BEFORE THE 

 DEPARTMENT OF TRANSPORTATION 

 WASHINGTON, D. C. 

---------------------------------------------- 

 : DOT-OST-2010- 

U.S.-JAPAN ALLIANCE CASE : 0059 

 : 

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[PUBLIC VERSION] 

JOINT RESPONSE OF AMERICAN AIRLINES, INC. 

AND JAPAN AIRLINES INTERNATIONAL CO., LTD. 

TO ORDER 2010-4-9 REQUESTING INFORMATION 

Communications with respect to this document should be sent to: 

For Japan Airlines: 

TSUTOMU ANDO 

Executive Officer – 

 International Affairs 

Japan Airlines 

 International Co., Ltd. 

4-11, Higashi-shinagawa 

2-chome, Shinagawa-ku 

Tokyo 140-8637, Japan 

TORU MIZUNO 

Vice President – 

 International Affairs 

Japan Airlines 

 International Co., Ltd. 

4-11, Higashi-shinagawa 

2-chome, Shinagawa-ku 

Tokyo 140-8637, Japan 

YUKI SAITO 

Director, Government Affairs 

Japan Airlines 

 International Co., Ltd. 

1330 Connecticut Ave., N.W. 

Washington, D.C. 20036 

For American Airlines:

VIRASB VAHIDI 

Senior Vice President – 

 Planning 

American Airlines, Inc. 

P.O. Box 619616, MD 5634 

DFW Airport, Texas 75161 

KENJI C. HASHIMOTO 

Vice President – 

 Strategic Alliances 

American Airlines, Inc. 

P.O. Box 619616, MD 5635 

DFW Airport, Texas 75261 

WILLIAM K. RIS, JR. 

Senior Vice President – 

 Government Affairs 

American Airlines, Inc. 

1101 17th Street, N.W. 

Washington, D.C. 20036 
WILLIAM KARAS 

CAROL GOSAIN 

Steptoe & Johnson LLP 

1330 Connecticut Ave., N.W. 

Washington, D.C. 20036 

(202) 429-6223 

wkaras@steptoe.com 

cgosain@steptoe.com 

ROBERT A. WIRICK 

Director, Regulatory 

American Airlines, Inc. 

P.O. Box 619616, MD 5635 

DFW Airport, Texas 75261 

(817) 963-0394 

robert.wirick@aa.com 

 

W. BRUCE WARK 

Associate General Counsel 

JEFFREY A. OGAR 

Senior Attorney 

American Airlines, Inc. 

P.O. Box 619616, MD 5675 

DFW Airport, Texas 75261 

(817) 967-3458 

jeff.ogar@aa.com 

CARL B. NELSON, JR. 

Associate General Counsel 

American Airlines, Inc. 

1101 17th Street, N.W. 

Washington, D.C. 20036 

(202) 496-5647 

carl.nelson@aa.com 

May 10, 2010 
BEFORE THE 

 DEPARTMENT OF TRANSPORTATION 

 WASHINGTON, D.C. 

---------------------------------------------- 

 : DOT-OST-2010- 

U.S.-JAPAN ALLIANCE CASE : 0059 

 : 

---------------------------------------------- 

[PUBLIC VERSION] 

JOINT RESPONSE OF AMERICAN AIRLINES, INC. 

AND JAPAN AIRLINES INTERNATIONAL CO., LTD. 

TO ORDER 2010-4-9 REQUESTING INFORMATION 

 

 American Airlines, Inc. and Japan Airlines International Co., 

Ltd. hereby provide the following joint response to Order 2010-4-9, 

April 16, 2010 requesting additional information. We respectfully 

urge the Department to complete its review as soon as possible and 

to issue a scheduling order promptly. Approval of the American/JAL 

application is clearly in the public interest, as the Parties’ 

proposed joint operations will benefit consumers with improved 

service and lower fares in transpacific markets, and bring into 

force the Department’s long-sought goal of open skies between the 

United States and Japan. 

Documents to Be Provided 

1. An updated privilege log identifying and describing all 

 withheld documents, including previously submitted documents, 

 as required by 14 CFR 303.04(h). 

