Congestion and Delay Reduction at Chicago O'Hare International Airport, 51382-51404 [06-7138]

Agencies

• Federal Aviation Administration
• DEPARTMENT OF TRANSPORTATION

[Federal Register Volume 71, Number 167 (Tuesday, August 29, 2006)]
[Rules and Regulations]
[Pages 51382-51404]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 06-7138]



[[Page 51381]]

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Part IV





Department of Transportation





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Federal Aviation Administration



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14 CFR Part 93



Congestion and Delay Reduction at Chicago O'Hare International Airport; 
Final Rule

Federal Register / Vol. 71, No. 167 / Tuesday, August 29, 2006 / 
Rules and Regulations

[[Page 51382]]


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DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

14 CFR Part 93

[Docket No.: FAA-2005-20704; Amendment No. 93-85]
RIN 2120-AI51


Congestion and Delay Reduction at Chicago O'Hare International 
Airport

AGENCY: Federal Aviation Administration (FAA), DOT.

ACTION: Final rule.

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SUMMARY: The FAA is adopting regulations to address persistent flight 
delays from overscheduling at O'Hare International Airport (O'Hare). 
This final rule is intended to be an interim measure only, and the FAA 
anticipates that the rule will yield to longer term solutions to 
traffic congestion at the airport. Such solutions include plans by the 
City of Chicago to modernize the airport and reduce levels of delay, 
both in the medium term and long term. For this reason, the final rule 
includes provisions allowing for the limits it imposes to be gradually 
relaxed, and in any event the regulation will sunset in 2008.

DATES: This amendment becomes effective October 29, 2006. Affected 
parties, however, do not have to comply with the information collection 
requirements in Sec. Sec.  93.23, 93.25, 93.27, 93.28, 93.29, 93.30, 
93.31, and 93.32 until the FAA publishes in the Federal Register the 
control number assigned by the Office of Management and Budget (OMB) 
for this information collection requirement. Publication of the control 
number notifies the public that OMB has approved this information 
collection requirement under the Paperwork Reduction Act of 1995.

FOR FURTHER INFORMATION CONTACT: Dr. Jeffrey Wharff, Office of Policy 
and Plans, APO-200, Federal Aviation Administration, 800 Independence 
Avenue, SW., Washington, DC 20591; telephone (202) 267-3274.

SUPPLEMENTARY INFORMATION:

Availability of Rulemaking Documents

    You can get an electronic copy using the Internet by:
    (1) Searching the Department of Transportation's electronic Docket 
Management System (DMS) Web page (https://dms.dot.gov/search);
    Visiting the Office of Rulemaking's Web page at https://www.faa.gov/
avr/arm/index.cfm; or
    Accessing the Government Printing Office's Web page at https://
www.gpoaccess.gov/fr/.
    You can also get a copy by sending a request to the Federal 
Aviation Administration, Office of Rulemaking, ARM-1, 800 Independence 
Avenue, SW., Washington, DC 20591, or by calling (202) 267-9680. Make 
sure to identify the amendment number or docket number of this 
rulemaking.
    Anyone is able to search the electronic form of all comments 
received into any of our dockets by the name of the individual 
submitting the comment (or signing the comment, if submitted on behalf 
of an association, business, labor union, etc.). You may review DOT's 
complete Privacy Act statement in the Federal Register published on 
April 11, 2000 (Volume 65, Number 70; Pages 19477-78) or you may visit 
https://dms.dot.gov.

Small Business Regulatory Enforcement Fairness Act

    The Small Business Regulatory Enforcement Fairness Act (SBREFA) of 
1996 requires FAA to comply with small entity requests for information 
or advice about compliance with statutes and regulations within its 
jurisdiction. If you are a small entity and you have a question 
regarding this document, you may contact your local FAA official, or 
the person listed under FOR FURTHER INFORMATION CONTACT. You can find 
out more about SBREFA on the Internet at https://www.faa.gov/avr/arm/
sbrefa.cfm.

Authority for This Rulemaking

    The FAA has broad authority under 49 U.S.C. 40103 to regulate the 
use of the navigable airspace of the United States. This section 
authorizes the FAA to develop plans and policies for the use of 
navigable airspace and to assign the use we deem necessary to its safe 
and efficient utilization. It further directs the FAA to prescribe air 
traffic rules and regulations governing the efficient utilization of 
the navigable airspace. The FAA interprets this broad statutory 
authority to encompass management of the nationwide system of air 
commerce and air traffic control.
    In addition to the FAA's authority and responsibilities with 
respect to the efficient use of airspace, the Secretary of 
Transportation is required to consider several other objectives as 
being in the public interest, including: Keeping available a variety of 
adequate, economic, efficient, and low-priced air services; placing 
maximum reliance on competitive market forces and on actual and 
potential competition; avoiding airline industry conditions that would 
tend to allow at least one air carrier unreasonably to increase prices, 
reduce services, or exclude competition in air transportation; 
encouraging, developing, and maintaining an air transportation system 
relying on actual and potential competition; encouraging entry into air 
transportation markets by new and existing air carriers and the 
continued strengthening of small air carriers to ensure a more 
effective and competitive airline industry; maintaining a complete and 
convenient system of scheduled air transportation for small 
communities; ensuring that consumers in all regions of the United 
States, including those in small communities and rural and remote 
areas, have access to affordable, regularly scheduled air service; and 
acting consistently with obligations of the U.S. Government under 
international agreements. See 49 U.S.C. 40101(a)(4), (6), (10)-(13) and 
(16), and 40105(b).

Background

    On March 25, 2005, the FAA published a notice of proposed 
rulemaking (NPRM) (70 FR 15521) which would limit the number of 
scheduled arrivals at O'Hare during peak operating hours and establish 
an allocation system, including transfer and usage requirements.
    Since publishing the NPRM in March 2005, the FAA twice has extended 
the Order published in August 2004 that set operation limits on 
domestic and Canadian scheduled arrivals into O'Hare International 
Airport. The Order most recently was extended to October 29, 2006, 
which coincides with the effective date of this rule (71 FR 16405; 
March 31, 2006).

