On Petition for Review of an Order of the Department of Transportation
The opinion of the court was delivered by: Karen Lecraft Henderson, Circuit Judge:
Before: HENDERSON, Circuit Judge, and WILLIAMS and RANDOLPH, Senior Circuit Judges.
Opinion for the Court filed by Circuit Judge HENDERSON.
Republic Airline Inc. (Republic) challenges an order of the Department of Transportation (DOT) withdrawing two Republic "slot exemptions" at Ronald Reagan Washington National Airport (Reagan National) and reallocating those exemptions to Sun Country Airlines (Sun Country). In both an informal letter to Republic dated November 25, 2009 and its final order, DOT held that Republic's parent company, Republic Airways Holdings, Inc. (Republic Holdings), engaged in an impermissible slot-exemption transfer with Midwest Airlines, Inc. (Midwest). In so holding, DOT summarily dismissed Republic's argument that, under both DOT and Federal Aviation Administration (FAA) precedent, the Republic- Midwest slot-exemption transfer was permissible because it was ancillary to Republic Holdings' acquisition of Midwest. Because DOT has departed from its precedent without adequate explanation, its decision cannot survive arbitrary and capricious review. Accordingly, we grant Republic's petition for review and vacate DOT's order.
In an effort to improve airport safety and efficiency, FAA limits the number of take-offs and landings at several of the nation's most congested and frequently delayed airports. See, e.g., Operating Limitations at N.Y. LaGuardia Airport, 71 Fed. Reg. 77,854 (Dec. 27, 2006). Historically, FAA distributed a limited number of "slots"--i.e., take-off and landing rights--at five so-called high-density airports, including Reagan National. See 14 C.F.R. § 93.123. The resulting slot-allocation rules are collectively known as the High Density Rule (HDR). City of New York v. Minetta, 262 F.3d 169, 172 (2d Cir. 2001) (citing 14 C.F.R. §§ 93.121-93.133, 93.211-93.229).
"By the early 1990s, however, the HDR was perceived as a barrier to improved service, in part because new air carriers were unable to establish service due to the lack of slot availability." Id. at 172-73 (citing H.R. Rep. No. 106-167, pt. 1, at 77-79 (1999)). As a result, in 1994, the Congress amended the statutory scheme to enable DOT to grant a limited number of exemptions to the slot limits. See Pub. L. No. 103-305, § 206, 108 Stat. 1569, 1584 (1994) (codified, as amended, at 49 U.S.C. § 41714(c) (2000)). These aptly- named "slot exemptions" permit take-offs and landings in addition to those available under the HDR. See id.*fn1
Today, the HDR has been phased out at four of the five high-density airports.*fn2 Only Reagan National continues to operate under it. At Reagan National, DOT has 20 slot exemptions which can be issued to any carrier providing non- stop service to an airport within a 1,250 mile radius. See 49 U.S.C. §§ 41718(b), 49109. The DOT distributes the exemptions in a manner that promotes air transportation--
(1) by new entrant air carriers and limited incumbent air carriers;
(2) to communities without existing nonstop air transportation to [Reagan National];
(3) to small communities;
(4) that will provide competitive nonstop air transportation on a monopoly nonstop route ...