PUBLIC VERSION 

BEFORE THE 

DEPARTMENT OF TRANSPORTATION 

WASHINGTON, D.C. 

Joint Application of 

AMERICAN AIRLINES, INC. 

BRITISH AIRWAYS PLC 

FINNAIR OYJ 

IBERIA LINEAS AEREAS DE ESPANA, S.A. 

ROYAL JORDANIAN AIRLINES 

under 49 U.S.C. §§ 41308 and 41309 for 

approval of and antitrust immunity for 

alliance agreement 

Docket DOT-OST-2008-0252 

ANSWER OF VIRGIN ATLANTIC AIRWAYS 

Communications with respect to this document should be directed to: 

Jill Brady 

General Counsel 

VIRGIN ATLANTIC AIRWAYS, LTD. 

The Office, Manor Royal 

Crawley, West Sussex RH10 9NU 

United Kingdom 

Anita M. Mosner 

Sophy Chen 

HOLLAND & KNIGHT LLP 

2099 Pennsylvania Avenue NW, Suite 100 

Washington, DC 20006-6801 

Phone: (202)419-2604 

Fax: (202) 955-5564 

Email: anita.mosner@hklaw.com 

Email: sophy.chen@hklaw.com 

Attorneys for 

VIRGIN ATLANTIC AIRWAYS LTD. 

Date: April 14,2010 
PUBLIC VERSION 

BEFORE THE 

DEPARTMENT OF TRANSPORTATION 

WASHINGTON, D.C. 

Joint Application of 

AMERICAN AIRLINES, INC. 

BRITISH AIRWAYS PLC 

FINNAIR OYJ 

IBERIA LINEAS AEREAS DE ESP AN A, S.A. 

ROYAL JORDANIAN AIRLINES 

under 49 U.S.C. §§ 41308 and 41309 for 

approval of and antitrust immunity for 

alliance agreement 

Docket DOT-OST-2008-0252 

ANSWER OF VIRGIN ATLANTIC AIRWAYS 

I. INTRODUCTION AND SUMMARY OF ARGUMENT 

On February 13, 2010, the Department issued an order which conferred tentative 

approval and antitrust immunity upon various members of the oneworld alliance, and 

upon the Joint Business Agreement ("JBA") between American Airlines, British Airways 

and Iberia. Order 2010-2-8, "Show Cause Order," or "SCO." On March 30, Virgin 

Atlantic submitted in this Docket extensive comments which explained why the 

Department should not confer ATI upon this deal. Objection of Virgin Atlantic Airways to 

Order to Show Cause ("VS Objection"). Virgin Atlantic also argued that if the 

Department were to issue such an approval, it must strengthen very significantly the 

measures put in place to remedy the severe competitive and consumer harms 

threatened by this alliance. 

On March 30, the Joint Applicants filed their own response to the Show Cause 

Order. Joint Applicants' Comments on Show Cause Order 2010-2-8 ("JA Comments"). 

In that response, the Joint Applicants claimed that, despite the findings made by both 
PUBLIC VERSION 

U.S. and European authorities that the Joint Applicants will hold market power at 

Heathrow after their deal is consummated, their alliance should be approved outright 

and without the application of any remedies. Id. at 2. As Virgin Atlantic will demonstrate 

below, these assertions ignore real-world conditions at London Heathrow, and are utterly 

without support. Indeed, the record in this case supports outright denial of the Joint 

Application or, at a bare minimum, approval with conditions that are far more robust than 

those recommended in the Show Cause Order. 

II. DISCUSSION 

A. DOT Correctly Defined Heathrow as a Separate Relevant Market. 

In their response, the Joint Applicants dispute DOT'S finding that U.S.-London 

Heathrow is a separate relevant market, id. at 3, and argue that there is no reason for 

the Department to apply any remedies in this case, id. at 4-5. Indeed, in their 

comments, the Joint Applicants describe a U.S.-London market where slots are neither 

scarce nor expensive and in which the market for those slots is fluid. See id. at 2. They 

assert that London Heathrow and Gatwick Airports are substitutes for one another, id. 

at 3, despite the stampede away from Gatwick which occurred after all U.S. carriers 

were finally permitted to serve London Heathrow, Answer of Virgin Atlantic Airways (May 

18, 2009) ("VS Answer I") at 10-12. The parties also contend that in this market 

passengers do not buy seats on flights between airports, but instead base their purchase 

decisions on "networks." See JA Comments at 3. 

This mythical market does not exist. The record is replete with evidence that 

slots at Heathrow remain both scarce and costly, and that mechanisms that are in place 

at Heathrow to facilitate new entry have consistently failed to yield any prime time slots. 