History

The High Density Traffic Airports Rule at O'Hare
    Until July 2002, the FAA managed congestion and delay at O'Hare by 
means of the High Density Rule (HDR), which was codified in 14 CFR part 
93, subpart K. The FAA adopted the HDR under its broad authority to 
ensure the efficient use of the nation's navigable airspace (49 U.S.C. 
40103). The HDR took effect in 1969, and while it originally was a 
temporary rule, it became permanent in 1973.
    The HDR established limits on the number of all take-offs and 
landings during certain hours at five airports, including O'Hare. In 
order to operate a flight during the restricted hours, an airline 
needed a reservation, commonly known as a slot. Slots were initially 
allocated through scheduling committees, operating under then-
authorized antitrust immunity, where all the airlines would agree to 
the allocation. After the Airline Deregulation Act in 1978, new entrant

[[Page 51383]]

airlines formed and the pre-existing, or legacy carriers, sought to 
expand. This increased competition made it increasingly difficult for 
airlines to reach agreement, and the scheduling committees began to 
deadlock.
    In 1984, the FAA amended the HDR to increase the hours in which 
limitations at O'Hare would apply and to increase the number of take-
offs and landings permitted at that airport (49 FR 8237, March 6, 
1984). The next year, a new Subpart S was added to Part 93 that 
established allocation procedures for slots including use-or-lose 
provisions and permission to buy and sell slots in a secondary market 
(50 FR 52195, December 20, 1985). These procedures replaced the 
scheduling committees.
Statutory Changes Ending the High Density Rule at O'Hare
    In 2000 Congress relaxed the slot rules at the high density 
airports and phased out the specific regulations then in place at three 
of them, including O'Hare (49 U.S.C. 41715, 41717). With respect to 
O'Hare, Congress directed that:
    (1) Beginning May 1, 2000, exemptions be granted to airlines to 
provide air service to small airports with 70-seat or smaller aircraft;
    (2) 30 slot exemptions be granted to new entrant or limited 
incumbent air carriers;
    (3) After May 1, 2000, slots no longer be required to provide 
international air service;
    (4) Beginning July 1, 2001, the slot control restrictions be 
limited to the period between 2:45 p.m. and 8:14 p.m.; and
    (5) Slot restrictions be lifted entirely after July 1, 2002.
    In phasing out the HDR, however, Congress recognized the 
possibility that there could be an increase in congestion and delays at 
the affected airports. Therefore, in the section that phased out the 
rule, it made clear that ``[n]othing in this section * * * shall be 
construed * * * as affecting the Federal Aviation Administration's 
authority for safety and the movement of air traffic.'' (49 U.S.C. 
41715(b).)
Resurgence of Unacceptable Levels of Congestion
    As a result of the 2000 legislation, the slot restrictions of the 
HDR lapsed at O'Hare as of July 1, 2002. The absence of these 
restrictions allowed airlines operating at the airport to add flights, 
which over time led to a dramatic increase in airline delays. These 
delays reverberated throughout the national air transportation system.
    Initially, lifting the HDR had a minimal impact on delays due to 
the lingering effects of the 9/11 terrorist attacks on airline 
passenger traffic. But by 2003, the two air carriers operating hubs at 
O'Hare, American Airlines (``American'') and United Airlines 
(``United''), had added a large number of operations and retimed other 
flights, resulting in congestion during peak hours of the day. From 
April 2000 through November 2003, American increased its scheduled 
operations at O'Hare between the hours of 12 p.m. and 7:59 p.m. by 
nearly 10.5 percent. Over the same period, United increased its 
scheduled operations at O'Hare by over 41 percent.
    The increases in operations by American and United did not result 
in a corresponding increase in seat capacity. During the peak period, 
these two carriers added 375 regional jet operations per day. Overall, 
American and United added over 600 regional jet operations per day. At 
the same time as they added regional jet operations, they reduced 
mainline jet operations. The result was actually a decrease in seat 
capacity by each carrier at O'Hare of more than 5.5 percent from April 
2000 to November 2003 while flights increased by an average of 150 per 
day. In November 2003, more than 40 percent of American's and United's 
O'Hare flights were operated with regional jets, many to large and 
medium hubs. The significant increases in scheduled operations during 
this time period resulted in excessive delays and congestion at O'Hare.
    By November 2003, O'Hare had the worst on-time performance of any 
major airport. O'Hare arrivals were on time only 57 percent of the 
time, well below the FAA goal of 82 percent. Departures were little 
better. They were on time only 67 percent of the time, well below the 
average of 85 percent at other major airports. These delays averaged 
about an hour in duration. Published schedules for February 2004 
indicated that the problem would be exacerbated by the addition of even 
more flights.
    Recognizing congestion was again becoming a significant issue, 
Congress enacted legislation that included a mechanism to help reduce 
delays and improve the movement of air traffic at congested airports 
(49 U.S.C. 41722). That statutory provision authorized the Secretary of 
Transportation (Secretary) to request that scheduled air carriers meet 
with the FAA to discuss flight reductions at severely congested 
airports to reduce over-scheduling and flight delays during hours of 
peak operation, if the Administrator determines that it is necessary to 
convene such a meeting and the Secretary determines that the meeting is 
necessary to meet a serious transportation need or achieve an important 
public benefit.
    In early 2004, the Secretary and the FAA Administrator determined 
that a schedule reduction meeting was necessary to deal with 
congestion-related delays at O'Hare. Before such a meeting could be 
convened, however, United and American each agreed in separate 
discussions with agency officials to reduce their scheduled flights 
voluntarily. Accordingly, the schedule reduction meeting was deferred. 
Instead, the FAA issued an order implementing the voluntary agreement 
of the two air carriers, Docket FAA-2004-16944-55; 69 FR 5650 (2004). 
The FAA order required a 5 percent reduction in the two carriers' 
scheduled operations. This reduction was to be effective between 1 p.m. 
and 8 p.m. for six-months, beginning no later than March 4, 2004.
    The FAA again reviewed O'Hare's on-time performance in March 2004 
in light of the ordered schedule reductions. That review showed that 
the total delay minutes would have been as much as 30 percent higher 
without the reductions but that delays still remained more than double 
the level of a year earlier and represented more than a third of the 
total delays in the national airspace system.
    In light of the continued problems at O'Hare, the agency officials 
again discussed the situation with American and United to consider 
additional flight reductions to improve on-time performance at the 
airport. As a result, on April 21, 2004, the FAA issued an amendment to 
the previous order in Docket FAA-2004-16944. This amendment required 
additional flight reductions. Specifically, beginning no later than 
June 10, 2004, it required (1) An additional schedule reduction of 2.5 
percent of each carrier's total operations in the 1 p.m. through 7:59 
p.m. hours including arrival reductions during specific times; (2) a 
reduction in the number of scheduled arrivals in the 12 p.m. hour; and 
(3) reductions to continue through October 30, 2004.
    Prior to the implementation of the June flight reductions, delays 
at O'Hare continued. In May, there were a record 14,495 total delays. 
While the numbers in June and July improved, as the last round of 
cutbacks by American and United took effect, the FAA determined that 
the overall trend of delays remained unacceptably high.
    Meanwhile, some airlines that were not party to the agreement 
involving American and United continued to add