2. All updated and unredacted documents, including appendices 

 and meeting minutes, regarding the following topics: 

 

 ● Alliance meetings and board or individual carrier 

 meetings since February 12, 2010 and the date of 

 issuance of the attached order. 
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PUBLIC VERSION 

 ● Individual carriers’ U.S. – Asia route forecasts and 

 analyses. 

 

 American and JAL are separately producing privilege logs and 

any documents responsive to these requests on a confidential basis 

under 14 CFR 302.12.

Clarification Questions

1. Please provide a thorough discussion of the public benefits that 

 will result if ATI is granted to the Parties, addressing the 

 following: 

 a. Describe and quantify the specific benefits that ATI will 

 provide consumers, and explain why immunity is necessary for 

 consumers to realize these benefits. 

 b. Please discuss the formulae and methodologies that the 

 Parties will use to calculate benefits accruing to both 

 internal stakeholders and external stakeholders (including, 

 but not limited to, communities, airports, and consumers). 

 c. Please discuss how the Parties will ensure that they are 

 quantifying benefits uniquely attributed to ATI and not 

 arising from an arms-length codesharing agreement. 

 d. Provide any relevant data and analysis from customer 

 preference surveys, focus group results, and outside studies 

 or materials conducted for the airline regarding frequent 

 flyer plans, airport experience, seamlessness of travel, 

 reservations, complaints, carrier preference, and fares as 

 they relate to providing increased consumer benefits through 

 an alliance. 

 Response to Item 1.a.

 In show-cause Order 2010-2-8, February 13, 2010 in the oneworld 

ATI docket, the Department identified a number of public benefits 

that have been shown to result from immunized joint ventures between 

U.S. carriers and their foreign carrier partners. 
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PUBLIC VERSION 

 “(1) more options for travelers in numerous trans- 

 atlantic city pairs, based on the applicants’ 

 ability to closely coordinate schedules and inven- 

 tory and to achieve fare combinability; (2) lower 

 fares resulting from the reduction in double mar- 

 ginalization on multi-segment itineraries; (3) 

 volume discounting made possible when the alliance 

 partners carry more passengers per flight and 

 enjoy more efficient utilization of capacity; 

 (4) expanded access to discounted fares result- 

 ing from coordinated inventory; (5) reduced costs 

 through shared sales, marketing, distribution 

 procurement, fleet assignment, and frequent-flyer 

 program management; and (6) expanded opportunities 

 to earn and redeem miles due to the airline part- 

 ners’ ability to share risks” (p. 30). 

 Not only will these and other benefits accrue here, but ATI 

will also bring into force open skies between the United States and 

Japan, ending decades of restrictions. Absent approval of the 

American/JAL application, open skies will not take effect, which 

would harm consumers and represent a major setback for the Department’s goal of expanding open skies to the world’s largest markets. 

 With antitrust immunity, the Joint Applicants will offer better 

service and lower fares to more than 11 million annual passengers 

traveling between the United States and Asia, including those 

traveling in 15,080 global airport pairs that will be newly added to 

the American immunized network. 

 Antitrust immunity for the American/JAL alliance agreement and 

Joint Business Agreement (JBA) will strengthen the Parties' ability 

to maintain and expand their nonstop services on transpacific 

routes. Econometric and other empirical analyses of previously 

approved alliances suggest that an immunized American/JAL partnership will lead to increased nonstop service, particularly on hub-to- 
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PUBLIC VERSION 

hub routes where more seats across the Pacific will be needed to 

accommodate the larger volumes of connecting traffic generated by 

the Joint Applicants' expanded network. See Randall Bennett, 

Patrick Murphy, and John Schmidt, “International Airline Alliance 

Development” (July 2009), pp. 27-28 (demonstrating that immunized 

alliances enhance carriers’ ability to maintain existing services on 

international routes as well as on domestic routes that offer 

network connections). 

 Moreover, there is abundant evidence that “following previous 

ATI approvals, alliances added or expanded nonstop service between 

[their] U.S. and European hubs.” See Carl Shapiro and Theresa 

Sullivan, “Airline Antitrust Immunity,” DOT-OST-2004-19214, July 6, 

2005, p. 13. The same result is likely to occur on transpacific 

routes served by immunized partnerships between U.S. and Japanese 

carriers. 

