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I f 3 77 BEFORE THE
DEPARTMENT OF TRANSPORTATION
OFFICE OF THE SECRETARY 02AUG-9 PH 1:23
WASHINGTON, DC

In the Matter of
Docket OST-2002-12503 I .
L d1
U.S.-Ecuador All-Cargo Frequencies

CONSOLIDATED REPLY OF ARROW AIR, INC.

Communications with respect to this document should be addressed to:

Richard L. Haberly Lawrence D. Wasko
President and CEO Jacquelyn Gluck
Richard L. Richards Law Offices of Lawrence D. Wasko
Vice President & General Counsel 1150 Connecticut Avenue, NW, Suite 900
Arrow Air, Inc. Washington, DC 20036
2000 NW 62"dAvenue Telephone: 202 862 4370
Bldg 7 11 Fax: 202 331 0599
Miami, FL 33122 Email: ldwasko@erols. com
jnduck@erols. com

Attorneys for Arrow Air, Inc.

August 9,2002
BEFORE THE
DEPARTMENT OF TRANSPORTATION
OFFICE OF THE SECRETARY
WASHINGTON, DC

In the Matter of
Docket OST-2002- 12503
U .S .-Ecuador All-Cargo Frequencies

CONSOLIDATED REPLY OF ARROW AIR, INC.

Arrow Air, Inc. (“Arrow”)pursuant to the Notice served July 3, 2002 by the Department of

Transportation (the “Department”) hereby submits this Consolidated Reply to the Answers of Atlas

Air, Inc., Custom Air Transport, Inc., Evergreen International Airlines, Inc., Florida West

International Airways, Inc., and the Port Authority of New York and New Jersey, and respectfully

represents and alleges as follows:

ARROW’S SCHEDULE PROPOSAL

The application of Arrow set forth its proposal for service to Ecuador adding five frequencies

to its current allocation of five. Daily round trip service to Quito and service three times a week to

Guayaquil has been proposed which would utilize a total of ten frequency allocations. The illustrative

schedule provided by Arrow was intended only to illustrate how proposed services would be integrated

with its existing services to Latin America, via intermediate and beyond points. The illustrative

service did not amend its proposal to use the frequencies for which it has applied. To be absolutely

clear, Arrow provides as Reply Exhibit No. 1, an illustrative schedule showing services only to and

from Ecuador without regard to existing intermediate or beyond points which, in actual operation,
would be included in the services provided.

The criticisms of Arrow’s proposal made by the other applicants are without merit. The

Arrow application stands as submitted and the evidence of Arrow’s effective service is strong and

supportive of an additional award to Arrow.

ARROW NEEDS ADDITIONAL FREQUENCIES NOT JUST ADDITIONAL CAPACITY
TO PROPERLY SERVE THE ECUADOR MARKETS

Each of the Ecuador markets has peaking and demand characteristics that vary by day of the

week and by season of the year. To successfully meet the demands of shippers in these markets,

Arrow must first have the capability to offer a flight scheduled on certain days of the week and certain

times of the year and second, the capability to adjust capacity to market demand by using larger or

smaller aircraft needed. While Arrow currently integrates its Ecuador service with flights via

intermediate and beyond points and has thereby tried to maintain frequency and capacity at levels

suited to seasonal market demands and directional traffic flows, it has a genuine need for additional

frequency allocations. As the record demonstrates, Arrow has made maximum use of its current

frequency allocation and has supplemented these services with charter flights. Arrow needs the

additional frequencies for which it has applied to offer the shipping public the flight availability options

consistent with market demand. It does not have enough frequency allocations now and the public

interest will be well served by an award of five additional frequencies to Arrow.

ARROW HAS THE EQUIPMENT AVAILABLE TO ACCOMPLISH ITS SERVICE
PROPOSALS

As represented in its application, Arrow is currently operating DC-8, DC-10 and L-1011

aircraft, listed on its Operations Specifications, which aircraft it either leases or owns. Arrow has

added B747 aircraft to its operations specifications under lease arrangements which have been

2
approved by the Federal Aviation Administration. Arrow has the aircraft capability to implement its

full service proposal promptly upon receipt of an award from the Department.

AN AWARD TO ARROW IS IN THE PUBLIC INTEREST

Grant of Arrow’s Reauest for Five Additional Freauencies Would Promote ComPetition

Certain parties have suggested that since Arrow currently provides service to Ecuador and is

allocated five of the currently available fifteen frequencies, it should not be allocated any additional

frequencies because to do so would deprive new carriers entry into the market and would not be in the

public interest. Arrow wishes to make clear that it does not oppose the entry of a new carrier or

carriers into the Ecuador markets as the Department may find to be in the public interest. However, it

is Arrow’s current service that is so valuable to shippers in these markets and which provides a unique

base on which to improve and increase service most efficiently and effectively.

An award to Arrow of five frequencies will be in the public interest because it will maintain

and enhance the availability of service that shippers have been using, that they can rely upon and that

meets an essential need. An award to Arrow of five additional frequencies out of the total of fifteen

newly available frequencies will allow Arrow to continue as an effective competitor in the Ecuador

markets and participate in the same relative share of the markets.

There Is No DePartment Precedent that S U D D ODenial of Arrow’s Application
~~S

The citations to the Department’s findings in Docket OST-97-2711, Order 97-7-14 served July

14, 1997 and in Docket OST-2000-7513, Order 2000-9-23 served September 25, 2000 do not support

the proposition that an award to Arrow in this case is not in the public interest because Arrow is an

incumbent and that new entrants are to be favored. This case presents a different factual situation from

the two previous cases.

