source: Travelport Adjusted MIDT data, YE Q3 2016.


$0

$25

$50

$75

$100

$125

$150

$175

$200

$225

$250

$275

$300

$325

500 600 700 800 900 1000 1100 1200 1300 1400 1500 1600 1700 1800 1900 2000

Southwest’s Average U.S. - Mexico Fares (All Markets) Are 39% Below the Legacy Carriers

American Fares United Fares Delta Fares

Trip Length (One-Way Nonstop Miles)

Notes: Fare curves derived by regression analysis. Includes fared passengers only. Excludes taxes. Includes average baggage/cancellation/rebooking fees paid. Includes U.S.-Mexico O&D markets with at least 5 passengers per day each way. Source: Travelport Adjusted MIDT data and internal WN data, YE Q3 2016.

Southwest Fares

Avg. One-Way Fare Including Avg. Fees Paid,

YE Q3 2016


At 1200 miles, Legacy Fares are Higher than Southwest by:

United $87 Delta $87 American $102

Summary of Southwest’s HOU, FLL and LAX - MEX Service Proposal


HOU-MEX FLL-MEX LAX-MEX Total

2 1 1 4

1,460 730 730

2,920

WN Daily Round Trip Frequency

WN Annual One-Way

Flights

742 1,289 1,553

Distance

B737-7 B737-7 B737-7

Aircraft Type

208,780 104,390 104,390 471,560

WN Annual One-Way

Seats

143 143 143

Aircraft Seat Size

173,408 92,559 88,829

354,797

WN Annual One-Way

Passengers

83% 89% 85% 85%

WN Load Factor

Passengers per Flight

119 127 122 122





1/ In addition, Southwest will continue to operate two existing HOU-MEX round trips scheduled in viable time periods.

Source: Southwest’s MEX service proposal.

/1


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Southwest’s Proposed Services at MEX Will Provide Nonstop or Nonstop-to-Nonstop Connecting Service to 50 Airports Across the U.S.

Source: Southwest’s MEX service proposal and Travelport Adjusted MIDT data, YE Q3 2016. (Excludes Mexico LCCs due to lack of accurate MIDT data.)

Proposed Route Existing nonstop market

Southwest’s Proposed Service Covers 72% of all

U.S. - MEX O&D Passengers


Southwest Will Offer Four Total HOU - MEX Round Trips if Awarded the Requested Slots

Current Summer 2017 Schedule

Proposed Summer 2017 Schedule

Seats Equip Flight Orig Dep Time MEX Time Arr Time Dest Flight Equip Seats 0530 0740 HOU 944 73W 143

143 73W 2302 HOU 1145 1350 1445 1655 HOU 954 73W 143

143 73W 953 HOU 1310 1515 1610 1825 HOU 2831 73W 143

143 73W 943 HOU 2120 2330

Seats Equip Flight Orig Dep Time MEX Time Arr Time Dest Flight Equip Seats 0700 910 HOU 9002 73W 143

143 73W 9003 HOU 0840 1045 1140 1350 HOU 9004 73W 143

143 73W 2302 HOU 1145 1350 1445 1655 HOU 954 73W 143

143 73W 953 HOU 1310 1515 1610 1825 HOU 2831 73W 143

143 73W 9001 HOU 1840 2050

Not Commercially Viable Timing

Not Commercially Viable Timing

Source: Innovata schedule data, via Diio, for the week of June 5-11, 2017, and Southwest’s proposed MEX schedules.

Proposed New Slots

Proposed New Slot


Proposed Southwest Daily Flight Schedules to/from MEX

1/ Represents retime of Southwest’s existing RON service at MEX (23:30 arrival; 05:30 departure) to commercially viable times. Note: Excludes Southwest’s existing flights operated to/from HOU.


HOU

MEX

1350

1140 737-700

143

0910

0700 737-700

143

0840

1045

737-700

143

1840

2050 737-700

143

Flight # Elapsed Time

Aircraft Type

Seats

9003 2:05

9001/1

2:10 9004 2:10

9002/1

2:10 Local Time FLL

MEX

1805

1340 737-700

143

1010

1245 737-700

143

9005 3:35

9006 3:25

LAX

MEX

1000

0750 737-700

143

1605

2200 737-700

143

9007 3:55

9008 4:10

HOU - MEX FLL - MEX LAX - MEX

Southwest will be Better Able to Compete Against the Legacy Carriers at Houston with One Net New Slot Pair and Better-Timed Slots

Weekday HOU/IAH-MEX Round Trips

7

4

3

2

1

1

0

1

2

3

4

5

6

7

8

United Aeromexico Southwest InterJet Volaris

4

Proposed Net New

Note: HOU includes HOU and IAH airports.

Source: Innovata Schedules for Wednesday June 7, 2017.


265,994

329,894

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

Before SouthwestEntry (YE Q3 2015)

After Southwest Entry(YE Q3 2016)

In Its Initial Entry in the Houston - MEX Market, Southwest Reduced Average Fares 43% and Increased Passengers 24%

O&D Passengers HOU/IAH-MEX

DL

$270

$155

$0

$50

$100

$150

$200

$250

$300

Before Southwest Entry(YE Q3 2015)

After Southwest Entry(YE Q3 2016)

One-Way Average Fare HOU/IAH-MEX

+24% -43%

Avg. Daily WN Round Trips: 0 1.5 0 1.5

Notes: Includes fared passengers only. Excludes taxes. Includes average baggage/cancellation/rebooking fees paid. Houston includes HOU and IAH airports, FLL includes FLL and MIA airports. “Market Fare” is the weighted average fare of all carriers in the market. Mexican LCCs are excluded due to lack of accurate MIDT data. Source: Travelport Adjusted MIDT and WN internal data, YE Q3 2016; U.S. DOT T-100 data, via Diio.


SNASNASNASNASNASNASNASNASNALAXLAXLAXLAXLAXLAXLAXLAXLAX



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Southwest’s Proposed Daily HOU - MEX Service Will Connect Conveniently to 39 U.S. Airports

Proposed nonstop route Connecting market

Note: Only includes points with a maximum connect time of 4 hours. Source: Appendix 1, pages 1-4.