 Immunized revenue sharing, joint sales, and integrated route 

planning, which are core elements of a metal-neutral joint venture, 

enhance the carriers' ability to maintain and expand nonstop international service by producing efficiencies and creating the economic 

incentives necessary to justify the required investments. Given the 

difficult operating conditions currently facing all airlines, immunity for the American/JAL agreements, including the JBA, is vital to 

enhancing the commercial opportunities available to American and JAL 

and enabling them to maintain and expand their transpacific service. 
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PUBLIC VERSION 

 In granting immunity last year to the transatlantic A++ 

agreements in the Star ATI docket, the Department identified as a 

substantial consumer benefit “[s]ignificant reduction of double 

marginalization . . . exerting downward pressure on fares and 

providing a wider range of fares to consumers.” See Order 2009-7-

12, July 10, 2009, p. l5. 

 Similarly, in oneworld show-cause Order 2010-2-8, the 

Department found: 

 “We do not expect the elimination of multiple 

 markups to result from any anticompetitive con- 

 duct. Consistent with economic theory and the 

 experience of other alliances, the proposed alliance 

 is likely to significantly reduce fares on “inter- 

 line” routes on which only one partner operates 

 one segment and only another partner operates 

 another segment. The cooperation of the partners 

 over the joint network increases overall traffic 

 flows and revenue, providing each partner with 

 the necessary incentive to avoid self-interested 

 markups on a particular segment that they operate, 

 which benefits consumers and the alliance as a 

 whole. Many of the synergies of the alliance, 

 including the ability to cooperatively price 

 itineraries with multiple segments, would not 

 occur but for the alliance agreements” (p. 31, 

 citing studies by Jan Brueckner, Tom Whalen, 

 and The Brattle Group). 

 Moreover, in Star, the Department noted that “when two airlines 

have basic interline or codeshare arrangements to handle multiple 

segments [they] are unwilling to cooperatively price the combined 

itinerary for the consumer” (Order 2009-7-10, p. 12 n. 48). By 

contrast, “in [an immunized] ‘metal-neutral’ sales environment, with 

revenue- or benefit-sharing, the airlines can balance risks and 

benefits for the benefit of the consumer and alliance as a whole. 
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PUBLIC VERSION 

The airlines are willing to cooperatively price itineraries because 

they share the same incentive to make the sale and share the revenues” (Id., citing Tom Whalen). 

 Jan Brueckner has studied the development of the United/ 

Lufthansa alliance from its initial, non-immunized phase through the 

carriers’ implementation of immunized joint services. He found that 

“pure alliance membership reduces price by 4%, codesharing by a 

further 7%, and antitrust immunity by an additional 16% over codesharing.” See Jan Brueckner, “International Airfares in the Age of 

Alliances: The Effects of Codesharing and Antitrust Immunity,” 

Review of Economics and Statistics 85, 105-118 (February 2003); see 

also Jan Brueckner, “The Economics of International Codesharing: An 

Analysis of Airline Alliances,” International Journal of Industrial 

Organizations 19, 1475-1498 (2001).

 Later studies have confirmed Professor Brueckner's conclusion 

that immunized alliances generate fare-related benefits for consumers. See Compass-Lexecon, “Competitive Effects of Airline Antitrust Immunity,” DOT-OST-2008-0252, September 8, 2009, Supplemental 

Comments of Joint Applicants, Exhibit 1, p. 14; Randall Bennett, et 

al., supra, pp. 40-41; Tom Whalen, “Data Analysis of Codesharing, 

Antitrust Immunity, and Open Skies Treaties in International Aviation Markets,” 30 Review of Industrial Organizations 39-61 (2007).
 - 7 - 

PUBLIC VERSION 

 By approving and immunizing the American/JAL alliance agreements, the Department will enable the two carriers to significantly 

expand their on-line networks and compete more effectively with 

United/Continental/ANA (seeking immunity), United/Asiana (already 

immunized), Delta, Delta/Korean Air (already immunized), and 

numerous other carriers operating between the U.S. and Asia.

 Following approval, the American and JAL networks will be substantially enhanced. Linking American’s unique U.S. and international airports with JAL’s unique Asian airports will add 15,080 new 

global immunized airport pairs (150 AA unique U.S. airports + 82 AA 

unique international airports = 232 x 65 JAL unique Asian airports = 

15,080). 