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flights, making it unlikely that those two carriers would extend their 
voluntary schedule reductions without similar commitments by other 
carriers. Published schedules for November indicated that during 
several times of the day scheduled arrivals would approach or exceed 
the airport's highest arrival capacity. Accordingly, in July, the 
Secretary and FAA Administrator determined that the scheduling 
reduction meeting that had previously been deferred now needed to be 
held (69 FR 46201, August 2, 2004).
    The meeting between DOT and the carriers convened on August 4, 
2004, and was followed by meetings between Federal officials and 
individual airlines. As a result, United and American agreed to 
reschedule and further reduce scheduled arrivals by about 5 percent 
during peak hours and other airlines agreed to some flight re-timings 
and not to increase the number of their scheduled arrivals. New 
entrants and limited incumbents were permitted to add a small number of 
scheduled flights. Based on the information provided through the 
meetings and submissions filed in the docket, the FAA issued a 
comprehensive order on scheduled arrivals at O'Hare on August 18, 2004, 
limiting scheduled arrivals by U.S. and Canadian air carriers to 88 
during most hours of the day and implementing the above agreement 
(August 2004 Order). The Order took effect November 1, 2004, and was to 
expire on April 30, 2005. The FAA extended this Order on three separate 
occasions to permit full consideration of the issues and comment on the 
NPRM.\1\ On each occasion the agency sought the views of interested 
persons on the advisability of extending the August 2004 Order in 
Docket FAA-2004-16944. As indicated in the October 2, 2005, extension 
of the Order, significant operational benefit has been achieved since 
the voluntary schedule reductions took effect on November 1, 2004. The 
subsequent extensions of the Order were necessary to maintain the 
scheduling limits set in August 2004 and achieve delay--reduction and 
operational benefits pending completion of this rulemaking.
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    \1\ See 71 FR 16405, March 31, 2006; 70 FR 59798, October 13, 
2005; and 70 FR 15540, March 25, 2005.
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Related Activity
    On July 8, 2005, the FAA published in the Federal Register Special 
Federal Aviation Regulation (SFAR) 105, ``Reservation System for 
Unscheduled Operations at Chicago's O'Hare International Airport,'' (70 
FR 39610). This SFAR limits unscheduled arrivals at the airport to four 
per hour and provides an allocation mechanism for operators to obtain 
reservations for those operations. SFAR 105 was extended through March 
31, 2006 (70 FR 66253).
    On September 30, 2005, the FAA issued the Record of Decision for 
O'Hare Modernization providing final agency determinations and 
unconditional approval of the revised Airport Layout Plan and other 
certain Federal actions by the FAA necessary for the proposed 
improvement of O'Hare, as provided in Alternative C presented to the 
agency (the O'Hare Modernization Plan and other components of the 
City's Airport Master Plan.). The O'Hare Modernization Plan (OMP) 
provides for certain capacity enhancement actions to result in new 
capacity by 2008.
    Phased implementation of the OMP will provide incrementally 
increasing operational benefits. The FAA's analysis projects that the 
addition of the first new OMP runway will, by 2008, allow the airfield 
to accommodate over 50,000 additional forecast operations with an 
average annual delay per aircraft no higher than exists today. With the 
completion of Phase 1 of the OMP, the FAA's analysis projects that the 
airfield will accommodate, by the 2010 time frame, approximately 90,000 
additional forecast operations (over today's activity level) with a 
decrease in average annual delay per aircraft of approximately 33% 
below today's delay per aircraft at O'Hare. Finally, with the 
completion of OMP Phase 2 in 2013, the FAA's analysis projects that the 
airfield will accommodate approximately 1.12 million annual forecast 
operations (an increase of more than 140,000 annual operation over 
today's activity level) with an average annual delay per aircraft 
nearly 70% below today's delay per aircraft.

Summary of Comments

    The FAA published the NPRM, ``Congestion and Delay Reduction at 
Chicago O'Hare International Airport,'' on March 25, 2005. The comment 
period closed on May 24, 2005. During that period, we received 22 
comments from interested parties including airlines, industry 
organizations, individuals, members of Congress and the City of Chicago 
(City). We also received five additional comments after the close of 
the comment period.
    In the NPRM, we requested comment on several specific aspects of 
the proposed rule, as well as any general comments. Comments to the 
NPRM are addressed below by topic. Only one commenter supported the 
proposal entirely; he is a student and pilot.
    Overall, most commenters agreed that before the recent schedule 
reductions at O'Hare, congestion and delays had become intolerable. 
Some clearly disliked the proposal and questioned whether less 
intrusive methods were available to address short-term congestion and 
delay. Nearly all commenters agreed that governmental limits on flights 
are not the preferred approach and increasing air traffic capacity at 
O'Hare is the best way to solve the problem of congestion and delays. 
Some commenters suggested that the Order only accomplished what market 
forces ultimately would have dictated carriers to do if given 
appropriate time.
    Comments expressing concern that the NPRM amounted to a 
reimposition of the HDR were received from Senators Richard Durbin and 
Barack Obama, and Representatives Dennis Hastert, Jesse Jackson, Jr., 
Jerry Costello, John Shimkus, Jerry Weller, Melissa Bean, Danny K. 
Davis, Henry Hyde, Judy Biggert, Timothy Johnson, Daniel Lipinski, Luis 
V. Gutierrez, Lane Evans, Bobby L. Rush, Rahm Emanuel, Mark Kirk, and 
Donald A. Manzullo (Members of Congress). The Members did not oppose a 
short-term limit on flights, with certain modifications, provided that 
the rule sunset (as proposed) no later than April 2008.
Expiration of the August 2004 Order (No Further Governmental Action)
    We questioned in the NPRM whether the limitations established in 
the August 2004 Order should be allowed to expire of their own accord 
with no governmental intervention to address the operational 
environment at the airport. Under this approach, carriers would be free 
to determine the number and timing of flights at O'Hare.
    The Department of Justice (DOJ) and the Air Carrier Association of 
America (ACAA) objected to allowing the Order to expire with no 
mechanism in place to manage demand at O'Hare. DOJ argued that allowing 
the Order to expire with no plan in place to deal with the airport's 
limited capacity would lead to more congestion and significant delays 
for passengers throughout the country. ACAA contended that both 
American and United would add flights to block competition at any cost 
and that smaller carriers have fewer options to cancel flights or re-
route passengers through other airports and consequently suffer 
disproportionate delays.
    The City argued the opposite. The City requested that the FAA 
accelerate the OMP approval process, allow the Order to expire, and let 
free market forces manage flight levels. The City