Southwest Has the Most Domestic Seat-Departures at FLL/MIA Among the Eligible Carriers

68,807 67,102

57,392

8,159

3,540 3,108 1,113 0 0 0 0

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

Southwest JetBlue Spirit Allegiant Frontier VirginAmerica

Alaska Hawaiian Sun Country VivaAerobus Volaris

FLL/MIA Domestic Weekly Seat-Departures

% Share 33% 32% 27% 4% 2% 1% 1% 0% 0% 0% 0%

Note: Includes all nonstop service from FLL and MIA airports to points within the United States. Source: Innovata schedule data, via Diio, for the week of June 5-11, 2017.


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Nonstop Destinations 37 Avg. Daily Departures 73 Avg. Daily Seat-Departures 11,181

Pending Government Approval

Southwest Has A Very Large Presence at FLL

WN has grown its Seat-Departures at FLL by 39%

during the past year


WN Annual Onboard Passengers = 4.8 million

Source: Innovata schedules, via Diio, for the week of June 5-11, 2017, and U.S. DOT T-100 data, YE Q2 2016.

FLL Has Been A Key Element to Southwest’s Latin America/Caribbean Growth Plan


Source: Innovata schedules, via Diio, for the week of June 2-12, 2016 and June 5-11, 2017.

Pending Government Approval

Nonstop Destinations 1 Avg. Daily Departures 2 Avg. Daily Seat-Departures 350


SJUSJUSJUSJUSJUSJUSJUSJUSJU MEXMEXMEXMEXMEXMEXMEXMEXMEX

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June 2016 June 2017


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Southwest’s Proposed Daily FLL - MEX Service Will Connect Conveniently to 13 U.S. Airports




An Award of One Slot Pair to Southwest Will Provide Needed Competition in the FLL/MIA - MEX Market

Weekday FLL/MIA-MEX Round Trips

0

1

2

3

4

5

American Aeromexico InterJet Southwest JetBlue Volaris

4

3

2

1 1 1


Proposed



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Southwest Has A Very Large Presence at LAX


WN Annual Onboard Passengers = 9.2 million

Source: Innovata schedules, via Diio, for the week of June 5-11, 2017, and U.S. DOT T-100 data, YE Q2 2016.

Southwest Carries By Far the Most Domestic Onboard Passengers at LAX Among the Eligible Carriers

9,171,895

3,137,691 2,697,102

1,949,597

1,299,895 829,693

519,099 391,858 178,717 0 0

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

9,000,000

10,000,000

Southwest VirginAmerica

Alaska Spirit JetBlue Hawaiian Frontier Allegiant Sun Country VivaAerobus Volaris

LAX Domestic Onboard Passengers

% Share 45% 16% 13% 10% 6% 4% 3% 2% 1% 0% 0%

Note: Includes passengers carried on nonstop flights between LAX and points within the United States. Source: U.S. DOT T-100 data, via Diio, for YE Q2 2016.


An Award of One Slot Pair to Southwest Will Inject the First U.S. LCC Competition into the LAX - MEX Market

Weekday LAX-MEX Round Trips

0

1

2

3

4

5

6

7

8

Aeromexico InterJet American Volaris Southwest United


6

Proposed

2 2 2

1 1


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Southwest’s Proposed Daily LAX - MEX Service Will Connect Conveniently to 7 U.S. Airports




-19%

+33%

-30%

-20%

-10%

0%

10%

20%

30%

40%

% Change Yr/Yr

Decrease in Fares

Increase in Passengers

+472,634

-$35 Per Passenger

The Southwest Effect from Proposed MEX Slots Will Decrease Fares and Increase Passengers Significantly

Notes: Includes fared passengers only. Excludes taxes. Includes average baggage/cancellation/rebooking fees paid. Houston includes HOU and IAH airports, FLL includes FLL and MIA. “Market Fare” is the weighted average fare of all carriers in the market. Mexican LCCs are excluded due to lack of accurate MIDT data. Assumes an 8.5% annual growth rate based on historical trends (See Appendix 2). Source: Travelport Adjusted MIDT and WN internal data, YE Q3 2016.


$155

$187

$203

$123

$141

$182

$110 $115

$160

$0

$25

$50

$75

$100

$125

$150

$175

$200

$225

HOU/IAH FLL/MIA LAX

Market Fare YE Q3 2016

Market Fare with New WN Nonstops

Forecast WN Fare

The Proposed Southwest MEX Services Will Reduce Market Fares By 19% on Average

Notes: Includes fared passengers only. Excludes taxes. Includes average baggage/cancellation/rebooking fees paid. “Market Fare” is the weighted average fare of all carriers in the market. Mexican LCCs are excluded due to lack of accurate MIDT data. Source: Travelport Adjusted MIDT and WN internal data, YE Q3 2016.

-21% -25% -10% Market Fare Change:

Avg. One-Way Fare Including Avg. Fees Paid


396,361

502,485 525,835

552,213

726,331

618,771

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

HOU/IAH FLL/MIA LAX

CY 2018 O&D Passengers Before StimulationCY 2018 Passengers After WN Entry

Total O&D Passengers

Passengers in the Proposed Markets Are Forecast to Increase by 33% On Average After Southwest’s Service Introduction

Notes: Mexican LCCs are excluded due to lack of accurate MIDT data. Assumes an 8.5% annual growth rate based on historical trends (See Appendix 2) from YE Q3 2016 to CY 2018. Source: Travelport Adjusted MIDT and WN internal data, YE Q3 2016.


+39%

+45% +18%

$0

$5

$10

$15

$20

$25

$30

$35

$40

$45

$50

HOU/IAH-MEX FLL/MIA-MEX LAX-MEX Total

Annual Fare Savings

(Millions)

Savings to Newly Generated Passengers (Stimulation) $47.5 Million

$8.6 Million

$38.9 Million

Savings to Existing Passengers

1/ See Appendix 2 for calculations. Notes: Includes fared passengers only. Excludes taxes. Includes average baggage/cancellation/rebooking fees paid. Consumer Benefits for existing passengers equals the total fare savings. Consumer Surplus for new passengers equals fare savings for new passengers x 0.5 (see Appendix 2). Mexican LCCs are excluded due to lack of accurate MIDT data. Source: Travelport Adjusted MIDT and WN internal data, YE Q3 2016.

