COMMENTS ON THE SECOND SHOW CAUSE ORDER

]OINT APPLICATION OF DETTA AIR LINES, INC,, VIRGIN BLUE AIRLINES PTY LTD, VIRGIN BLUE

INTERNATIONAL A}RLINES PTY LTD D/B/A V AUSTRALIA, PACIFIC ELIJE AIRLINES (NZ) LTD, PACIFIC BLUE

AIRLINES (AUST) PTY LTD UNDER 49 U.S,C, 55 41308-41309 FOR APPROVAL OFAND ANTITRUST

IMMUNITY FOR ALLIANCE AGREEMENTS

DOCKET DOT-OST-2009-0155

Hubert Horan

l lune 2011

I am filing these comments in response to the Department's Second Show Cause Order filed under DOTO5T-2009-0155-0055 (Order 2011-S-8) and the Department's subsequent Order 2011-5-17 governing

initial comments on the Second Show cause Order. These comments are based in part on comnents on

the First Show Cause Order filed on 12 October 2010 under DOT-OST-2009-0030 and on 19 October

2010 under DOT-OST-2009-0034.

I have substantialexpertise andinterest in questions related to airline industry competition, airline

alliance economics and airline antitrust issues. My professional background and experience is

documented inprior DOTfilings inthe Oneworld and Us-Japan Alliance cases and a full list of

publications and bio8raphical information isavailable at my website, horanaviation.com. I have no

active business orfjnancialinterests with anyofthe partjes tothis case, and am only commenting as a

private citizen concerned abouthe issues raised by this case.

A. THE DEPARTMENT'S TENTATIVE RULING IS FUNDAMENTALLY INCONSISTENT WITH THE FINDINGS OF

ITS COMPETITIVE ANALYSIS, AND ANY DECISION GRANTING ANTITRUST IMMUNIry MUST IMPOSE

CONDITIONS CONSISTENT WIH THAT COMPETITIVE ANALYSIS

The Second Show Cause Order approved the requested grant of antitrust immunity on the conditions

that the proposed joint venture was implemented within 18 months of a final order, and that the

applicants honor a two-year capacity agreement memorialized in a document dated 15 April 2011.1 lt is

not unreasonable forthe Department tohave imposed timing and capacity conditions, however the

condition5, as tentatively stated, are unacceptable. The specific conditions that the Show Cau5e Order

says the applicants must meet are directly contradicted by the document that would govern ihe

applicants' future actions defined. The actual conditions also directly contradict the competitive analysis

that the Department claims is the basis for its decision.

The Malnland US-Australia market had been a Qantas-United duopolv between 2003 and the

inauguration of new Virgin Australia and Delta service in 2008']. Prior to 2OO3 three carriers (air New

Zealand, Northwest and Continental) had unsuccessfully attempted to sustain aposition in thls market.

The Department explicitly recognized that there was considerable "uncertaint[y] that the market, over

the long term, could sustain the added capacity'' recently introduced by Virgin Australia and Delta.r The

' Second Show Cause Order, l0 May 2011, DOT-OST-2009-01 5 5-005 5, p.l6 'Air New Zealand press r€l€ase dated l0 February 2001 announcing the suspension ofdirect Los Angeles-Sydney

services (effectiv€ April200:). These comments will refer to the newly announced "Virgin Ausaalia" branding

instead ofthe sepamte "V Australia ' "Pacific Blue" and "Virgin Blue" brdnding used in the pasl.

' Second Show Cause Order p.7
l-loran, Comments on the Second 0elta/Virgin Show Cause Order, llune 2011

application for antitrust immunity constituted a clear acknowledgement that neither VirEin Australia nor

Delta felt that the market could not sustain the current capacity ifthose available seat miles were

provided by four competitors. Virgin Australia/Delta collusion to reduce its available seat mile capacity

would directly violate the public interest requirements under49 U.S.C.55 41308-41309, automatically

precluding any grant ofantitrust immunity. The Department clearly reco8nizes that it cannot allow a

waiver ofthe antitrust laws that would reduce competition unless it fully eliminates the uncertainty as

to whether todays available seat mile capacity is fully sustainable ifoperated bythree competitors. This

uncertainty was exacerbated bythe post-2008 recession, but as the Department clearly states. the real

issue is whether the added capacity is sustainable over the long-term.