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also countered that the airlines have learned their lesson from past 
overscheduling and are not likely to repeat that practice. However, if 
delays were to reach unacceptable levels again, the City suggested that 
the FAA negotiate a new temporary scheduling agreement like the one 
that resulted in the August 2004 Order. The Airports Council 
International-North America (ACI-NA) supported the comments filed by 
the City.
    The FAA has determined that a rule limiting arrivals at O'Hare is 
necessary. After the phase-out of the HDR at O'Hare, carriers had the 
opportunity to add flights and adjust schedules as they saw 
appropriate, which resulted in extensive delays for all operators at 
O'Hare and wide-ranging effects on the NAS. In contrast, since the 
limits on scheduled and unscheduled arrivals took effect on November 1, 
2004, air traffic delays have decreased and on-time arrival performance 
has increased. Through October 2005, the average minutes of arrival 
delay at O'Hare decreased by approximately 24 percent when compared to 
the same 12-month period the year before. The longest arrival delays 
lasting more than one hour have decreased by 28 percent. Overall, the 
on-time arrival performance at O'Hare has increased by almost 7 
percentage points. As a result, O'Hare is now performing near the 
average of the rest of the major airports in the NAS, a dramatic 
improvement from the airport's bottom-tier performance during much of 
2004.
    The FAA could permit the current scheduling limits to expire and 
allow carriers to individually determine the number and timing of their 
flights at O'Hare as advocated by some of the commenters. Safety would 
be maintained through air traffic control (ATC) procedures and 
congestion would be managed as needed through various traffic 
management initiatives. However, based on the history of scheduled 
demand, we forecast that flights would increase and that delays, 
cancellations, and disruptions at O'Hare and other airports are likely 
and would be unacceptable to the industry and the flying public. As 
indicated by the previous statistics, the limits imposed by the August 
2004 Order have resulted in measurable reductions in delay. We are 
mindful that other factors have contributed to the decrease in delay, 
including additional flight reductions by some carriers beyond those 
specified in the Order, and increased operational capacity in some 
periods due to improved weather and other system efficiency gains.
    We are not persuaded by the City's argument that the carriers at 
O'Hare will be able to resist the short-term marketplace incentives to 
add flights during peak hours, particularly if one or more of the hub 
carriers significantly changes its schedule or the other carriers 
introduce new service to O'Hare. Carriers typically respond to 
competition by matching frequency and/or fares. At O'Hare, the hubbing 
carriers have reduced flights significantly since November 2003, and if 
the Order expired, might resume previous flight frequencies or enter 
new markets to respond to other carriers' schedules.
    In the event that flights were added and delays increased 
significantly, we could initiate schedule discussion meetings similar 
to the August 2004 discussions while continuing to manage delays on a 
daily basis. This process, however, would be counterproductive to our 
mandate to manage the use of the navigable airspace efficiently, 
particularly since it is very likely that carriers would launch new 
operations once the August 2004 Order expired. Furthermore, our ability 
to secure a new voluntary schedule reduction agreement is at best 
uncertain in view of the comments submitted in this rulemaking. 
Consequently, we dismissed this option as a feasible solution.
    American noted that other airports experience more delay than 
O'Hare and that the FAA has not intervened there. American questions 
why O'Hare was singled out for such action. United commented that the 
operational limits at O'Hare, which is its primary hub, limit its 
ability to increase operations for new market opportunities or high 
passenger load factors.
    The agency is addressing congestion at other delay prone airports. 
A single approach to manage congestion and delay at all airports cannot 
be realistically achieved at present. As articulated previously and 
elsewhere in the document, the deteriorating situation at O'Hare had 
impacts far beyond that airport. Delays at other airports on the other 
hand, generally do not lead to delays throughout the nation's air 
transportation system. Given the competitive stance of the major 
carriers, we believe that it was unlikely to be solved without 
government intervention. Our preference is to use whichever methods for 
addressing congestion are best suited for a particular airport. These 
methods may include increasing airport capacity and system 
efficiencies, or in the case at O'Hare, addressing through regulatory 
limits the impact of schedule adjustments by the largest operators at 
the airport.
Extend the August 2004 Order
    No commenter specifically recommended that we simply extend the 
August 2004 Order until 2008. The City did suggest this action as an 
alternative if the current Order were allowed to expire and operations 
grew causing the airport to return to a critical state. DOJ stated that 
this option would be better than doing nothing; but it would lead to 
inefficient use of the airport's limited capacity and is not likely to 
result in any significant new entry or expansion by smaller carriers.
    After considering this option, we concluded that it would be 
difficult to maintain the current agreement or negotiate yet another 
voluntary schedule reduction agreement that would limit operations 
until new airport capacity is in place. We agree with DOJ that while 
the continuation of the Order would achieve the objective of limiting 
overall operations at the airport, it would not necessarily result in 
any new entry by smaller carriers for the duration of the proposal. 
Also, this option would not necessarily promote the most efficient use 
of the operating authorities at O'Hare, given that the existing Order 
does not include provisions for usage, allocation, or market-based 
transfer mechanisms.
    Any future scheduling discussions would start with current 
operational levels and the FAA's scheduling targets proposed for those 
discussions would apply.\2\ As indicated in the comments, carriers of 
all sizes have expressed a desire to expand their operations at O'Hare, 
or at least preserve their option to grow. A scheduling meeting would 
confront us with complex and controversial determinations as to which 
carriers would have access to new capacity as it became available and 
how any new capacity would therefore be allocated. This is a 
complicated obstacle to overcome in the context of attempting to obtain 
a voluntary agreement from competing air carriers.
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    \2\ The City comments that each carrier could be returned to 
November 2004 flight levels to ensure that there are not incentives 
for carriers to overschedule. However, if the August 2004 Order 
expires, we expect the target and the base schedules would be issues 
during the negotiations.
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    The FAA and the Office of the Secretary of Transportation are 
continuing the evaluation of market-based mechanisms, such as auctions 
or congestion pricing that may improve on prior methods of allocating 
available capacity at constrained airports. This evaluation includes an 
assessment of the research conducted by the

[[Page 51386]]