 The 150 AA unique U.S. airports account for more than 5.2 

million annual passengers to/from Asia. The 82 AA unique international airports account for 3.8 million annual passengers to/from 

Asia. And the 65 JAL unique Asian airports account for 11.7 million 

annual passengers to/from the U.S. annually. Source: OAG December 

2009 as adjusted by JAL’s restructuring plan announced on April 28, 

2010; MIDT YE 2009). 

 Antitrust immunity for American and JAL will produce a number 

of qualitative network-service benefits for consumers. Through 

immunized coordination of schedules and route planning, the Joint 

Applicants will be able to: 

 • Upgrade current multi-segment city-pairs to one-connection 

 service 
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PUBLIC VERSION 

 • Offer travelers a wider choice of alternative on-line 

 connecting points 

 • Reduce travel times between connecting city-pairs 

 • Offer fare combinability, which will allow itineraries 

 using one carrier for the outbound transpacific segment and 

 the other for the return at competitive fares 

 • Facilitate economies of density by carrying more passengers 

 per flight, thereby increasing utilization of equipment, 

 facilities, and personnel, reducing per passenger handling 

 costs and resulting in lower fares 

 • Provide revenue management synergies to improve capacity 

 allocation at a wider range of fares (business and 

 leisure) over more itineraries 

 • Reduce costs through shared sales, marketing, distribution, 

 procurement, fleet assignment, frequent flyer program manage- 

 ment, co-location of terminals, and other actions benefiting 

 consumers with lower fares and more convenient service 

 • Optimize the Parties’ transpacific schedules. 

 To illustrate this last point, American and JAL currently 

operate departures to Tokyo from Los Angeles just 50 minutes apart, 

at 12:30 p.m. (AA 169) and 1:20 p.m. (JL 061). With antitrust 

immunity, the two carriers will be able to engage in discussions to 

operate at other times of the day, thereby providing more choices 

for nonstop O&D passengers as well as additional options for 

connecting passengers. 
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PUBLIC VERSION 

 Moreover, as the carriers integrate their networks and service 

offerings, more customers will enjoy the superior service benefits 

of on-line international travel via an integrated alliance. These 

benefits include better coordination of customer service policies 

and enhanced responsiveness and accountability to passengers ticketed by an alliance partner. 

 Immunity will also enable American and JAL to offer consumers a 

greater variety of joint fare products (including corporate fares, 

discounted fares, joint tour products, convention products, and 

group travel products); increase the number of consumers to whom 

these joint fare products are made available; and offer consumers 

discounted fares over a broader network of services. 

 American and JAL will cooperate in the area of frequent flyer 

programs to enhance service benefits provided to AAdvantage and JAL 

Mileage Bank members, including increased access by one Party’s 

members to offers, incentives, and promotions made available by the 

other Party. 

 The immunity that American and JAL are seeking will increase 

the attractiveness and competitiveness of their corporate products, 

particularly for companies that are substantial users of transpacific and intra-Asia services. American and JAL will be able to 

participate fully with each other in corporate travel agreements, 

expand the scope of their joint offerings to corporate clients, and 

offer smaller corporate accounts comprehensive, fully-integrated 

price/service proposals. Benefits to corporate customers will 
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PUBLIC VERSION 

include discounted travel over a broader carrier network; increased 

ability to qualify for volume discounts; simplified travel management (one contract and one point of contact for administration); 

harmonized discounts that are easy to implement and communicate to 

staff; and specialized reports that will enable the corporate customer to manage travel more effectively and qualify for additional 

discounts. 

 In sum, antitrust immunity is essential in order to realize the 

consumer benefits described herein. As stated in the Parties’ joint 

application submitted on February 12, 2010 in DOT-OST-2010-0034: 

 “Immunizing the proposed alliance is the only way to 

 enable the Joint Applicants to compete on equal foot- 

 ing with Star and SkyTeam. Greater integration between 

 American and JAL through the JBA will create vibrant 

 inter-alliance competition, as oneworld will be able 

 to deliver significant service and fare improvements 

 to customers. Because the full network benefits of the 

 proposed alliance cannot be realized absent a grant of 

 antitrust immunity, withholding approval would essentially 

 preclude oneworld’s chances for long-term success in the 

 alliance marketplace. 