The Department's competitive analysis not only reco8nized seriols uncertainty about the lonS-term

viability of the recently added Virgin Australia/Delta capacity, but that "a grant of antitrust immunity

couid have provided the applicants with extra incentive and ability to reduce capacity in the market to

put upward pressure on fares"a in violation of 49 U.S.C. 55 41308-41309, and that without imposing

conditions on the market capacity levels, the claimed consumer "benefits might not have materialized"5.

This recognizes that ATI would leapfrog Virgin Australia/Delta from weak f3/#4 market positions to #2 in

the overall Mainland-uS Alstralia market and to near-parity with H1 Qantas in the critical Los AngelesSydney market.s With this enhanced market position drlving up fares via reduced capacity might be a

much more profitable move than new expenditures to improve product5 and services,

The Department's competitive analysis not only recognized the requirement to sustain 4! oftoday's USAustralia capacityover the long-term, but the criticalong-term need to sustain relatively balanced

market shares, since "three carrier groups, each with its own alliance, in a longhaul market, are likelyto

continue to operate in a competitive environmentthat benefits the travelling and shipping public."7 | do

not accepthe Department's long-stated view that there are no benefits to consumers when there are

more than three competitors in international longhaul ma*ets, and thus no risk to consumers from any

industry consolidation so long as three competitors remain, Howeverthe Department clearly recognizes

that consumers will face higher prices and reduced service when an international longhaul market that

had supported three competitors is reduced to only two. One risk, alreadV noted, is thatthe capacity of

the new recent entrants may not be fully sustainable. Another risk is that United would now be the

smallest of the three competitors inthe overall market, with a very weak position in the critical Los

Angeles-Sydney anda permanent disadvantage in the Australia-origin market. The Department correctly

recognizes that antitrust immunity cannot be granted if it leads to capacity cuts and price increases that

harm consumers. 8ut the same consumer detriments would occur ifATlleads to capacity cuts by the

Virgin/Delta joint venture, or if ATI leads to capacity cuts by United. Aa noted earlier, the Depaftment

has explicitly recognized that there is uncertainty as to whether tod ay's ca pacitv is sustainable, even

with three competitors, and that jt cannot grant lmmunity until this uncertainty isfully addressed. As

the Department said in the First Show Cause Order, immunity cannot be granted ifthe principal result

"would be to improve the market share of Delta and V Australia without certainty of...large scale public

benefits such as increased capacity, lower fares or more efficient services."3

' Ibid. ' rbid, p.2 ' Ibid. pp. I l-12. ' Ibid, p.l2

" First Show Cause Order, 8 September 2010. DOT-OST-2009-0155-0026, p.l2
Horan, Comments on the Second Delta/Virgin Show Cause Order, 1.lune 2011

There is no data or objective evidence presented in the Second Show Calse order that wouid fully

address the risk that antitrust immunity could lead to service cuts and price increases that would harm

consumers, and it is difficult to ima8ine that any historical data could convincingly demonstratehat

these risks did not exist. The Departmentoteg some evidence that fares have increased oflate, but

these are short-term shifts, and while they suggest that carrier financial results are less awfLrl than they

miSht have been in 2009, they do nothing to prove whether alloftoday's capacity is sustainable in the

longer-term future. The only data that would have lent some credence to the view thatthis capacity is

sustainable would have been internal carrier route profitability data showing that all ofthe four carriers'

current operations already earn returns that covered the cost (or came very close to covering the cost)

of the capital invested in US-Australia flying. The applicants did not submit, and the Department did not

request any such data. Such data, if it existed, would still not address the risk that the newly immunized

joint venture would have the "incentive and ability" to profitably cut capacity, or the risk that ATt would

lead to market share shifts that would make it prudent for united to cut capacity.