Department's contractor, National Center of Excellence for Aviation 
Operations Research (NEXTOR),\3\ in conjunction with various air 
carriers and the Port Authority of New York and New Jersey, on options 
to manage demand at LaGuardia upon the expiration of the HDR at that 
airport. A market-based approach represents a much longer-term option 
that is not needed at this point in time at O'Hare, given the 
expectation of capacity improvement through the OMP.
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    \3\ NEXTOR is a consortium of universities contracted by the FAA 
to research various aviation issues.
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    As it would be unwise to let the limits simply expire, we find it 
necessary to invoke our authority to manage the efficient use of the 
navigable airspace and to impose peak hour scheduling limits at O'Hare 
so as to prevent overscheduling given the airport's current capacity. 
Even with the FAA approval of the OMP, there are no viable capacity 
enhancement efforts (procedural or technological) expected during the 
effective period of this rule that will result in sufficient capacity 
gains to completely meet the airport demand experienced during 2003 and 
2004. Moreover, the uniqueness of O'Hare (as a major, dual hub airport) 
and its critical role in the National Airspace System (NAS) warrant 
special attention and careful measures to manage operations at that 
airport until new capacity comes on-line.
    We stress that as a policy matter the Department promotes the 
efficient utilization of existing system capacity and the development 
of new capacity to meet aviation demand. We also prefer to address 
operational and airport congestion issues on a local level with airport 
operators and customers to the greatest extent practicable. This rule 
provides a temporary regulatory solution necessary to maintain an 
acceptable level of operations at O'Hare without congestion and delay 
impacting the entire NAS.
Authority To Cap Arrivals at the Airport
    America West and Continental opposed all government-imposed 
restrictions on airport access. These carriers, along with others, 
argued that the NPRM is contrary to Congressional intent in the Wendell 
H. Ford Aviation Investment and Reform Act for the 21st Century (AIR-
21), which phased out the slot regulations at O'Hare. They also argue 
that as the HDR has been eliminated at O'Hare, the FAA may not 
implement a rule that is substantially similar to the HDR.
    In carrying out our plenary authority to manage the safe and 
efficient use of the navigable airspace,\4\ we properly may impose 
limits on flights at O'Hare to reduce delays and congestion. The HDR, 
which was also promulgated under this authority, addressed delays and 
congestion at five main airports.\5\ While AIR-21 provided for the 
termination of the HDR at O'Hare and the New York airports, it also 
included a proviso that the FAA's ``authority for safety and the 
movement of air traffic'' was not to be affected by the phase out and 
termination of the HDR at O'Hare \6\ or other HDR airports. There is no 
indication that Congress intended to narrow the FAA's authority to 
manage the use of the navigable airspace or to prohibit its use of this 
authority at O'Hare. AIR-21 by its terms only terminated the HDR then 
in place and did not restrict the FAA's authority to regulate the use 
of the airspace. The legislative history to the House version of AIR-21 
(H.R. 1000), 106th Cong., Rpt. 106-167 indicates Congress' intent 
simply to place O'Hare on the same ``playing field'' as other airports.
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    \4\ 49 U.S.C. 40103.
    \5\ 33 FR 17896; December 3, 1968.
    \6\ 49 U.S.C. 41715(b)(1).
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    Since AIR-21 the FAA has exercised its authority to manage the 
efficient use of the navigable airspace by capping the flood of AIR-21 
slot exemptions filed for LaGuardia Airport (in November 2000), and by 
ordering schedule reductions in August 2004 at O'Hare.\7\ In Vision 
100--Century of Aviation Reauthorization Act (Pub. L. 108-176), 
Congress gave the Secretary and Administrator new authority to convene 
industry-wide scheduling meetings at O'Hare and elsewhere; these 
meetings, however, can only result in effective action if implemented 
through orders limiting flight operations. This basis for this new 
authority would not make sense if Congress had intended to take away 
the Administrator's authority to restrict operations at O'Hare. In all 
of these matters, as with the HDR in 1969, the agency was faced with 
delays at certain key airports that transcended those airports and 
disrupted the efficiency of the NAS. We conclude that the FAA retains 
its full authority to adopt this rule limiting flights at O'Hare.
---------------------------------------------------------------------------

    \7\ The schedule reduction meeting was convened under 49 U.S.C. 
41722.
---------------------------------------------------------------------------

Operational Cap
    The FAA proposed to limit the number of scheduled arrivals at 
O'Hare to 88 per hour, between the hours of 7 a.m. and 7:59 p.m. Monday 
through Friday and 12 p.m. and 7:59 p.m. Sunday.\8\ The limit on 
scheduled arrivals would increase to 98 arrivals per hour in the 8 p.m. 
hour, Monday through Friday. These are the same hourly quotas imposed 
by the August 2004 Order. In setting the hourly arrival cap under the 
Order and proposing the same for the NPRM, the FAA relied on analyses 
of actual, weekday, hourly arrivals and departures at O'Hare in late 
2003 and in 2004. (This is when scheduled demand at O'Hare was at its 
peak and pressure on the ATC system to accommodate that demand is 
reflected in actual airport hourly traffic counts.) We also relied on 
analyses preformed by MITRE Corporation's Center for Advanced Aviation 
System Development (CAASD), which ran computer modelling on behalf of 
the FAA to simulate the effect of hypothetical schedule reductions on 
the level of flight delays at O'Hare given the established air traffic 
control procedures and airport capacity.\9\
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    \8\ During this period, scheduled arrivals are not to exceed 50 
during each half-hour beginning at 7 a.m. and ending at 7:59 p.m. 
Scheduled arrivals are not to exceed 88 within any two consecutive 
30-minute periods.
    \9\ There were 89 arrivals modeled during the 1 p.m., 3 p.m., 
and 6 p.m. hours and 98 arrivals in the 8 p.m. hour. Four arrivals 
per hour were added for unscheduled flights. The modeled results 
also included the impact of schedule agreements based on a 15-minute 
distribution. While that limitation was not incorporated as a 
condition in the August 2004 Order, it largely has been maintained 
by air carriers through on-going consultation with FAA on proposals 
to move arrivals between 15 minute periods.
---------------------------------------------------------------------------

    The models predicted that constraints used in the August 2004 Order 
and the NPRM would reduce delays at the airport by approximately 20 
percent from the levels attributed to schedules in effect at the time 
the August 2004 Order was imposed. MITRE/CAASD also simulated the 
results of a completely unconstrained schedule, using the industry's 
proposed November 2004 schedules and calculated that delays under the 
Order would be approximately 43 percent less than would be experienced 
if no action were taken and schedules similar to the November 2003 
schedules were allowed to take effect.
    The City commented that the proposed hourly limits do not take 
advantage of present available capacity at the airport. The City 
contended that the airport could accommodate 92 scheduled arrivals per 
hour and accommodate international and unscheduled arrivals above that 
level. ACI-NA supports the City's comments.
    We have reviewed the operational performance of O'Hare, including 
the percentage of flights arriving and

[[Page 51387]]

departing the gate within 15 minutes of scheduled time, the percentage 
of flights delayed for more than one hour, recent actual arrival and 
departure rates, and have considered whether there have been any 
material capacity enhancements that would provide a basis for a higher 
hourly cap on scheduled arrivals. Our review indicated there have been 
variations in delay levels, airport acceptance rates, and weather 
patterns since the Order took effect in November 2004 but no 
significant capacity enhancement measures have been realized.
    As stated, the City proposed a new cap of 92 scheduled domestic 
(and Canadian arrivals) per hour and no limits on international 
arrivals of either domestic or foreign air carriers.\10\ The combined 
arrival demand under such a scenario could be accommodated only under 
optimal weather conditions and then, with some delays. Such a proposal 
would significantly increase delays over current levels in non-optimal 
conditions.
---------------------------------------------------------------------------

    \10\ We note that there would also be an average of four 
unscheduled arrivals per hour.
---------------------------------------------------------------------------