The Proposed Southwest Daily MEX Round Trips Will Generate $48 Million in Annual Fare Savings


$12.9 Million

$24.3 Million

$5.1 Million

$19.2 Million

$9.3 Million

$1.0 Million $10.3 Million $2.5 Million

$10.4 Million

Appendices

Appendix 1 – Detailed Connecting Schedules

Proposed HOU-MEX Flight Schedules (Southbound)

Note: Only includes points with a maximum connect time of 4 hours. Source: Innovata schedule data, via Diio, for the week of June 5-11, 2017, plus proposed new service.

Total Trip Time (mins) Orig Flight No. Aircraft Seats Dep. Time Op Days HOU Time Arr. Time Dest Flight No. Aircraft Seats Op Days 555 LAS 3675 73H 175 0935 .....6. 1440 480 MCI 1499 73C 143 1250 12345.. 1450 480 ABQ 5040 73W 143 1150 ......7 1455 440 OKC 1174 73W 143 1330 .....6. 1455 470 ATL 2985 73H 175 1400 ......7 1505 410 DAL 1552 73W 143 1400 .....6. 1505 410 DAL 1896 73W 143 1400 ......7 1505 485 MDW 40 73W 143 1245 12345.. 1520 515 BWI 4577 73C 143 1315 .....6. 1525 430 ECP 2741 73C 143 1340 ......7 1525 380 DAL 33 73W 143 1430 12345.. 1535 395 MAF 4546 73W 143 1415 ......7 1540 495 DCA 3536 73W 143 1335 12345.. 1545 490 DCA 5576 73W 143 1340 ......7 1550 365 MSY 42 73W 143 1445 12345.. 1555 430 MCO 421 73W 143 1440 12345.. 1600 410 STL 541 73W 143 1400 12345.. 1600 350 DAL 35 73C 143 1500 12345.. 1605 350 DAL 5162 73C 143 1500 ......7 1605 350 DAL 1533 73W 143 1500 .....6. 1605 445 MDW 4835 73W 143 1325 .....6. 1605 365 OKC 4756 73C 143 1445 ......7 1610 435 MDW 4155 73W 143 1335 ......7 1615 545 SEA 4834 73W 143 0945 ......7 1615 390 BNA 2786 73W 143 1420 ......7 1620 355 OKC 558 73W 143 1455 12345.. 1620 520 PDX 1553 73H 175 1010 ......7 1620 545 SJU 2988 73H 175 1245 ......7 1620 385 MCI 2473 73C 143 1425 ......7 1625 540 SJU 3767 73H 175 1250 12345.. 1625 460 SNA 44 73W 143 1110 12345.. 1625 455 SNA 4883 73W 143 1115 ......7 1625 315 AUS 3677 73W 143 1535 ......7 1630 350 PNS 3357 73W 143 1500 .....6. 1630 315 SAT 5314 73W 143 1535 ......7 1630 310 AUS 3014 73H 175 1540 12345.. 1635 320 DAL 1649 733 137 1530 ......7 1635 320 DAL 37 73C 143 1530 12345.. 1635 310 SAT 4169 73W 143 1540 12345.. 1635 380 STL 2728 73C 143 1430 ......7 1635 380 STL 5501 73W 143 1430 .....6. 1635 395 DEN 4694 73W 143 1315 ......7 1640 500 PDX 46 73H 175 1030 12345.. 1640 520 SEA 1536 73W 143 1010 12345.. 1640 455 LAX 1375 73H 175 1115 12345.. 1645 520 SJU 931 73H 175 1310 .....6. 1645 425 LAS 2013 73W 143 1145 ......7 1655 320 MAF 732 73W 143 1530 12345.. 1655 375 DEN 2088 73W 143 1335 12345.. 1700 300 MSY 4236 73C 143 1550 ......7 1700 345 BNA 5538 73C 143 1505 .....6. 1705 290 DAL 39 73C 143 1600 12345.. 1705 290 DAL 3169 73C 143 1600 .....6. 1705 290 DAL 1672 73W 143 1600 ......7 1705 295 MSY 3798 73W 143 1555 12345.. 1705 405 BWI 382 73C 143 1505 12345.. 1715 420 LAX 4345 73W 143 1150 ......7 1720 405 SNA 4517 73W 143 1205 .....6. 1720 330 ABQ 1841 73W 143 1420 .....6. 1725 335 ATL 3371 73C 143 1615 12345.. 1725 415 LAX 2676 73H 175 1155 .....6. 1725 345 DEN 4205 73H 175 1405 .....6. 1730 385 LAS 1723 73W 143 1225 12345.. 1730 260 DAL 41 73W 143 1630 12345.. 1735 260 DAL 2033 73W 143 1630 ......7 1735 380 LAS 4113 73H 175 1230 .....6. 1735 315 MCI 2653 73H 175 1535 .....6. 1735 285 TUL 2966 73W 143 1605 ......7 1735 275 MAF 3846 73W 143 1615 .....6. 1740 420 OAK 4637 73W 143 1150 .....6. 1740 245 SAT 2879 73W 143 1645 .....6. 1740 320 TPA 4228 73W 143 1630 ......7 1740 240 AUS 3674 73W 143 1650 .....6. 1745 330 CLT 367 73C 143 1620 12345.. 1745 365 SLC 2266 73W 143 1345 .....6. 1745

1840 2050 MEX 9001 73W 143 1234567

Docket OST-2015-0070 Appendix 1 Page 1 of 8


Total Trip Time (mins) Orig Flight No. Aircraft Seats Dep. Time Op Days HOU Time Arr. Time Dest Flight No. Aircraft Seats Op Days