Since there is no historical data that could demonstrate that these risks do not exist, the app canI5

submitted a "Mutual Capacity Coordination Agreement" where they committed to matnratn currenr

capacity levels for 24 months,' and the Show Cause Order imposed the conditions memorialized in that

document as a condition for its tentative grant of antitrust immuniW. In concept, such a capacity

commitment could provide a reasonable basis for addressing the potential risks to consumers. In

reality, that capacity agreement contains huge loopholes that could allow the applicantso flout all of

the issues raised in the Department's competitive analysis. The Show Cause Order fails to reveal any of

these loopholes and falsely states that the applicants have made a firm commitment to operate at least

555 annual Delta and 1260 annual Virgin Australia services. The Department cannot grant immunity

without absolutely clear and transparent conditions, and the applicants cannot have independent

discretion to judge whether those conditions are still binding.

The agreement improperly allows the applicants toreduce capacity in ways that would harm consumers

if there are any "external events beyond the parties' control that materially affecthe demand for or the

cost of providing transpacific air service." 1o Given the dynamic and volatile nature ofthe industry, this

open ended loophole virtually Buarantees that the carriers would be able to claim the self-granted

"right" to cut flying, while retaining the full private benefits to collude under antitrust immuniW. While it

ls not unreasonable toincorporate some flexibilityto cope with act,of,God caliber crises that could lead

to a lar8e buttemporary drop in demand (along the lines of a terrorist action or major health scare that

was unlikely to redltce the long-term demand for air travel) the agreement improperly rrears any

material change in demand levels or operating costs as a ..force majeure,, event that would allow the

capacity commitments tobe disregarded. The applicants claim the ritht to reduce capacity if West

Texas Intermediate prices reach S120 per barrel, only 9% higher than they stood the day the capacjty

agreement was filed (15 April) and only 5% higher than they stood at the beginning of May. An

agteement that protects consumers only iffuel prices never increase more than 5-10% over the next

two years makes a mock€ry ofthe issues raised by the Department,s competitive analysis. Even iffuel

prices remained flat, consumers would be fully at risk ifthe applicants decided that other cost Increases

or exchange rate shifts had somehow invalidated the capacity agreement. The agreement also

improperly defines "capacity" in terms offlight departures instead of available seat miles/kilometers (or

seat departures). Downgauging flights (for exam ple 747s tot77s ot 787s) could reduce market capacity

,l;u,ji""1.ir" nt.a "" t 5 Ap.il 201 I under Dor-osr-o155-005i.
Horan, Comnents on the Second Delta/Virgin Show Cause Order, l June 2011

30 to 50%, causing fa. greater harm to consumers than any of the issues raised in the oepartment's

competitive analvSis,

The Second Show Cause Order clearly states that antitrust immunity would have been unacceptable

under the market conditions of 2009-10 when there were obvious rlsks that caoacitv levels were

unsustainable and clearly states that without firm conmitments from the applicants tomaintain that

capacity for two years, there would be serious risks that immunity would actually increase the risk that

consumers would get less service at hi8her fares. The Department must not grant antitrust immunity in

this case without imposing the following conditions:

I 5ince consumer benefits in thjs case are totally contingent on maintenance of current total market

capacity levels, antitrust immunity will be automatically withdrawn ifthe annual mainland USAustralia nonstop !eq! mile capacity operated by either united or the Delta/Virgin Australia joint

venture fall by more than 10% from current levels, or if the nonstop seat mile capacity operated

by either Qantas or the combination ofUnited and the DL/VA venture fail by more than 20%.

I In the event of act-of-God caliber crises causing a significant but temporary drop in demand, the

appllcants may request aone-time waiver oftheircapacity commitmentfora period of up to 90

days without cancellationf antitrust immunity. The end pojnt of the ori8inal 24 month capacity

agreement will be extended by the length of the waiver period. Waivers may not be granted

because of changes in demand conditions or operating costs that are not clearly temporary and

clearly caused by one-timexternal shocks. Aside from this one-time waiver, there can be no

conditions where the applicants maintain antitrust immunity but capacity levels fall more than

specified in the previous paragraph. External shocks that significantly depress demand for more

than 90 days must be seen as secular market changes (not short-term aberrations) and the impact

of antitrust immunity on consumers must be reevaluated based on those changed conditions.