In the 1997 and 2000 Frequency Allocation Cases the Department was re-allocating a portion

3
of the 15 available and restricted frequencies. An award to Arrow in either of the cases would have

increased its percentage share of the limited pool of frequencies and limited or denied a new entrant

carrier the opportunity to compete.

In this 2002 Frequency Allocation Case there is an additional pool of fifteen frequencies and

Arrow must be treated at least as an equal with any other applicant and not penalized because it is an

incumbent. An award to Arrow will not increase its percentage share of available frequencies and will

not limit or reduce the number of scheduled all-cargo carriers in the U.S.-Ecuador market and

therefore such an award is not anti-competitive. Rather, an award to Arrow of five of the newly

available fifteen frequencies will enhance the beneficial effects of competition, and make available

Arrow as a service option to the shipping public with regard to the additional frequencies.

Arrow has experience. It knows the characteristics of these markets and can respond

effectively to changing demands. It has proven its commitment to service in these markets. It is

clearly in the public interest to award five additional frequencies to Arrow and to award ten

frequencies to new, competitive entrants as the Department determines may best serve these markets.

DENIAL OF ARROW’S APPLICATION IN FAVOR OF A NEW ENTRANT WOULD
NOT BE IN THE PUBLIC INTEREST

A comparison of Arrow’s proposal with those of the other applicants demonstrates that Arrow

can better provide additional and competitive service and that an award to Arrow is not inconsistent

with an award or awards to other applicants.

&. Atlas can only offer wide body aircraft between the U.S. and Ecuador. Arrow can

provide a mix of narrow body and wide body aircraft, adapting and adjusting schedules to changing

market demand, reflecting seasonality and directionality. Arrow has greater experience and has the

4
ability to operate with a mix of intermediate and beyond points to insure regular, reliable available

service for the benefit of shippers in these markets. Arrow has the superior proposal. Granting

Atlas’s application for six frequencies and at the same time denying the application of Arrow would

produce the anomalous result of giving a new entrant a greater number of total frequencies in the

market than the incumbent Arrow would have. Such a result would not best serve the public interest.

Custom Air. Custom Air would use B727 aircraft which is not suitable to the scheduled all-

cargo Ecuador markets. The aircraft may be useful for ad hoc charter service but they cannot

successfully provide the kind of additional capacity that is required by shippers. Granting Custom Air

three frequencies and denying the application of Arrow would be a disservice to the public interest.

Evermeen. Evergreen’s application for two weekly frequencies to operate through B747 all-

cargo scheduled service between New York and Ecuador is of questionable economic value. Arrow’s

all-cargo flights out of Miami historically have accommodated traffic moving to and from east coast

and other behind Miami gateway points via efficient and economic intermodal services. Shippers

prefer the more cost efficient cargo transport services. Arrow submits that if New York was a viable

point for scheduled all-cargo flights to Ecuador, the market would have service today and Arrow

would be a competitor. There is no sound economic basis on which to grant the Evergreen application

and deny the application of Arrow and such result would be contrary to the public interest. Arrow has

been a long term stable factor in service to Ecuador because, in part, of the manner in which it

schedules its service, and integrates it with other Latin American points and intermodal operations.

Florida West. It is Arrow’s position that an award to Florida West would be an award to Lan

Chile. It is Arrow’s assessment that most, if not all, of Florida West’s charter operations to and from

5
Ecuador, and on which it relies to support its application, are, in fact, charters for Lan Chile. Before

an award of valuable scheduled service frequencies can be made to Florida West it should have

demonstrated that it has been serving the needs of individual U.S.-Ecuador shippers and not just the

needs of a Chilean sister airline. The public record in this case does not support a finding that Florida

West will operate scheduled all-cargo service to Ecuador in the public interest. It would be

unconscionable to grant the application of Florida West, if such grant were to enhance significantly

Lan Chile’s ability to operate between Ecuador and the U.S., if it means at the same time denying the

application of Arrow and its proven commitment to service for U.S.-Ecuador shippers.

CONCLUSION

Arrow has been an effective and stable competitor in the U.S.-Ecuador scheduled all-cargo

markets. It has been providing shippers with the capacity and frequency adapted to market demands

limited to its current frequency allocation. Arrow has proven that its service benefits the shipping

public and therefore is in the public interest. Arrow has asked the Department to award to it five

additional frequencies from among the fifteen new frequencies available. Grant of this request will not

increase Arrow’s market share or cause it to dominate the U.S.-Ecuador markets. Grant of Arrow’s

request will allow it to maintain its current competitive balance and market participation while leaving

plenty of room for the Department to grant new carriers entry into the Ecuador market as it determines

is consistent with the public interest.

WHEREFORE, in consideration of all of the foregoing, the evidence submitted of record in

this proceeding and such other information of which the Department can take official notice, Arrow

Air, Inc. respectfully requests that the Department of Transportation allocate to it five (5) additional

6
U.S.-Ecuador all-cargo scheduled frequencies and grant such other and further relief consistent with

the premises herein.

Respectfully submitted,

Is/ Lawrence D. Wasko
Lawrence D. Wasko

6 1 Jacauelyn Gluck
Jacquelyn Gluck

Law Offices of Lawrence D. Wasko
1150 Connecticut Avenue, NW, Suite 900
Washington, DC 20036
Telephone: (202) 862 4370
Facsimile: (202) 331 0599
Email : Idwasko@erols .com
Jngluck@erols.com

Attorneys for Arrow Air, Inc.

August 9,2002