380 CLT 643 73H 175 0525 12345.. 0655 285 DAL 1628 733 137 0600 ......7 0700 285 DAL 1628 73C 143 0600 12345.. 0700 300 TUL 1579 73W 143 0545 12345.. 0715 305 BHM 405 73W 143 0540 12345.. 0720 355 CLT 5106 73W 143 0550 ......7 0720 260 SAT 2797 73H 175 0625 ......7 0720 340 TPA 5657 73W 143 0605 12345.. 0720 250 AUS 320 73W 143 0635 12345.. 0725 315 BNA 1875 73C 143 0530 ......7 0725 315 BNA 441 73W 143 0530 12345.. 0725 285 OKC 4267 73W 143 0600 .....6. 0725 360 RDU 1093 73H 175 0545 12345.. 0725 315 ATL 1695 73W 143 0630 12345.. 0730 295 BHM 2783 73W 143 0550 .....6. 0730 310 BNA 2205 73C 143 0535 .....6. 0730 345 CLT 2971 73H 175 0600 .....6. 0730 315 MCI 1004 73W 143 0530 ......7 0730 315 STL 1029 73H 175 0530 ......7 0730 315 STL 2061 73W 143 0530 12345.. 0730 285 TUL 4600 73W 143 0600 ......7 0730 240 AUS 4936 73W 143 0645 ......7 0735 255 DAL 201 733 137 0630 12345.. 0735 255 DAL 1131 73W 143 0630 .....6. 0735 330 MCO 2576 73W 143 0615 .....6. 0735 285 MEM 4571 73W 143 0600 ......7 0735 260 MSY 2050 73W 143 0625 12345.. 0735 350 RDU 4948 73W 143 0555 ......7 0735 245 SAT 4492 73C 143 0640 .....6. 0735 325 MCO 1983 73W 143 0620 12345.. 0740 240 SAT 1633 73H 175 0645 12345.. 0740 305 STL 2725 73W 143 0540 .....6. 0740 255 MSY 4464 73W 143 0630 .....6. 0745 295 ATL 2280 73W 143 0650 .....6. 0750 225 AUS 2428 73W 143 0700 .....6. 0750 270 MEM 2762 73H 175 0615 .....6. 0750

0840 1045 MEX 9003 73W 143 1234567

Proposed HOU-MEX Flight Schedules (Southbound) Docket OST-2015-0070

Appendix 1 Page 2 of 8


Proposed HOU-MEX Flight Schedules (Northbound)

Orig Flight No. Aircraft Seats Dep. Time Op Days HOU Time Arr. Time Dest Flight No. Aircraft Seats Op Days Total Trip Time (mins)

MEX 9002 73W 143 0700 1234567 0910 1040 1345 ATL 805 73H 175 12345.. 345 1040 1220 BHM 1106 73C 143 12345.. 320 1040 1445 DCA 1974 73W 143 ......7 405 1040 1415 FLL 5648 73H 175 12345.. 375 1040 1145 LAS 3155 73H 175 .....6. 405 1040 1310 MDW 543 73H 175 12345.. 370 1040 1210 MEM 5164 73C 143 ......7 310 1040 1350 TPA 4557 73H 175 ......7 350 1045 1350 ATL 5333 73W 143 ......7 350 1045 1415 CLT 556 73W 143 12345.. 375 1045 1240 MCI 2468 733 137 .....6. 340 1045 1410 MCO 3847 73H 175 .....6. 370 1045 1435 PIT 279 73W 143 12345.. 395 1045 1140 SAT 9 73C 143 12345.. 280 1045 1325 SEA 5513 73W 143 .....6. 505 1045 1355 TPA 957 73W 143 12345.. 355 1050 1430 FLL 709 73H 175 .....6. 390 1050 1430 FLL 4349 73H 175 ......7 390 1050 1405 IND 2669 73C 143 ......7 365 1050 1525 LGA 4357 73H 175 .....6. 445 1050 1210 OKC 3965 73C 143 .....6. 310 1050 1310 PDX 2618 73H 175 .....6. 490 1050 1145 SAT 4634 73C 143 .....6. 285 1055 1145 AUS 4319 73C 143 .....6. 285 1100 1405 ATL 4482 73W 143 .....6. 365 1100 1200 DAL 1432 73C 143 ......7 300 1100 1200 DAL 20 73W 143 12345.. 300 1100 1220 OKC 1481 73W 143 ......7 320 1105 1415 TPA 4444 73H 175 .....6. 375 1125 1230 MSY 4429 73C 143 .....6. 330 1130 1230 DAL 1524 73H 175 .....6. 330 1135 1255 OKC 668 73C 143 12345.. 355 1140 1300 DEN 15 73W 143 12345.. 420 1140 1405 MDW 1426 73W 143 .....6. 425 1145 1305 LAX 1950 73W 143 12345.. 485 1150 1515 MCO 525 73W 143 12345.. 435 1200 1300 DAL 24 73W 143 12345.. 360 1200 1300 DAL 4525 73W 143 ......7 360 1200 1320 DEN 4204 73H 175 .....6. 440 1210 1330 LAX 4570 73W 143 ......7 510 1215 1335 DEN 5092 73W 143 ......7 455 1215 1410 STL 4309 73C 143 .....6. 430 1225 1345 MAF 4544 73W 143 ......7 405 1240 1545 ATL 17 73W 143 12345.. 465 1240 1545 ATL 5019 73W 143 ......7 465 1255 1400 MSY 171 73C 143 12345.. 420 1300 1400 DAL 1529 73C 143 .....6. 420 1300 1400 DAL 28 73W 143 12345.. 420 1300 1400 DAL 5541 73W 143 ......7 420



Proposed HOU-MEX Flight Schedules (Northbound)

Orig Flight No. Aircraft Seats Dep. Time Op Days HOU Time Arr. Time Dest Flight No. Aircraft Seats Op Days Total Trip Time (mins)