I lf the applicants do notwish to be bound bythese capacity commitments, they retain the right to

formally terminate the currentjoint venture agreement. lf they feelthat an alternate capacity

arrangement could meet the public interest requirements of 49 U.S.C. 55 4130841309, they

retain the right to submit a totally new antitrust immunity application, but must submit new

eviden€e on market prices and competitive conditions, and thefe can be no presumption that the

new application will be granted.

The conditions ensure a clear and transparent link between the applicants' ability to collude under

antitrust immunity and maintenance of today'seat mile capacity for two years. lf capacity is not

maintained, the applicants lose antitrust immunity. These new conditions are fully consistent with the

competitive analysisn the Second Show Order, while maintaining the flexibility needed to handle true

force-majeure events. These conditions actually increase the applicants' ability to make schedule

adjustments that do not affect aggregate capacity and to make small/short-term capacity adjustments

that would not materiallv affect market orice levels, lfmarket condition remain at current levels or

improve, the applicants should have no difficulty meeting the capacity conditions. lf market conditions

are a bit volatile but the joint venture generates the synergies claimed by the applicants, they should

also have no difficulty meeting the capacity conditions. These conditions eliminate the r,sk thatthe

applicants could harm consumers by cutting capacity while still retaining the right to collude on price

and service, These conditions eliminate the rjsk that carriers could massively harm consumers by simply

downgauging existing flights. These conditions eliminate the riskthatATlmerelytransfers marketshare

from United to Delta/Vir8in without providing any significant benefits to consumers (or actually harming
Horan, Comments on the Second Delta/Vir8in Show Guse Order, l June 2011

consumers by forcing United to reduce flying). In the eventhat today's capacity is unsustainable

because market conditions fundamentally worsen and a competitive shakeout ;s required, these

conditions eliminate the risk that that shakeout would be distorted by governmental actions giving

Delta/Virgin special competitive advantages that united did not have. These conditions eliminate the

risk that the clearly stated condition that the applicants must maintain current capacity for two years

could be nullified by loopholes and open-ended exceptions that are not disclosed inthe Department's

own decision.

Furthermore, the Department'sentative ruling granting the applicants 18 months to implement their

joint venture is also fundamentally inconsistent with the Department's competitive findinB that

applicants must be "in a position to deliver substantial consumer benefits at the time immunity is

requested"ll and it is totally inconsistent with the commitment to maintain capacity levels for 24

months from the time of the Final Order. The applicants have had nearly two years to plan the

implementationf an immunized alliance, and have had nine months to adjust those implementation

plans to meet concerns raised by the First Show Cause Order. There is nothing on the record of the case

that explains why the joint venture could not be implemented until three and a half years from the

applicants'initialfiling. The"specificfacts and circumstances" aboutthe "competitive nature ofthe

markets affected by immunity" may be very different in 18 months and may be totally inconsistent with

the facts and circumstances assumed in the Second Show Cause Order. lmplementation 18 months from

now could change the applicants' "24 month" capacity commitment to a "5 month" capacity

commitment.

lfthe Department grants immunity in its FinalOrder it musteither require impiementation within 6

months ofthat Final Order, or require the applicants tohonor their capacity commltment for 24 months

from the time of implementation, istead of24 months from thetime ofthe FinaiOrder.

81, THE DELTA/VIRGIN AUSTRALIA SHOW CAUSE ORDERS ESTABLISH THREE KEY CRITERIA FOR THE

EVALUATIONF WHETHER AN ANTITRUST IMMUNITY GRANT WItL CREATE PUBLIC BENEFITS

As the Department has explained in every recent case, 49 U.S.C. 55 41308(b) dictates that airlines can

only be granted immunityfrom the antitrust laws if the reduction ofcompetition would Benerate

sufficient Public Benefits so thatthegrantofATlwould be required to servethe public interest, and the

burden is on the aoplicants todemonstrate those Publlc Benefits. The Show Cause Orders in this case

established three major criteria tor evaluating Public Benefits.l'?