 “The JBA cannot and will not be implemented in the ab- 

 sence of antitrust immunity. Although American and 

 JAL have already agreed to the most important compo- 

 nents of the relationship, such as governance, geographic 

 scope, and the process for determining how revenues are 

 pooled and shared, their negotiations cannot be completed 

 without an exchange of confidential and highly sensitive 

 transpacific segment information and competitive data. 

 Such an exchange prior to a grant of antitrust immunity 

 would not only carry some risk under the antitrust laws, 

 but would also create a significant commercial risk if 

 there is any doubt as to whether the Department will 

 approve the transaction” (p. 30). 
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PUBLIC VERSION 

 Accordingly, the Joint Applicants urge the Department to 

approve their application and immunize the proposed alliance 

agreements so that American and JAL can finalize and implement 

their joint business (JB), consumers can enjoy the benefits of 

integration, and the historic open skies agreement between the 

United States and Japan initialed last November can enter into 

force. 

 Response to Item 1.b.

 American periodically reviews its economic contribution to the 

communities where it operates in connection with its annual corporate responsibility report. This analysis evaluates both the direct 

impact of local operating expenses and the indirect impact in the 

broader community based on empirical multipliers. This evaluation 

draws on periodic reports by the U.S. Bureau of Economic Analysis on 

industry GDP. 

 Such an analysis could also be performed for each city American 

and JAL serves, incorporating an estimate of the impact of joint 

operations. The estimate would be based on both direct and indirect 

economic value, including direct and indirect employment. These 

measures could then be attributed to the contribution of the JB 

based on the proportion of direct operating expenses from those 

services as determined by the relevant underlying statistical 

drivers. 
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PUBLIC VERSION 

 With respect to consumers, benefits can be measured in a 

variety of ways. Perhaps the most comprehensive is a simple 

measurement of market size and market share. Such metrics are 

directly impacted by the factors known to drive consumer air travel 

purchasing decisions, such as price, schedule, product, and service. 

The effectiveness of the JB in delivering consumer benefits will 

translate into incremental changes across each of those factors, but 

which will be captured in aggregate by the changes to market size 

and share earned by the JB. 

 Growth in market size is an indication of a general improvement 

in the value proposition offered to consumers across the industry, 

and market share provides a measure of the relative performance of 

the individual carriers and alliances within that context. 

 Response to Item 1.c

 The economic literature cited above distinguishes between armslength codesharing and immunized cooperation, and has consistently 

found that ATI results in lower fares. This result is due to 

elimination of double marginalization, an economic concept that the 

Department has recognized in other proceedings. See Order 2009-7-

12, July 10, 2009, p. l5. 

 American and JAL have been in a codeshare relationship since 

1998, and mutual partners in the oneworld alliance since 2007. 

Nonetheless, the Parties have not yet taken all the steps necessary 

for closer cooperation because their underlying commercial interests 

have not been sufficiently aligned. With a metal neutral JB, their 
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PUBLIC VERSION 

commercial interests will mesh, and the Parties will be willing to 

make new investments in areas that will directly benefit their customers, such as airport terminal co-location, technological interfaces between their respective reservations and check-in systems, 

increases in capacity on hub-to-hub routes, and many others. 

 In addition to past lack of commercial alignment, the fear of 

antitrust litigation has limited the Parties’ interest in aggressively offering integrated joint contracts to corporate buyers in 

competition with the products available from Delta and United, and 

their respective SkyTeam and Star alliances. 

 The quantification of these incremental benefits is therefore 

appropriately measured from a reasonable pre-cooperative baseline, 

and largely attributed to ATI. However, unique attribution of such 

benefits may never be possible given the myriad extraneous factors 

that influence the various metrics that may be used to quantify 

those benefits. Such extraneous factors include, but are not 

limited to, fuel price volatility, industry capacity changes, and 

foreign exchange effects. 

 In determining an appropriate baseline, similar to the Parties’ 

choice for an agreed base year, a period of 12 consecutive months 

will be identified that reasonably represents the pre-cooperative 

marketplace in terms of both competitive and economic relevance. 

The impact of recent economic factors such as the fuel price spike 

of 2008 and the global economic recession of 2009 will be carefully 

considered in choosing a baseline. 



