    We noted in the NPRM that if during the pendency of this 
rulemaking, the actual performance of O'Hare--as indicated in the 
cumulative delay statistics and modeling results--demonstrated that an 
increase in the cap on operations would still allow for acceptable 
operational performance, then the arrival cap might be raised in the 
final rule. The final rule, however, adopts the proposed limits of 88 
scheduled arrivals per hour and no more than 50 scheduled arrivals in 
each half-hour period beginning at 7 a.m. The final rule also adopts 
the higher limit of 98 arrivals during the 8 p.m. hour but amends the 
half-hour limit in that hour to be the same as in the other half-
hours.\11\ Accordingly, in the 8 p.m. hour, each half-hour cannot 
exceed 50 scheduled arrivals.
---------------------------------------------------------------------------

    \11\ The NPRM proposed no more than 67 Arrival Authorizations 
between 8 and 8:30 p.m.
---------------------------------------------------------------------------

    The limits proposed in the NPRM mirror those reached during the 
August 2004 schedule discussions and incorporated in the August 19, 
2004 Order, as amended. We accepted the higher limit in the 8 p.m. hour 
in the negotiated agreement and in recognition that the following hour 
had sufficient capacity to quickly absorb any potential delays. The 
actual flight schedules during the half-hour limits for 8 p.m. proposed 
in the NPRM, however, were not balanced. In reviewing the operational 
impact of the compression of arrivals in the first part of the 8 p.m. 
hour, we conclude that it is not appropriate to adopt the proposed 
higher, half-hour limit for this hour. While we will assign Arrival 
Authorizations in accordance with the carrier limits established in the 
Order, should any Arrival Authorizations in the 8 p.m. hour, or any 
other hour, be returned or withdrawn, they will be reassigned but 
within the half-hourly limit not to exceed 50 Arrival Authorizations.
    Some periods may have minor variations from the adopted hourly or 
half-hourly limits based on the Arrival Authorizations initially 
assigned. Some periods may be slightly over the adopted limits, while 
others are slightly under. We do not expect any new, major operational 
impacts, but we expect that some of these variations will be resolved 
over time as we consider schedule adjustments by carriers.
    We are also adopting provisions to accommodate newly requested 
international arrivals above the hourly limits,\12\ and we will also 
assign Arrival Authorizations for international arrivals, as described 
later. We have decided not to withdraw Arrival Authorizations from 
domestic operations in order to accommodate new international arrivals, 
as the Department expects the number of new international arrivals to 
be minimal during the life of this rule. The FAA intends to work with 
operators of international flights to minimize any potential impacts 
during peak hours but ultimately expects to accommodate these new 
flights even if there may be some operational or delay impacts. 
Additional discussion on the adopted rules that apply to international 
arrivals appears in a later section.
---------------------------------------------------------------------------

    \12\ The hourly limit of 88 scheduled arrivals per hour includes 
international arrivals scheduled for the Summer 2004 scheduling 
season.
---------------------------------------------------------------------------

    Although overall performance of the airport has exceeded the 
modeled results, several hours have scheduled arrivals below the levels 
permitted by the Order. Some carriers are not utilizing all their 
authorized scheduled arrival times, resulting in periods when the 
airport could accommodate additional flights. This rule adopts a usage 
provision in addition to a blind buy/sell/lease provision, which we 
expect to increase the actual utilization of the Authorizations 
(because carriers will either use them for their own flights or sell/
lease them to other carriers). Some Arrival Authorizations are 
available and will be assigned at the time of initial assignment under 
this rule. Requests for Arrival Authorizations for new international 
service will be accommodated first and any remaining Arrival 
Authorizations will then be assigned using a preferred lottery. Both of 
these assignment mechanisms and our rationale supporting the use of 
these mechanisms are fully described further in this document.
    In the third extension of the Order,\13\ the FAA specifically 
addressed the ten Arrival Authorizations previously operated by 
Independence Air and explained why those operations are not excess 
capacity. Independence Air ceased operations all operations on January 
6, and because Arrival Authorizations cannot be sold, leased, or 
transferred except on a one-for-one basis under the August 2005 order, 
they have been unused since that date. We concluded that all the 
subject Arrival Authorizations may not be available for reallocation 
because when negotiating scheduled reductions in anticipation of the 
August 2004 order, the FAA had to allocate Arrival Authorization in 
some peak afternoon and evening hours at levels that exceed the peak-
hour target of 88 scheduled arrivals per hour. Furthermore, foreign 
carriers whose operations were not affected by the Order, have adjusted 
their schedules from August 2004 resulting in increased scheduled 
arrivals during certain hours. The Arrival Authorizations assigned to 
Independence Air, particularly in the peak afternoon and evening hours 
will offset these periods of continued scheduling over the operational 
target. We expect that approximately four Arrival Authorizations that 
were operated by Independence Air will be available in the morning 
hours for assignment under this rule.
---------------------------------------------------------------------------

    \13\ Third extension of the Order dated March 27, 2006.
---------------------------------------------------------------------------

    As proposed, the FAA will semi-annually review the operational 
performance metrics for O'Hare, as well as any new, procedural or other 
capacity enhancement measures, to determine if additional Arrival 
Authorizations may be assigned. The FAA intends to increase the cap on 
operations when doing so is supported by the operational analyses 
performed in these reviews and our delay reduction objectives. We 
believe that various provisions of this rule discussed above adequately 
address the City's concern about utilizing existing capacity at the 
airport.
    This rule adopts a caveat in the provisions governing the initial 
assignment of Arrival Authorizations that was not proposed in the 
notice. The NPRM proposed that carriers conducting scheduled service to 
O'Hare under the August 2004 Order would receive corresponding Arrival 
Authorizations for that service. Recent

[[Page 51388]]