I Public Benefits must be significant and immediately achievable in a form tan8ible to consumers

across the market as a whole; they cannot include carrier benefits that will not be delivered to

consumers orshifts of traffic and market positions between incunbents that do not create "large

scale Public Benefits such as increased capacity, lower fares or more effcient services"rr and

" Second Show Cause Order p. 14. First Show Cause Order p. 5. '' The Public Benefits analysis in the First and Second Show Cause Orders wer€ tully consist€nt. The Second Show

Cause Orderconfirms this stating that its tentative findings were based on me€ting "the high standard set out and

explained by Order 2010-9-4" (p.7) and at no point does the Second S)row Cause order aller any ofthe criteria stated

in the First Show Cause Order. 'r Second Show Cause Order p. I 3, First Show Cause Order p.9, I 2
Horan, Comments on the Second Delta/Virgin Show Cause Order, l June 2011

applicants must be "in a position to deliver substantial consumer benefits at the time immunity is

requested"'o

I Public Benefits depend on "specific facts and circumstances" abouthe "competitive nature of the

markets affected by immunity" in the specific markets affected by entitrust immunityls but

cannot be accepted if major/ recent external changes (such as the global recession) or large,

recent capacity/competitive shifts make it impossible to determine whether future, long-run

Public Benefits would be created byantitrust immunity in the relevant markets or ifthere are

physical barriers that could prevent benefirs'rom beinB .ealizedr6

I Pubiic Benefits (of the magnitude required to meet the 55 41308(b) standard) cannot exist unless

current aggregate market capacity can clearly be sustained financially over the long-run, as Public

Eenefits from increased service/capacity cannot exist unless current capacity is fully sustainable,

and if current capacity is not sustainable, immunity would provide "applicants with extra incentive

and ability to reduce capacity in the market to put upward pressure on fares"rT creatjng a major

public detriment that would preclude any grant of immunity.

82, ANTITRUST IMMUNITY CANNOT BE GRANTED BECAUSE THE CASE RECORD HAs ABSOLUTELY NO

OBIECTIVE FACTUAL EVIDENCE THAT SIGNIFICANT PUELIC BENEFITS MEETING ANY OF THESE CRITERA

WILL ACTUALLY BE CREATEO, THUS THE REQUIREMENTS OF49 U,S,C, 55 41308{b) HAVE NOT BEEN MET

The Second Show Cause Order asserts that Public Eenefjts will be created ifimmunity is granted in this

case but does not jnclude any data, analysis or quantitative evidence to support that assertion. Despite

articulating criteria for evaluating whether an application creates the Public Benefits required for an

immunity grant, the Department provides no data, analysis or quantitative evidence demonstrating that

those criteria have been met. The Second Show Cause Order never defines the nature or magnitude of

the Public Benefits being asserted-it asserts that Public Benefits will be created but never actually says

that prices will fall and never actually says that service or capacity will increase. There are no numbers

linked to the alieged Public Eenefits, thus we do not know whether the Department thinks ten dollars

worth of benefits would be created or ten million dollars. Since the decision doesn't document the tvoe

or magnitude of Public Benefits it is asserting, and provides no factual evidence supporting its assertion,

is impossible tosay that the requirements of 49 U.S.C. 55 a1308(b) have been met, and thus immunity

cannot be Branted. Since the tentative decision is based solely on blind faith, it would be impossible for

anyone to ever determine whether the implemented joint venture had actually created any of the Pu blic

Benefits used to justify antitrust immunitv.

I The Second Show Cause Order does not include any objective factual evidence suggesting that USAustralia passengers would actually achieve "large scale Public Benefits such as increased

capacity, lower fares or more efficient services" if antitrust immunity is granted. Although the

Department claims that immunity depends on "specific facts and circumstances" abouthe

"competitive nature of the fiarkets affected by immunity" the Second Show Cause Order fails to

present any objective data showing that the specific facts in these markets can justify a grant of

antitrust immunity. The only two sentences in the Second Show Cause Order with any data on

market capacity and fares expli€itly suggest that the "specific facts and circumstances" in these

rl Second Show Cause Order p. l,l, Fhst Show Cause Orderp. 5.