MEX 9004 73W 143 1140 1234567 1350 1525 1630 MSY 1499 73C 143 12345.. 290 1530 1615 AUS 1174 73W 143 .....6. 275 1530 1630 DAL 38 73C 143 12345.. 290 1530 1635 MSY 5040 73W 143 ......7 295 1530 1910 RDU 3675 73H 175 .....6. 390 1540 2025 BOS 1552 73W 143 .....6. 465 1540 1905 CHS 1896 73W 143 ......7 385 1600 1750 BNA 2741 73C 143 ......7 370 1600 1700 DAL 4577 73C 143 .....6. 320 1600 1700 DAL 2985 73H 175 ......7 320 1600 1700 DAL 40 73W 143 12345.. 320 1620 1720 LAS 3536 73W 143 12345.. 460 1625 1750 DEN 4546 73W 143 ......7 430 1630 1730 DAL 42 73W 143 12345.. 350 1635 1740 MSY 541 73W 143 12345.. 360 1640 1945 ATL 949 73W 143 .....6. 425 1640 1805 LAX 2940 73W 143 ......7 505 1640 1835 STL 35 73C 143 12345.. 415 1640 1945 TPA 5162 73C 143 ......7 425 1645 2210 SJU 1533 73W 143 .....6. 570 1645 1845 STL 4756 73C 143 ......7 425 1650 2020 FLL 4155 73W 143 ......7 460 1655 1755 DAL 1711 73H 175 .....6. 375 1700 2105 BWI 558 73W 143 12345.. 505 1700 1800 DAL 2473 73C 143 ......7 380 1700 1800 DAL 44 73W 143 12345.. 380 1705 1805 LAS 3677 73W 143 ......7 505 1705 1810 MSY 3358 73W 143 .....6. 390 1710 1755 AUS 2728 73C 143 ......7 375 1710 2030 MCO 5501 73W 143 .....6. 470 1710 1935 MDW 1369 73W 143 ......7 475 1710 1925 OMA 2786 73W 143 ......7 465 1710 1805 SAT 4883 73W 143 ......7 385 1715 2200 BOS 2989 73H 175 ......7 560 1715 1840 DEN 3767 73H 175 12345.. 480 1715 2030 IND 1649 733 137 ......7 470 1715 2055 RDU 1553 73H 175 ......7 495 1715 2020 TPA 3248 73C 143 12345.. 460 1720 1845 LAX 4169 73W 143 12345.. 545 1720 1840 OKC 4694 73W 143 ......7 420 1720 1935 OMA 4171 73W 143 12345.. 475 1725 2035 IND 495 73W 143 12345.. 475 1730 1830 DAL 46 73H 175 12345.. 410 1730 1830 DAL 2013 73W 143 ......7 410 1730 1855 LAX 931 73H 175 .....6. 555 1730 1955 MDW 1375 73H 175 12345.. 495 1735 2220 BOS 3014 73H 175 12345.. 580 1735 1840 MSY 2697 73C 143 ......7 420 1735 1855 OKC 2088 73W 143 12345.. 435 1740 1845 MSY 1147 73W 143 12345.. 425 1740 1910 PNS 39 73C 143 12345.. 450 1740 2045 TPA 5538 73C 143 .....6. 485 1745 2150 BWI 1672 73W 143 ......7 550 1750 1925 BHM 3235 73C 143 12345.. 465



Proposed FLL-MEX Flight Schedules (Southbound)

Total Trip Time (mins) Orig Flight No. Aircraft Seats Dep. Time Op Days FLL Time Arr. Time Dest Flight No. Aircraft Seats Op Days

440 TPA 4741 73C 143 0625 12345.. 0725 430 MCO 909 73H 175 0635 ......7 0735 520 PIT 4398 73W 143 0505 .....6. 0740 420 MCO 2166 73C 143 0645 12345.. 0745 515 ISP 1863 73W 143 0510 12345.. 0805 515 PVD 5656 73W 143 0510 12345.. 0815 495 BUF 1817 73W 143 0530 12345.. 0825 480 BUF 2672 73W 143 0545 .....6. 0840 450 BWI 2702 73C 143 0615 .....6. 0845 450 BWI 2702 73W 143 0615 ......7 0845 450 IAD 5165 73W 143 0615 ......7 0845 445 BWI 348 73W 143 0620 12345.. 0850 355 MCO 738 73H 175 0750 .....6. 0850 465 ISP 2563 73W 143 0600 .....6. 0855 455 PHL 4497 73C 143 0610 ......7 0855 455 PHL 1005 73W 143 0610 12345.. 0855 410 RDU 5688 73W 143 0655 12345.. 0855 465 EWR 5158 73W 143 0600 ......7 0900 435 IAD 5635 73W 143 0630 12345.. 0900 450 PHL 5877 73C 143 0615 .....6. 0905 430 SJU 936 73H 175 0635 ......7 0920 410 DCA 711 73W 143 0655 ......7 0925 410 DCA 789 73W 143 0655 12345.. 0925 410 DCA 3962 73W 143 0655 .....6. 0925 425 SJU 784 73H 175 0640 .....6. 0925

1010 1245 MEX 9005 73W 143 1234567



Proposed FLL-MEX Flight Schedules (Northbound)

Orig Flight No. Aircraft Seats Dep. Time Op Days FLL Time Arr. Time Dest Flight No. Aircraft Seats Op Days Total Trip Time (mins)

MEX 9006 73W 143 1340 1234567 1805 1935 2205 DCA 3906 73W 143 12345.. 445 1935 2210 IAD 5255 73H 175 ......7 450 1935 2225 PHL 2454 73W 143 ......7 465 1935 2035 TPA 2560 73C 143 .....6. 355 1940 2045 MCO 4714 73W 143 ......7 365 1945 2220 IAD 1255 73W 143 .....6. 460 2005 2240 BWI 3315 73W 143 .....6. 480 2015 2305 PHL 171 73C 143 12345.. 505 2020 2255 BWI 5640 73W 143 12345.. 495 2020 2250 DCA 5284 73W 143 ......7 490 2025 2305 SJU 3819 73H 175 12345.. 505 2035 2315 PIT 2812 73C 143 .....6. 515 2045 2335 ISP 1437 73W 143 ......7 535 2105 2340 BWI 5225 73W 143 .....6. 540 2135 0015 PIT 3312 73C 143 12345.. 575 2145 0015 BWI 4968 73C 143 ......7 575 2200 0030 BWI 3766 73C 143 .....6. 590 2205 0035 BWI 234 73H 175 12345.. 595