events have required that we contemplate a situation for which a 
carrier was operating at ORD under the Order but has since terminated 
all service at O'Hare prior to our concluding this rulemaking. In such 
a case, we conclude such carrier(s) should not be entitled to 
corresponding Arrival Authorizations under this rule. Arrival 
Authorizations are not property and in view of such, the agency has 
expressly limited opportunities to monetize and collateralize this 
authority under the rule adopted here. In the above situation, 
permitting a carrier to ``retain'' this authority under the rule would 
provide the carrier with the ability to unfairly monetize its operating 
authority at the expense of other carriers seeking to operate at O'Hare 
or increase service. We do not find it fair or in the public interest 
to provide a carrier that is not serving the airport with the 
opportunity to monetize and collateralize the authority under the rule 
adopted here. Consequently, we have included a provision to require 
that for a carrier to receive an initial assignment of Arrival 
Authorizations, the carrier must be conducting some level of service at 
the airport as of October 29, 2006.
New Entrant/Limited Incumbent Preference for New Capacity
    The proposal contemplated initially assigning all of the Arrival 
Authorizations based on the airport's existing scheduling limits and 
according to the carriers' existing operations. This assignment would 
benefit all of the incumbent carriers, especially United and American, 
which would hold the vast majority of Arrival Authorizations.
    The Notice proposed that any Arrival Authorizations withdrawn or 
returned to the FAA would be reallocated by lottery to new entrants and 
to carriers with few operations (``limited incumbents''). In addition, 
the Notice proposed that, with respect to additional capacity created 
by an increase in operational caps from 88 to 89 or 90 arrivals per 
hour, the resulting additional Arrival Authorizations also be assigned 
by lottery to new entrants and limited incumbents. Under both 
scenarios, those Arrival Authorizations remaining after lottery would 
be assigned to incumbent carriers and then on an interim basis until 
the next lottery. Under the proposal, with respect to additional 
capacity created by an increase in operational caps above 90 arrivals 
per hour, the additional Arrival Authorizations would be assigned by 
lottery with no preference based on carrier identity.
    We invited comments on whether the preference for new entrants and 
limited incumbents would promote competition. Specifically, we asked 
whether the service benefits potentially obtainable from incumbent 
carriers' networks argue against use of a lottery that prefers new 
entrant and limited incumbent carriers.
    We first address our authority to adopt such a preference and then 
address the policy considerations supporting the preference. Lastly, we 
address arguments relating to allegations of an unconstitutional taking 
of property or deprivation of due process.
    1. Authority to impose a preference for new entrants/limited 
incumbents.
    American and United challenged the FAA's authority to impose a 
preference and argued that the FAA cannot engage in economic regulation 
by favoring some carriers over others to ``promote competition.''
    Any scheme to limit flights at O'Hare must allocate those operating 
authorities according to some criteria. We expect that any set of 
criteria adopted would benefit certain carriers to the detriment of 
others and no one formula would be universally acceptable to all 
affected carriers. The FAA's statutory authority to regulate the 
navigable airspace does not expressly direct the agency to consider any 
specific factor in allocating airspace rights. Absent such expression, 
we must look to the public interest in determining criteria for 
assignment of these Arrival Authorizations. In considering the public 
interest, we are guided by the policy goals prescribed for the 
Secretary \14\ and the pro-competition policies followed by Congress in 
adopting legislation on matters such as slot exemptions and airport 
grant programs. See, e.g., Delta Air Lines v. CAB, 674 F.2d 1 (D.C. 
Cir. 1982). The courts have approved the Secretary's reliance on the 
pro-competition polices in allocating slots under the HDR. Northwest 
Airlines v. Goldschmidt, 645 F.2d 1309, 1315 (8th Cir. 1980).
---------------------------------------------------------------------------

    \14\ See 49 U.S.C. 40101(a)(4), (6), (10-13)).
---------------------------------------------------------------------------

    As we articulated in the August 2004 Order, Congress has set forth 
a policy of promoting deregulation and competition in the airline 
industry by means of the Airline Deregulation Act of 1978 and 
subsequent legislation. In AIR-21, Congress authorized the award of 
slot exemptions at the HDR airports to new entrants and limited 
incumbents--i.e., those carriers that have little or no presence at the 
slot-controlled airports. (See 49 U.S.C. 41714(c), (h), 41716(b), 
41717(c), 41718(b)(1).) Congress also included similar provisions in 
statutes governing airport grants and passenger facilities charges, 
designed to encourage airports to adopt policies that will promote 
competition. (See 49 U.S.C. 40117(k), 47106(f), and 47107(s).)
    The Department's prior pronouncements and decisions on the 
efficient use of the airspace have frequently cited concerns about 
airport access and competition. For example, under the HDR, we 
established a regulatory framework that included a buy/sell provision 
to address the goals of access, competition and small community 
service. Also, under the HDR, the Department sought to alleviate the 
advantage that incumbent carriers gained under the initial allocation 
of the HDR--which ``grandfathered'' hundreds of slots for existing 
operations)--and to afford new entry at the slot-controlled airports. 
We did so by withdrawing up to 5 percent of the air carrier slots at 
LaGuardia, O'Hare and Washington National Airport to allocate by 
lottery to new entrants and limited incumbents.\15\ More recently, in 
response to the escalating number of AIR-21 slot exemptions filed for 
LaGuardia Airport in December 2000, the FAA issued orders governing the 
allocation of those slot exemptions that took into account the need to 
promote competition.\16\
---------------------------------------------------------------------------

    \15\ See FAA's ``Special Slot Withdrawal and Reallocation 
Procedures,'' 51 FR 8632 (1986).
    \16\ See High Density Airports; Notice of Extension for the 
Lottery Allocation and Notice of Lottery for Limited Slot Exemptions 
at LaGuardia Airport 66 FR 41294 (Aug. 7, 2001) (expanding the scope 
of new entrants eligible to participate in the lottery to those that 
did not participate in the Dec. 4, 2000 lottery and those that had 
not applied for the AIR-21 slot exemptions by Dec. 4, 2000); High 
Density Airports, 67 FR 65826 (Oct. 28, 2002) (adopting the new 
entrant preference procedure for reallocating by lottery withdrawn 
or returned exemption slots at LaGuardia).
---------------------------------------------------------------------------

    2. Policy considerations concerning the new entrant/limited 
incumbent preference.
    This part of the proposal received the most comment. Support for 
the preference came from those air carriers or their representatives 
that could benefit from the proposal, such as Alaska Airlines, America 
West, Independence Air, and ACAA. Those opposed to the preference 
include American, Delta Air Lines (Delta), US Airways, United, LECG LLC 
(in coordination with United), Regional Airline Association (RAA), the 
City, and Members of Congress.
    Alaska Airlines strongly supported our reliance on competition 
considerations and argued that the preference is fair, appropriate and 
supports a key public interest objective. America West urged the FAA to

[[Page 51389]]