;; 

Se€ond Show Cause Order. p.13, First Show cause Order p.l0-l I

r? Second Show Cause Order p.7, First Show Cause Order p.8
Horan, Comments on the Second Delta/Virgin Show Cause Order, 1 June 2011

markets might notjustify immunity, and that capacitygrowth is extremely improbable in the

nearterm.ts Since the Second Show Cause Order doesn't attempt to quantify those benefits or

estimate their general magnitude, and thus there is no basjs for claimjng that those benefits meet

the requirements of49 U.S.C.55 41308(b)

While the Second Show Cause Order spends some time arguing that public Benefits could not have

been possible given the market conditions and systems barriers that existed last year, and asserts

that progress has been made on both fronts, the Order includes absolutely no factlal evidence

demonstrating that Public Benefits will be produced with today's conditions and svsrcms now

that the alleged barriers have been addressed.rsThe claim that conditions are nota5 bad as they

had been before does not constitute evidence that they are now good, and certainly does not

constitute the evidence that is requked under 49 U.5.C. 55 41308(b)

As noted in the first section ofthese comments, even thou8h the Department acknowledges that

Public Benefits cannot be created if today,s capacity levels are not fully sustainable, and

acknowledges that ATI would give the applicants ,,extra incentive and ability,, to harm consumers

lf today's capacity is not fully sustainable, The Second Show Cause Order has absolutely no

evidence demonstrating that this capacity is, in fact, financially sustainable. As also noted earlier,

the Department's claim that this lack ofevidence is fullV addressed by the imposed capacitv

conditjons ifalse. The capacity commitments stated bv the Deoartment lnthe Second Show

Cause Order are not the commitments the applicants have actually agreed to. The applicants have

agreed to a much shorter maximlm commitment term (since they have 18 months to imDlement

the joint venture) and can ignore the commjtment completely if there are any material changes to

market conditions they deem unfavorable.

The Second Show Cause Order does not jnclude any objective factual evidence suggesting that

antitrust immunity will lead to signiflcant operational savings or that hypothetical efficiency gains

would be passed on to consumers inthe form of lower fares or jncreased service. Sucn savrngs

would presumably have to also be large enough to cover the development and implementation

costs ofthe new systems that allowed the applicants to overcome the objections raised by the

Department in the First Show Cause Order. The Second Show Cause Order incjudes nothin8 that

would support its assertion that synergies will be created, and absolutely nothing to explain why

and how these hypothetical synergies would actually be converted to tangible public Benefits, as

required by 49 U.S.C. 55 41308(b)

The Second Show Cause Order does not include any objective factual evidence sug8esting that the

applicants are "in a position to deljver substantial consumer benefjts at the time immunity is

requested". The Order grants the applicants 18 months to implement theirjoint venture, even

though the Order claims that the systems and management barriers it was concerned with have

been fully addressed. This strongly suggests that the applicants are not in a position to deliver

significant benefits on a timelV basis.

'" S€cond Show Cause Order p.7 '' Neither the First or Second Show Cause Order ever provided objective factualevidence about lhe specific rnarket

conditions and systerns deficiencies ofconcem. What was the revenue management functionatiry issue, and how

would it block the production ofPublic Benefirs? How did the Depanment define..marker conditions precluding

Public Benefits" last year and how did i. define.,marker condirions ensuring public Benefits" this year? Borh issues

could have been explained in generat terms wirhour compromising any competjtively sensitive dala. Ahhough lhese

mark€t conditions and systems barriers quesrions are nor centrat ro rh€ Departrnent's failure to meerhe legal

requir€tuents of 49 U. S.C. SS 4 I 3 08(b), they further illusfate that the Depanmenl's ATI decisions are nor

substanliared byany objective. faclual evidence.
Horan. Comments on the Second Delta/Virein Show Cause Order, lJune 2011