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PUBLIC VERSION 

 As noted, the only U.S. airport to lose JAL services will be 

Kona, Hawaii. The Tokyo/Narita-New York frequency will be reduced 

from its current level of nine weekly flights to a daily service as 

a result of the discontinuation of the Sao Paulo service. The rest 

of the transpacific network and frequencies will be maintained. 

Most of the connecting flights between Tokyo/Narita and other Asian 

points will also remain unchanged. 

 Given the relatively modest changes that are planned for JAL’s 

transpacific presence, JAL believes that the new network size and 

scope will not have a material effect on the JBA, which covers 

services between North America and Asia. 

 On April 28, JAL submitted the new network plan to Japan’s 

Ministry of Land, Infrastructure, Transport and Tourism (MLITT) for 

approval. It will be an integral part of JAL’s reorganization plan 

which, in turn, will be submitted to the Tokyo District Court for 

approval. 

15. Discuss what you foresee as major barriers to, and/or enablers 

 of, competitive entry in the transpacific market, especially in 

 markets where the Parties have overlapping nonstop service. 

 With open skies between the United States and Japan, regulatory 

barriers to entry will be eliminated, with the exception of access 

to Tokyo International Airport at Haneda, which will for now remain 

subject to frequency limitations. Slots at Narita and Haneda are 

not addressed in the open skies agreement. U.S. and Japanese carriers desiring to enter the U.S.-Japan market, or to expand their 

existing services, will need to acquire takeoff and landing slots to 

support their Narita and Haneda operations. 
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PUBLIC VERSION 

 Slots at Narita are available both through the IATA slot 

coordination process and through secondary trading and leasing. In 

this regard, Narita is no different from other major slot-controlled 

airports elsewhere in the world. We do not consider slots to be a 

major barrier to entry. 

 American currently operates five daily nonstops between the 

U.S. Mainland and Narita (JFK-1, ORD-1, DFW-2, and LAX-1). By showcause Order 2010-5-7, May 7, 2010 in DOT-OST-2010-0018, American 

tentatively received authority to operate one daily nonstop between 

New York (JFK) and Haneda. JAL operates four daily nonstops between 

the U.S. Mainland and Narita (JFK-1, ORD-1, LAX-1, and SFO-1), and 

in its restructuring plan (Item 14) states that it will serve Haneda 

from San Francisco and Honolulu. JAL also operates six daily 

nonstops between Hawaii, on the one hand, and Tokyo, Osaka, and 

Nagoya, on the other, and three daily nonstops between Guam, on the 

one hand, and Tokyo and Osaka, on the other. 

 Thus, the overlap markets between American and JAL are JFKNarita, LAX-Narita, and ORD-Narita. Each of these markets has 

multiple competitive services in addition to operations by American 

and JAL. 

 ● New York has daily nonstop service operated by Delta, 

Continental, and ANA (which displays the NH, UA*, CO*, US*, SQ*, and 

TG* codes). 
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PUBLIC VERSION 

 ● Los Angeles has daily nonstop service operated by Delta, 

United (which displays the UA, CO*, US*, NH*, and OZ* codes), ANA 

(which displays the NH, UA*, CO*, US*, AC*, and TG* codes), Korean 

Air, and Singapore Airlines (which displays the SQ, UA*, and US* 

codes). 

 ● Chicago has daily nonstop service operated by United (which 

displays the UA, CO*, US*, NH*, and TG* codes) and ANA (which 

displays the NH and UA*, CO*, US*, SQ*, and TG* codes). 

 There will continue to be at least three (and as many as five) 

nonstop competitors in all but one overlapping city pair, ChicagoTokyo, which will have two nonstop competitors assuming that 

American/JAL and United/Continental/ANA receive immunity in this 

proceeding. The Department has found that as long as two or more 

nonstop competitors will remain in a city-pair following a grant of 

ATI, there is no risk of a substantial reduction in competition. 

See Star, Order 2009-7-10, July 10, 2009, p. 18 (“we will not impose 

carve-outs in markets that only shift from four to three, or from 

three to two, nonstop competitors, as we are not convinced that 

these pose a risk of substantial reduction in competition”). 

 Not only are the overlapping routes already highly competitive, 

but each of the operators on these routes is well-positioned to add 

frequencies. ANA has a hub at Tokyo, Delta has a hub at Tokyo, 

United has a hub at Chicago, Continental has a hub at New York, and 

Delta also has a substantial presence at both New York and Los