Proposed LAX-MEX Flight Schedules (Southbound)

Total Trip Time (mins) Orig Flight No. Aircraft Seats Dep. Time Op Days LAX Time Arr. Time Dest Flight No. Aircraft Seats Op Days

565 SFO 4149 73W 143 1035 12345.. 1205 540 OAK 5908 73W 143 1100 .....6. 1225 535 SJC 3802 73W 143 1105 ......7 1225 515 SJC 929 73W 143 1125 12345.. 1245 495 LAS 2285 73H 175 1145 ......7 1255 495 LAS 4703 73W 143 1145 .....6. 1255 515 SFO 1233 73W 143 1125 12345.. 1255 510 SMF 1659 73W 143 1130 ......7 1255 500 OAK 4442 73W 143 1140 ......7 1300 510 SFO 1161 73W 143 1130 ......7 1300 485 SJC 3634 73W 143 1155 .....6. 1310 495 RNO 3578 73W 143 1145 ......7 1315 480 OAK 3859 73W 143 1200 12345.. 1325 475 SJC 5507 73W 143 1205 ......7 1325 455 LAS 472 73W 143 1225 12345.. 1335 455 SJC 4055 73W 143 1225 12345.. 1345 455 SMF 4030 73W 143 1225 12345.. 1350 420 LAS 1108 73W 143 1300 ......7 1410 440 RNO 4653 73W 143 1240 .....6. 1410 425 OAK 2017 73W 143 1255 12345.. 1415 455 SLC 1640 73W 143 1325 12345.. 1420 425 SMF 1004 73W 143 1255 ......7 1420 415 SJC 5509 73W 143 1305 ......7 1425 405 SFO 3723 73W 143 1315 .....6. 1445 400 SFO 1506 73W 143 1320 12345.7 1450 385 OAK 952 73W 143 1335 .....6. 1455 375 SJC 1946 73W 143 1345 12345.. 1505 375 OAK 5159 73W 143 1345 ......7 1510 375 RNO 3126 73W 143 1345 12345.. 1515

1605 2200 MEX 9007 73W 143 1234567



Proposed LAX-MEX Flight Schedules (Northbound)

Orig Flight No. Aircraft Seats Dep. Time Op Days LAX Time Arr. Time Dest Flight No. Aircraft Seats Op Days Total Trip Time (mins)

MEX 9008 73W 143 0750 1234567 1000 1130 1245 LAS 3308 73W 143 12345.. 415 1135 1300 SFO 4927 73W 143 .....6. 430 1140 1300 OAK 4448 73W 143 .....6. 430 1145 1300 LAS 5328 73W 143 ......7 430 1145 1300 SJC 5103 73W 143 ......7 430 1150 1310 OAK 2034 73W 143 12345.. 440 1205 1330 SMF 1234 73W 143 .....6. 460 1205 1330 SMF 2843 73W 143 ......7 460 1215 1325 LAS 2961 73W 143 .....6. 455 1230 1340 LAS 333 73W 143 12345.. 470 1230 1350 OAK 3761 73W 143 12345.. 480 1235 1355 SFO 4878 73W 143 ......7 485 1235 1345 SJC 1430 73W 143 .....6. 475 1240 1400 SFO 1516 73W 143 12345.. 490 1245 1405 SMF 1651 73W 143 12345.. 495 1250 1530 SLC 460 73W 143 12345.. 520 1300 1540 SLC 5908 73W 143 .....6. 530 1315 1425 LAS 5942 73W 143 .....6. 515 1320 1435 OAK 4792 73W 143 ......7 525 1325 1430 LAS 1040 73W 143 12345.. 520 1330 1450 SMF 646 73W 143 ......7 540 1345 1500 OAK 3679 73W 143 .....6. 550 1345 1505 SFO 2124 73W 143 12345.7 555 1345 1505 SMF 2175 73W 143 12345.. 555 1355 1515 OAK 1950 73W 143 12345.. 565


Appendix 2 – Forecast Detail

The U.S. - MEX Market Has Been Growing at a Rate of 8.5% per Year

12 Months Ended:

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

Source: U.S. DOT, T-100 data, via Diio.

3-Year Compound Annual Growth Rate = 8.5%

Annual U.S.-MEX Onboard Passengers

Docket OST-2015-0070 Appendix 2

Page 1 of 12

Southwest Will Carry Nearly 175,000 Annual Passengers with the Two Requested HOU - MEX Slot Pairs

1. Base Year Houston-MEX O&D Passengers 329,894 YE Q3 2016 HOU/IAH-MEX Adjusted MIDT via Travelport (Excluding Mexico LCCs due to unreliable data).

2. CY 2018 O&D Passengers After Growth 396,361 8.5% annual growth per year based on historical U.S.-MEX. See Appendix 2, page 1.

3. Fare Stimulation 30.0% See Appendix 2, pages 8-10, Estimated Price Elasticity = -1.15.

4. Service Stimulation 7.2% See Appendix 2, pages 8-10.

5. Passengers After Stimulation 552,213 Line 2 x (1+Line 3) x (1+Line 4)

6. Forecast WN Share 21.1% Campbell-Hill QSI model.

7. Forecast WN Local Passengers 116,517 Line 5 x Line 6.

8. Estimated Flow Passengers 56,891 See Appendix 2, page 3.

9. Total WN Onboard Passengers 173,408 Line 7 + Line 8

10. Total WN Seats 208,780 2 Daily 143-Seat 737-700 round trips.

11. Estimated Load Factor 83.1% Line 9 / Line 10.

12. Forecast Passengers per flight 119

Remarks


Page 2 of 12

Forecast Southwest HOU-MEX Passengers Beyond HOU for Proposed 2 New Slot Pairs

(1) (2) (3) (4) (5) (6)

Market O&D YE Q3

2016

Forecast CY 2018 with Growth Stimulation After Stimulation WN Share WN Passengers