! The Department's claim that the elimination of"double marginalization" pricing markups'o will lead

to lower average passenger fares is a willfully false and fraudulent claim and thus cannot be used

as evidence of Public Eenefits in this case. There is no data supporting the claim that "Double

Marginalization" priclng oarkups have ever existed in international aviation markets, and there

are absolutely no "specific facts and circumstances"howing that consumers suffer from artificial

pricinS markups In the markets affeded by this application. The only potential reason a "double

marginaliration" pricing claim could be relevant to an ATt Public Benefit analysis the fraudulent

hypothesis that competitive airline markets are incapable ofsetting prices at efficient level

because ofa structuralbarrier to profit maximizing pricing that exists in every interline market

worldwide, a barrier that can only be eliminated by mergeroa antitrust immunity. The only

researcherto make this fraudulent claim was a paid consultant to an ATI applicant. The research

was fraudulent because it had absolutely no data supporting the central "structural barriers to

efficient interline pricinE" hypothesis. The Department is fully aware that both the original

research claim ofstructural pricing bar.iers and its application toATI Public Benefits analysis are

indefensible, since detailed analysis refuting those claims have been presented in past cases and

in the published literaturerr and the Oepartment has never challenged any ofthose counterarguments and has never presented any independent data oranalysis supporting the original

"double marginalization" claims. No ATtcase record includes any objective evidence that anyATl

grant in the last ten years has ever created a single dollar ofconsumer benefits from lower

interline pricinS, and the case record includes objective, verjfiable evidence that ATI grants have

reduced consumer welfare by billions of dollars. The Department blatantly contradicts jtself by

inslstinS Publlc Eenefits cannot be assumed andeDendent of"the oarticular facts and

circumstances ofthis case"L but then asserting the existence of ,,double marginalization,,

benefits which (by definition)automatically reduce interline fares by 17-30% re8ardless ofthe

facts about market or competitive conditions jn any particular case. The applicants' original filing

in this case claimed interline prices would automatically fall after immunity was Sranted, a claim

expiicitly based on the "double marginalizatlon" hypothesis (worldwide structural pricing barriers)

and the First Show Cause Order rejected them.'lr The somewhat vaguer assertion of ,,double

marginalization" benefits in the Second Show Cause Order reflects the Department,s willful

disregard for the legal requirement under 49 U.S.C. 55 41308(b) that antitrust immunity cannot

be granted without legitimate, objective, factual evidence of public Benefits.

Respectfully submitted,

.'l r, ,l .,

Lt (tC(,/ L/( t!' '

Hubert Horan

1 lune 20l l

'" Second Show cause Order p. 14

_ Past case testimony includes DOT-OST-2008-0252-3398 and 3394. A more corhplete summary ofth€se issues

can be found in "Double Marginalization and the Counter-Revolution Againsl Liberal Airline Competition" 37

Tronspottotion L@ Jounal 3 pp- 25 t-291.

" First Show Cause Order p.5

- These applicant claims were originally made ar DOT-OST-2009-0155-0001 p26-27. The wild inconsistency

between the Public Benefits analysis in this case versus prcvious ATI cases was documented ar lengrh in DOT-OST2009-0155-0030, bur the Second Show Cause Order simply ignored the issue ofthese inconsistencies.
Horan, Comments on the Second Delta/Virgin Show Cause Order,lJune 2011 9

CERTIFICATE OFSERVICE

I hereby certify that I have this date served the forcgoing documeni on the persons

identified below by causing a copy to be sent by electronic mail.

carl.nelson@aa.com

howard_kass@usairways,com

benjamin.slocum@usairways.com

hkamen@coair.com

dan.weiss@coair.com

steve.morrissey@united.com

jhill@dlalaw.com

todd.homan@dot.gov

peter.irvine@dot.gov

christopher.mandel@dot. gov

sacha.vanderbellen@delta.com

anita.mosner@hklaw.com

sophy.chen@hklaw.com

merren.mcarthur@virginblue.com.au

dayna.hall@virginblue.com.au

jeff,morgan@delta.com

Jill.Ptacek@usdoj.gov

Hubert Horan

I June 2011