Invoking cries of government interference, three major carriers, the Regional Airline Association (RAA) and the Air Transport Association (ATA) are all against a trial program that would force the major carriers to code-share with regional airlines flying some Essential Air Service (EAS) routes. One regional carrier, Pacific Wings Airlines, has offered a limited endorsement.

The regulatory wrangling began last spring when four small airports petitioned the Department of Transportation (DOT) to set up a trial, or pilot, program to improve EAS service as outlined in 2003 legislation (RAN, June 20).

DOT had never taken any steps to design the pilot program. Instead, in July DOT issued a call for advice as to how to establish a pilot program, including whether Congress actually mandated a pairing between smaller and larger airlines. The agency is now reviewing the seven filings before moving forward with a pilot program.

Absent from the seven filings were position statements from Regional Aviation Partners (RAP) and Mesa Air Group [MESA]. The two had joined forces to urge the four airports to file the original petitions to set up the pilot program. The four communities are served by Mesa.

Under RAP's interpretation of the law, a major carrier could be forced to code-share with a regional carrier flying from an EAS community into a major hub. It remains open to interpretation if all carriers operating out of the hub would be forced to code-share, or only the dominant carrier.

However, the three major carriers in their filings claim that Congress was not requiring the participation of network carriers, but instead asked DOT to set up a voluntary program.

Rather than forcing a match, Pacific Wings suggested that the proper role would be for DOT to "facilitate" communication between the carriers and review the situation should a mainline carrier refuse to negotiate a code-share pact.

Providing code-share assistance to EAS carriers may be "particularly important" to airlines operating in remote locations such as Alaska, Hawaii and Puerto Rico, said Pacific Wings, which has served three EAS communities since the late 1990s and has operated most of that time without a code-share. "Reliance on competitive market forces to drive code- share agreements does not appear to work in Hawaii, where major carriers appear solicitous of the dominance of the Hawaii-Aloha-Island Air arrangements," according to its filing. "Pacific Wings believes that a strategic code-share partnership with one or more major airline has the potential to make at least two of [the] three EAS communities entirely self- sustaining in less than five years."

On the other hand, RAA President Deborah McElroy said, "forced implementation of code-share would increase the costs of both EAS and major carriers, requiring higher fares and increased EAS subsidies to cover the additional costs and discourage participation in the EAS program. A code-share agreement is unlikely to entice passengers to the EAS community if the ticket price is significantly higher than the fare available at an airport within a reasonable driving distance.

"DOT does not have the operational or financial expertise to structure and administer a mandatory code-share program without potentially placing one party or the other at a competitive disadvantage," McElroy said.

The forced pairing, she added, "would not produce significant additional traffic and revenue" to cover the additional costs.

American Airlines [AMR] estimated that it would cost $360,000 in up-front expenses to affix its "AA" code on a regional carrier flying into one of its hubs.

While American and United Airlines [UALAQ] are opposed to the program, the network carriers offered suggestions that would make a program easier - from their perspective - to operate. The suggestions include:

• Limit the code-share designation to those flights between an EAS community and the hub.
• Limit the pilot program to one EAS route per major carrier.
• The EAS carrier needs at least a five-year operating history and at least a three-year service record on the proposed EAS pilot route.
• DOT should solicit regional carriers to handle these EAS routes only if they already have code-shares.
• A major carrier should only be required to work with an existing code-share partner in an EAS market.
• A partnership would be structured for only pro-rate payments.
• The regional carrier should provide the major carrier with a portion of its EAS subsidy to make the arrangement economical for both parties.

>>FAA Docket: OT-2005-21790<<