SAT 89,452 107,475 2.3% 109,937 5.6% 6,114 ABQ 10,138 12,180 1.0% 12,307 2.6% 314 ATL 89,444 107,466 0.2% 107,661 0.4% 477 AUS 21,700 26,072 2.3% 26,660 5.5% 1,459 BHM 6,578 7,903 2.3% 8,086 5.6% 452 BNA 22,722 27,300 0.9% 27,547 2.2% 611 BOS 65,991 79,287 0.4% 79,636 1.1% 862 BWI 34,229 41,125 2.1% 41,986 5.1% 2,138 CHS 5,574 6,697 1.0% 6,761 2.4% 159 CLT 37,357 44,884 1.2% 45,444 3.1% 1,388 DAL 5,789 6,956 29.6% 9,015 56.8% 5,120 DCA 28,991 34,832 0.9% 35,152 2.3% 794 DEN 73,239 87,996 2.5% 90,162 6.0% 5,377 ECP 818 982 1.0% 992 2.5% 24 FLL 48,447 58,208 0.5% 58,512 1.3% 751 IND 16,166 19,423 1.1% 19,627 2.6% 507 LAS 181,681 218,287 0.4% 219,175 1.0% 2,189 LAX 437,656 525,835 0.0% 525,881 0.0% 66 LGA 27,995 33,635 0.1% 33,656 0.1% 48 MAF 2,103 2,526 3.1% 2,605 7.5% 196 MCI 15,192 18,253 1.3% 18,495 3.2% 599 MCO 222,369 267,172 0.3% 267,895 0.7% 1,773 MDW 7,543 9,062 6.2% 9,628 14.6% 1,406 MEM 7,857 9,440 1.3% 9,566 3.3% 313 MSY 18,943 22,759 6.3% 24,192 14.7% 3,562 OAK 12,735 15,301 1.0% 15,459 2.5% 392 OKC 7,689 9,238 4.3% 9,639 10.3% 997 OMA 9,266 11,133 2.3% 11,391 5.6% 641 PDX 56,548 67,941 1.3% 68,856 3.3% 2,268 PIT 12,643 15,190 0.9% 15,331 2.3% 349 PNS 2,123 2,551 1.8% 2,597 4.4% 114 RDU 34,543 41,503 1.3% 42,034 3.1% 1,317 SEA 86,727 104,201 1.4% 105,623 3.3% 3,526 SJU 39,861 47,892 2.3% 49,014 5.7% 2,786 SLC 47,188 56,696 0.2% 56,834 0.6% 340 SNA 60,255 72,395 1.9% 73,771 6.7% 4,943 STL 14,755 17,728 2.5% 18,170 6.1% 1,099 TPA 19,924 23,938 1.6% 24,330 4.0% 973 TUL 8,828 10,607 1.7% 10,787 4.1% 445

1,891,058 2,272,070 1.0% 2,294,415 2.5% 56,891

Notes 1/ From Travelport Adjusted MIDT – Excludes Mexico LCCs due to data unreliability. 2/ Grown to CY 2018 using the historical MEX annual growth rate of 8.5%. 3/ Calculated from Campbell-Hill Aviation Group QSI model. 4/ Column 2 x (1+ Column 3) 5/ Calculated from Campbell-Hill Aviation Group QSI Model 6/ Column 4 x Column 5


Page 3 of 12

Southwest Will Carry Nearly 93,000 Annual Passengers with One Daily FLL - MEX Slot Pair

1. Base Year FLL/MIA-MEX O&D Passengers 418,221 YE Q3 2016 FLL/MIA-MEX Adjusted MIDT via Travelport (Excluding Mexico LCCs due to unreliable data).


3. Fare Stimulation 38.4% See Appendix 2, pages 8-10. Estimated Price Elasticity = -1.15.

4. Service Stimulation 4.4% Appendix 2, pages 8-10.






10. Total WN Seats 104,390 1 Daily 143-Seat 737-700 round trip.



Remarks


Page 4 of 12

Forecast Southwest FLL-MEX Passengers Beyond FLL for Proposed Slot Pair


(1) (2) (3) (4) (5) (6)

Market O&D YE Q3

2016

Forecast CY 2018

with Growth Stimulation After Stimulation WN Share WN Passengers

BUF 5,107 6,137 1.5% 6,232 3.8% 236

BWI 34,229 41,125 1.9% 41,926 4.7% 1,988

DCA 28,991 34,832 1.0% 35,178 2.4% 859

EWR 156,008 187,441 0.1% 187,566 0.2% 296

IAD 100,918 121,251 0.9% 122,364 2.3% 2,756

ISP 59 71 100.0% 142 100.0% 142

MCO 222,369 267,172 0.2% 267,770 0.5% 1,462

PHL 36,498 43,852 1.2% 44,386 3.0% 1,324

PIT 12,643 15,190 0.7% 15,303 1.8% 280

PVD 4,729 5,681 2.2% 5,807 5.4% 312

RDU 34,543 41,503 0.6% 41,760 1.5% 636

SJU 39,861 47,892 1.1% 48,438 2.8% 1,352

TPA 19,924 23,938 0.5% 24,057 1.2% 294

695,879 836,085 0.6% 840,929 1.4% 11,937


Page 5 of 12

Southwest Will Carry Nearly 90,000 Annual Passengers with One Daily LAX - MEX Slot Pair

1. Base Year LAX-MEX O&D Passengers 437,656 YE Q3 2016 LAX-MEX Adjusted MIDT via Travelport (Excluding Mexico LCCs due to unreliable data).