establish a system by which Arrival Authorizations are withdrawn from 
incumbent carriers if any new entrant or limited incumbent requests one 
and none are available. America West further commented that new 
entrants and limited incumbents should have first access to all new 
Arrival Authorizations even if they exceed 90 per hour. ACAA supported 
preferential treatment for new entrants and limited incumbents and 
asked that Arrival Authorizations held by American and United be 
withdrawn and redistributed at the rate of 2 additional Arrival 
Authorizations per hour. Additionally, ACAA asked that 5% of those 
Arrival Authorizations held by American and United be withdrawn and 
redistributed to new entrants and limited incumbents each year the rule 
is in place.
    The City argued, in contrast, that the FAA should not discriminate 
among types of carriers and noted that O'Hare is one of the most 
competitive markets in the nation. The City also was concerned that the 
proposed preference would discourage incumbent carriers from working on 
meaningful delay reduction (that is, capacity enhancing) technological, 
and/or procedural changes at O'Hare, given that any resulting new 
capacity would initially benefit its competitors. The City also noted 
that allocation by random lottery may not result in the highest and 
best use of a limited resource.
    Members of Congress commented that the proposal treats foreign 
carriers, new entrants, and limited incumbents preferentially and 
severely disadvantages the hub carriers, who have invested heavily in 
O'Hare. They also commented that Chicago is a highly competitive 
marketplace and all but four of the major U.S. carriers are represented 
in this region.
    American commented that it and United had both reduced operations 
throughout 2004 while other carriers were allowed to increase 
operations without any constraint. American refuted the assertion in 
the NPRM that it can shift flights in response to consumer demand 
stating that, as O'Hare is its hub airport, the timing of flights is 
critically important to creating the maximum number of potential 
connecting opportunities. American contended that it reduced its 
schedule to meet the agency's scheduling target under the August 2004 
Order and that Arrival Authorizations in excess of 88 per hour do not 
realistically represent ``new'' capacity.
    Delta commented that the preference for allocating capacity does 
not place ``maximum reliance upon competitive market forces and 
competition'' as stated in the NPRM. Delta argued that the proposal 
undermines competition by favoring some carriers over others, and that 
future capacity should be distributed using the same public auction 
procedure proposed for buy/sell transactions, with all carriers 
permitted to compete equally for those rights.
    US Airways commented that it is uniquely disadvantaged by the 
preference for new entrants and limited incumbents. US Airways argues 
that new entrants and limited incumbents could get new capacity and 
large incumbent carriers could operate flexibly with their larger 
holdings, but it could not respond competitively because it is neither 
a limited incumbent nor a large carrier at O'Hare.\17\ US Airways noted 
that the NPRM did not provide any analysis indicating new entrant and 
limited incumbent carriers would, in fact, offer the travelling public 
more benefits than the network carriers or any analysis assessing the 
impact of Midway Airport. US Airways would prefer that all additional 
Arrival Authorizations be allocated through a no-preference lottery 
available to all carriers. US Airways claimed the stated policy 
directive to rely on competitive market forces and the pro-competition 
policies in the Airline Deregulation Act are not served by the proposed 
preferred lottery because it favors certain types of competitors at the 
expense of others.
---------------------------------------------------------------------------

    \17\ US Airways does not indicate specifically why having 17 
arrivals is unique relative to other non-hub carriers. Air Canada 
has 16 arrivals; Northwest has 20; Delta has 21; and Continental has 
22.
---------------------------------------------------------------------------

    United also argued that adequate competition clearly exists at 
O'Hare and that findings presented in comments filed by LECG show 
Chicago to have the ``second highest penetration of low fare carriers 
out of 11 major hub cities and it also has the lowest weighted average 
fare of any of the 11 major hub cities examined.'' \18\ United 
contended that the FAA offered contradictory arguments by acknowledging 
Chicago as a competitive market in the cost-benefit analysis while 
proposing preferential treatment for certain carriers in the name of 
competition. Additionally, United asked the FAA to take Midway Airport 
into account when considering competition.\19\
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    \18\ Hub cities included in the LECG analysis include: New York, 
Chicago, Denver, Philadelphia, Houston, Dallas, Charlotte, Detroit, 
Minneapolis, Atlanta, and Cincinnati.
    \19\ According to the LECG analysis, ``In 2004 Midway offered 
non-stop service to all but two of the 25 large hubs with non-stop 
service from O'Hare (Honolulu and Salt Lake City).''
---------------------------------------------------------------------------

    United also expressed concern that the inability to obtain new 
Arrival Authorizations could put it at a competitive disadvantage while 
demand for international service grows and that it would have to 
decrease its service to small and mid-size communities in order to 
compete internationally.
    We have decided to retain the proposed lottery preference. The rule 
will give new entrants and limited incumbents a relatively small 
advantage in obtaining additional Arrival Authorizations from a pool 
that, at most, will be 30 Arrival Authorizations per day--out of the 
more than 1,200 scheduled peak hour arrivals at O'Hare. By way of 
contrast, American and United each operate more than 400 arrivals per 
day. Additionally, both carriers conduct international operations and 
might benefit by receiving Authorizations for those flights outside the 
operational cap. (See discussion on international allocation in this 
document.) Unlike airlines with only a few flights at O'Hare, these 
carriers also have the ability to maintain their market presence by 
substituting larger jets for regional jets on some of their flights.
    New entrants and limited incumbents will receive a preference in 
the reassignment of available Arrival Authorizations created by any 
increase in the hourly limitation from 88 to 89 or 90 authorizations 
per hour. In addition, we are adopting a ``blind'' buy/sell mechanism 
for transactions involving Arrival Authorizations by shielding the 
identity of parties to proposed transactions. This process should give 
a greater opportunity for smaller carriers to purchase or lease 
necessary arrival privileges. In this regard, we are influenced by the 
views of DOJ and others criticizing the lack of a robust secondary 
market under the HDR and urging us to adopt procedures that will result 
in an efficient allocation of slots and competitive entry at 
constrained airports.\20\ At the same time, however, by leaving the 
current assignment of arrival privileges essentially unchanged from our 
existing orders, the vast majority of operating privileges will be held 
by the two largest carriers at the airport.
---------------------------------------------------------------------------

    \20\ DOJ argued in its comments that transparency in the market, 
market power vested in the incumbents, and repeated use of temporary 
administrative allocation mechanisms (that do not create long-term 
property rights) all contributed to the insufficiency liquidity of 
the secondary market under the HDR.
---------------------------------------------------------------------------

    Entry, particularly by low-fare airlines, is an essential 
ingredient for airline competition. Studies of airline industry 
competition under deregulation have concluded that low-fare entry has a 
substantial impact on price and service. For instance,

[[Page 51390]]

Southwest initiated service into Philadelphia in May 2004, and since 
that time the fares in Philadelphia have shifted from being 19 percent 
higher to 2 percent lower than fares in comparable domestic markets 
(comparing the Fourth Quarter 2003 to the Fourth Quarter 2004). A 
policy that fails to provide any special treatment for new entry, the 
approach recommended by United and other larger incumbents, would 
curtail competition that leads to substantial fare reductions, 
increased service, and enables more people to travel.
    The final rule also differs from our proposal in two other 
respects: First, we are not adopting the provision that would have 
required a new entrant or limited incumbent carrier to forfeit Arrival 
Authorizations obtained in a preferred lottery upon an agreement 
providing for the sale, merger, or acquisition by another person of 
more than 50 percent ownership or control of that carrier. The final 
rule provides for a 12-month limitation on the sale and lease of 
Arrival Authorizations obtained in a preferred lottery and we do not 
believe it is necessary to adopt further limitations, as doing so might 
interfere with normal business decisions by a carrier. Second, we are 
clarifying that an incumbent carrier who obtains Arrival Authorizations 
on an interim basis may use them for at least a year before the 
Authorizations would again be made available to new entrant and limited 
incumbent carrie