American, Delta and US Airways Share Route Rights to Brazil in Tentative US DOT Ruling

US majors American Airlines, Delta Air Lines and US Airways are all likely to share new traffic rights to São Paulo over the next two years as part of a tentative ruling from the US Department of Transportation (DOT) following the opening of air links between the US and Brazil ahead of the introduction of open skies. The draft ruling will now face a ten day consultation period after which a final decision will be announced.

The US DOT has ruled that the 14 unrestricted weekly rotations that become available from October 1, 2013 will be shared between American Airlines for a proposed link to São Paulo from Los Angeles and Delta Air Lines for a service to the Brazilian city from its Atlanta hub. The 14 unrestricted weekly frequencies that become available from October 1, 2014 will be shared between Delta and US Airways for links to São Paulo from Detroit and Charlotte, respectively.

The leading network carriers in the United States have been fighting to secure the lucrative new traffic rights to introduce flights to São Paulo. This the first time in more than a decade that the US DOT has had the opportunity to allocate additional frequencies to the key Brazilian destination after the US government successfully negotiated a more liberal air service agreement with Brazil, which will ultimately result in the establishment of full Open Skies between the countries by 2015.

American Airlines has applauded the Show Cause Order from the DOT. "This is great news for American and our customers. American wants to expand its service to Brazil to meet customer demand in this extremely important and growing market," said Will Ris, Senior Vice President - Government and Regulatory Affairs, American Airlines. "We appreciate that the DOT conducted a thorough review of all applications and agreed to tentatively grant us the needed approvals so we may begin flying from our hub at Los Angeles International Airport to São Paulo.”

Los Angeles currently has no non-stop service to Brazil by a US carrier, although Korean Air does serve the market as an extension of its flights from Seoul Incheon. In 2012 an estimated 120,000 bi-directional O&D passengers flew on the route Los Angeles International Airport and São Paulo Guarulhos International up 9.2 per cent on the previous year. Interestingly, American Airlines is already the dominant operator in this market with a 22.3 per cent share of the point-to-point demand through connecting services mainly via Dallas/Fort Worth International and Miami International.

In its ruling the US DOT said that the rights were awarded to American Airlines for the Los Angeles route as the Californian is the largest O&D market between São Paulo and the US that currently lacks US carrier non-stop service. “We tentatively find that American’s strength at Los Angeles, combined with its ability to provide convenient connections at Los Angeles, offer a firm basis to expect that it would provide meaningful public benefits in a major market currently devoid of US-flag service,” it said.

Alongside the Los Angeles route, American Airlines unsuccessfully requested rights to add a daily service to São Paulo from Chicago in late 2014. The carrier is the largest operator between the US and Brazil by seat capacity with a 34.7 per cent share in 2012 and already serves a wide Brazilian network that also comprises flights from Miami to Belo Horizonte, Brasilia, Manaus, Recife, Rio de Janeiro, Salvador and São Paulo from New York JFK to Rio de Janeiro and from Dallas/Fort Worth to Rio de Janeiro and Sao Paulo.

The engagement of American Airlines and US Airways means that fellow US major Delta Air Lines is under pressure in this international market and it is no surprise that the carrier has been tentatively awarded the largest share of the traffic rights over the next two years.

Delta says it faces “serious challenges” competing against American on routes between the US and Brazil, a situation, which will only become worse following American’s merger with US Airways. Alongside the Atlanta award it had requested for rights for an additional daily service to São Paulo from New York with effect from October 2013. The US DOT said the selection of Atlanta ahead of New York for the second daily rotation was “consistent with Delta’s stated priority for 2013 frequencies”.

The US major currently operates 35 non-stop weekly flights between Brazil and the US including links from Atlanta, Detroit and New York JFK to São Paulo, as well as from Atlanta to Rio de Janeiro and Brasilia. In 2012 it had a 14.8 per cent share of the total seat capacity between the US and Brazil. The award of the Detroit rights from October 2014 safeguards this route as its Brazilian traffic rights for this flight are due to transfer to US Airways in March 2015 as part of a previously approved slot transaction that allowed Delta to expand at LaGuardia Airport in New York. In its tentative ruling the US DOT said the public interest is best served by “allocating the frequencies that become available in October 2014 in a manner that preserves existing São Paulo non-stop services”.

In its DOT application Delta said it would look to introduce the additional frequencies between Atlanta and São Paulo from December 2013 utilising a Boeing 767-300ER equipped with 35 Business, 32 Economy Comfort and 143 Economy class seats on the route. It claims that via its Atlanta hub it can connect São Paulo to more than 150 cities across the US with more than 1,000 peak-day departures. It also says it can offer more access to 24 destinations in Brazil which represent 99 per cent of domestic demand points – more than any other US airline – thanks to its strategic alliance with local carrier GOL Linhas Aereas.

Like the proposed ruling for Delta at Detroit, the US DOT’s tentative decision to award US Airways the rights to fly seven weekly services to São Paulo from Charlotte will again safeguard an air route. US Airways launched this route earlier this month using rights leased from United Airlines and which are due to return to its rival carrier on October 25, 2014 with no option of extension. US Airways also unsuccessfully requested rights to fly between Philadelphia and São Paulo.

“US Airways has invested considerable time and effort into securing authority to inaugurate its Charlotte - São Paulo nonstop service and we tentatively find that it is in the public interest to provide certainty that US Airways may continue that service beyond the expiration of its lease with United, when the frequencies revert to United,” said the US DOT in its draft ruling.

Once this initial plan is sanctioned, the US DOT has decided to impose a start-up condition for each award requiring the selected carriers to institute their proposed services within 90 days of their proposed start-up dates. It has also said the rights will be subject to its standard 90-day dormancy condition and any frequencies not utilised for a period of 90 days (once inaugurated) “would be deemed dormant” and the allocation with respect to each such frequency “would expire automatically” and the frequency “would revert to the Department for reallocation”.