3. Fare Stimulation 13.5% See Appendix 2, pages 8-10. Estimated Price Elasticity = -1.15.

4. Service Stimulation 3.7% See Appendix 2, pages 8-10.






10. Total WN Seats 104,390 1 Daily 143-Seat 737-700 round trip.



Remarks


Page 6 of 12

Forecast Southwest LAX-MEX Passengers Beyond LAX for Proposed Slot Pair


(1) (2) (3) (4) (5) (6)

Market O&D YE Q3

2016 Forecast CY 2018

with Growth Stimulation After Stimulation WN Share WN Passengers LAS 181,681 218,287 0.1% 218,476 0.2% 451 OAK 12,735 15,301 26.3% 19,328 51.8% 10,010 RNO 9,311 11,187 3.9% 11,620 9.2% 1,074 SFO 189,582 227,780 0.9% 229,830 2.2% 5,079 SJC 15,753 18,927 6.8% 20,217 15.9% 3,207 SLC 47,188 56,696 1.2% 57,354 2.8% 1,632 SMF 37,679 45,271 4.3% 47,203 10.2% 4,801

493,931 593,448 1.8% 604,028 4.3% 26,254


Page 7 of 12

Consumer Benefits Methodology Summary for Southwest’s Proposed MEX Slots

• Capacity assumptions

– Capacity for other carriers is based on Innovata schedule data via Diio for June 2017.

– New WN service assumes B737-700 aircraft (143 seats).

• Market fare impacts

– Current fares from YE Q3 2016 Travelport Adjusted MIDT data. Excludes Mexico LCCs due to lack of reliable data available.

– WN average fare estimated by WN based on current/expected future experience. Other airline fare after WN nonstop calculated at the estimated WN fare plus 15% for LAX and HOU and plus 25% for MIA. The market fare after nonstop calculated as the weighted average fare of WN and Other airlines.

• Growth

– Grew all proposed MEX markets by 8.5% per year consistent with historical average U.S.-MEX growth (See Appendix 2, Page 1) to the base year of CY 2018.

• Passenger stimulation

– Fare: Standard function assuming -1.15 elasticity factor.

– Service: Campbell-Hill QSI model.

• Consumer benefits

– Used FAA formula for existing and stimulated passengers, and the net change in average market fare.


Page 8 of 12

Estimate of Consumer Benefits Generated by Proposed Southwest New Slots at MEX


Page 9 of 12

Consumer Benefits MEX One-Way Passengers Growth to Predicted Service Fare Before Fare After Fare Fare Total Existing New Total O&D Market Mileage Before Stimulation CY 2018 Stimulation WN Nonstop WN Nonstop Savings Stimulation Stimulation Passengers Passengers Passengers

(A) (B) (C) (D) (E) (F) (G) (H) (I) (J) (K) (L)

HOU/IAH 742 329,894 396,361 7.2% $155 $123 $32 30.0% 155,852 $10,412,862 $2,459,673 $12,872,535 FLL/MIA 1,289 418,221 502,485 4.4% $187 $141 $46 38.4% 223,846 $19,220,663 $5,143,760 $24,364,423 LAX 1,553 437,656 525,835 3.7% $203 $182 $21 13.5% 92,936 $9,269,693 $984,206 $10,253,898

1,185,771 1,424,682 4.9% $184 $149 $35 27.0% 472,634 $38,903,218 $8,587,638 $47,490,856

(A) Nonstop Miles.

(B) Industry passengers during YE Q3 2016 from Travelport Adjusted MIDT. Does not include Mexico LCC carriers due to lack of reliable data.

(C) Growth at 8.5% per year based on historical U.S.-MEX annual growth rate (See Appendix 2, page 1).

(D) Predicted Service stimulation from Campbell-Hill Aviation Group QSI model.

(E) Average Fare for All Passengers before WN market entry (excludes Mexico LCC data due to lack of accurate reporting). Includes nonstop and connecting passengers. Uses Travelport Adjusted MIDT and internal WN data. Includes average checked baggage and rebooking/cancellation fees per passenger derived by Campbell-Hill Aviation Group using DOT Form-41 data for Latin America.

(F) Average Fare for All Passengers after WN market entry.

(G) Column E – Column F.

(H) Calculated using a price elasticity coefficient of -1.15. The arc elasticity formula is: Arc Ep = [(Q2-Q1)/((Q1+Q2)/2)] / [(P2-P1)/((P1+P2)/2)] , where Q1 = passengers before WN service, Q2 = Passengers after WN service, P1=Fare Before WN service, P2 = Fare After WN service.

(I) Column C x (1 + Column D) x (1 + Column H).

(J) Column G x Column C.

(K) Column I x Column G x 0.5. (This is the triangle area shown on the last Appendix chart.)

(L) Column J + Column K.

Estimate of Consumer Benefits Generated by Proposed Southwest New Slots at MEX

(Notes)


Page 10 of 12

Lower Fares Will Increase Passenger Volume

“Total elasticity of demand for air travel is a measure of air travelers’ response to variations in the cost of air travel. This parameter measures the percentage change in air passenger trips resulting from a one-percent change in trip prices. Total elasticities are negative because price and quantity demanded are inversely proportional. …

… FAA sponsored an extensive review of the economic literature regarding total elasticity of demand for air travel at a national level. The findings of this review are summarized in Chapter 2 and Appendix G of Report to Congress: Child Restraint Systems, Vol. 1 and 2, May 1995. The elasticity values found in the academic literature range from –0.6 to –4.5. Representative values for business and non-business travelers are presented in Table C.2. Values in Table C.2 can be tailored to the mix of passengers at an airport. Overall weighted values are –0.79 and –1.59 for business and non-business travelers, respectively, with an overall average (assuming the 50/50 mix typical of the nation at large) of –1.2. …”

Source: “FAA Airport Benefit-Cost Analysis Guidance”, Office of Aviation Policy and Planning, Federal Aviation Administration, December 15, 1999.

Summary of Southwest Consumer Benefits


Page 11 of 12

Fare

Passengers

Marginal Consumer Surplus to Current Passengers (Measured in this report)

Consumer Surplus to New Passengers(Measured in this report)

P1

P2

Q1 Q2

Unchanged Consumer Surplus(Not measured in this report)

Demand Curve

Source: “FAA Airport Benefit-Cost Analysis Guidance”, Office of Aviation Policy and Planning, Federal Aviation Administration, December 15, 1999.

Summary of Southwest Consumer Benefits

Consumer Surplus Illustration


Page 12 of 12

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