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TheStreet Open House

American Airlines Loses to Low-Cost Carriers in Colombia

CHARLOTTE, N.C. -- A groundbreaking agreement has opened Colombia to low-fare carriers, but it has displeased two legacy carriers, as AMR's (AMR) American lost some flights and US Airways (LCC) didn't get any.

In a decision announced earlier this month, after Colombia and the U.S. agreed to increase air service between the two countries, the Transportation Department tentatively awarded four new routes to Bogota.

Low-fare carriers JetBlue (JBLU) and privately held Spirit would fly from Orlando and Fort Lauderdale, respectively. Also, Delta (DAL) would fly from New York's Kennedy Airport, while Continental (CAL) would fly from Houston.

Charlotte was shut out, as the DOT rejected US Airways' request for a Bogota flight from the Southeast's second-biggest domestic hub.

Spirit's Fort Lauderdale route "is good for us and better for consumers," says CEO Ben Baldanza. "Fares between the U.S. and Colombia are some of the highest in the Western Hemisphere, on a mileage basis. But we're going to change that dynamic."

In a September agreement with the U.S., the Colombian government moved to expand air access by boosting the number of authorized routes between the two countries and removing all restrictions for flights to Barranquilla and Cartagena. The government has also allowed fares to decline.

Overall, travel between the two countries is booming -- traffic grew by 36% between 2002 and 2006. During the 12 months ending in September 2007, about 759,000 passengers traveled between the nations, with 64% flying between Bogota and the U.S.

American, the principal carrier, operates seven daily flights to Miami from four Colombian cities. Additionally, Delta has Bogota-Atlanta service, and Continental serves Bogota from Houston and Newark, as well as Cali from Houston. Avianca offers 53 weekly flights, serving five Colombian cities and three U.S. cities.

However, the Transportation Department ruled that American should lose seven of its daily routes, allowing a total of 28 (including 21 new authorities) to be awarded to other carriers. American says it will sue the department in federal appeals court.

"We do not believe that it was legitimate for DOT to seize American's duly authorized frequencies for reallocation to another carrier," said American spokesman Tim Smith. "We believe DOT's actions are unprecedented and the issue needs to be aired in a court of law."

Meanwhile, US Airways, which sought new service between Charlotte and Bogota, says it will likely appeal to the department. "We are disappointed," says spokesman Phil Gee. "We thought we had a strong case." US Airways could have offered connections to 73 cities beyond Charlotte.

"We hope given the unmet demand for U.S.-Colombia services that DOT will go back and attempt to secure additional frequencies for U.S. carriers," Gee added.

In its ruling, the department laid out this rationale: Delta's Kennedy service would boost flying between Colombia and New York/Newark, which has 21 weekly flights, while South Florida has 80. JetBlue and Spirit would provide low-fare service, with Orlando as a new gateway. Continental's new service addresses an imbalance that has just 20 weekly Colombia flights originating west of Atlanta, while 108 originate in the eastern U.S.

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