ACL/BAA Response (Jan. 8, 2009) at 1, 3. On the issue of substitutability, the Joint 

Applicants assert the reason far more passengers travel to London over Heathrow 
PUBLIC VERSION 

instead of Gatwick is because the alliances want them to travel that way, and not 

because consumers demand this. JA Comments at 3 ("fT]his is largely because of 

alliance—not consumer—preference."). This assertion is fanciful. Alliances and airlines 

make decisions based on their assessment of passenger demand. They would not 

choose to operate at Heathrow (especially given its extremely high costs, scarcity of 

slots and facilities, and congestion) unless their customers strongly demanded it. The 

notion that alliances seek access to Heathrow for reasons unrelated to customer 

preference is groundless, and DOT should give no credence to this baseless claim. 

Along similar lines, the Joint Applicants assert that the large share of slots they 

hold at Heathrow should not be of concern to the Department, on the grounds that other 

alliances hold larger percentages of the available slots at their own home airports. Id. 

at 4. As Virgin Atlantic has noted, this is a comparison of apples and oranges which 

proves nothing. See Reply of Virgin Atlantic (Jan. 20, 2010) ("VS Reply") at 3. 

Heathrow is completely full, and there is no chance that any new capacity at the airport 

will become available until well into the 2020's. See ACL/BAA Response at 4 ("[T]here 

will be no capacity increase at Heathrow to facilitate new transatlantic services before 

the opening of a 3rd runway in around 2015-2020.") This is a best-case scenario. More 

likely than not, a new runway could be partially operational before 2020 and not fully 

operational until at least 2030 due to environmental constraints. VS Answer I at 21. 

Indeed, British Airways CEO Willie Walsh recently acknowledged, "It's well recognized 

that Heathrow is full, but Madrid has capacity," in offering to financial analysts one of the 

principal reasons for the BA-IB merger—the need for flexibility to grow at MAD given 

current and future constraints at LHR. "British Airways Walsh: Heathrow Full, More Slots 

Eyed," Wall Street Journal (Nov. 13, 2009), available at http://dowjones.de/site/ 

2009/11/british-airways-walsh-heathrow-full-more-slots-eyed.html. 
PUBLIC VERSION 

The rival European hubs are not similarly constrained. A new runway at 

Frankfurt is under construction and is expected to be placed into service by 2011, and it 

is well documented that carriers have ample room to grow at Paris Charles de Gaulle. 

Another relevant point is that the U.S.-London Heathrow market is unique—the market is 

so large that a carrier which seeks to be an effective competitor there must operate 

several daily frequencies in key city pairs, whereas comparable U.S.-Frankfurt and 

U.S.-Paris markets are served with far lower frequency. 

The Joint Applicants also argue that the possibility of intra-alliance slot transfers 

should be sufficient to assure the possibility of new entry at London Heathrow moving 

forward. JA Comments at 4-5. This assertion ignores the fact that the alliances 

themselves need to maintain a certain core of short-haul services to and from Heathrow 

in order to meet the demands of local and connecting travelers, see VS Objection at 8, 

14, and that arrival and departure slots at certain times of day are virtually impossible to 

obtain, VS Answer I at 21-28. 

Of course, intra-alliance transfers are no answer at all for non-aligned carriers 

such as Virgin Atlantic. The Joint Applicants attempt to sidestep this compelling point by 

arguing that Virgin's very short-term leases of Heathrow slots to third parties should 

somehow vitiate Virgin Atlantic's well supported concern about its future access to slots. 

JA Comments at 5. While current economic conditions have universally driven carriers 

to make short-term capacity adjustments, these decisions have no bearing that, in the 

longer term, due to the significant and recognized capacity constraints at Heathrow, 

Virgin Atlantic (and other carriers) will be unable to expand service to counteract the 

overwhelming dominance of the Joint Applicants on the overlap routes. 
PUBLIC VERSION 

B. DOT Was Correct to Impose Slot Remedies, but Should Have Gone 

Further. 

The Joint Applicants also claim that neither rival alliances nor Virgin Atlantic will 

need any remedies in order to compete effectively at London Heathrow. Id. As noted 

above, the Joint Applicants claim that because Virgin Atlantic has leased certain of its 

London Heathrow slots to other carriers, new entry at London Heathrow is no longer 

problematic. Id. This argument is not persuasive. As Virgin Atlantic previously has 

explained, it is leasing a handful of slots to two short-haul carriers on short-term leases 

in response to the recent severe economic downturn. See VS Reply at 5. More 

importantly, given the fact that airline network planning is a long-term proposition, the 

important thing is that Heathrow slots are very scarce and will continue to be very scarce 

for the long term. In fact, Virgin Atlantic is not alone in seeking to preserve future use of 

its slots. This winter American Airlines operated daily flights between LHR and Brussels 

with a widebody aircraft, presumably to retain the use of its slots. 

Given the severe capacity constraints at Heathrow, Virgin Atlantic continues to 

believe that the Department should have imposed remedies on all of the overlapping 

U.S.-London Heathrow markets served by the Joint Applicants, and given the significant 

market shares held by the Joint Applicants, that more slots should have been made 

available to potential competitors. Virgin Atlantic further believes that these slots should 

be made available at no cost to the new entrant. In response to the original 1996 

announcement of the Joint Applicants' intention to seek antitrust immunity, the U.S. 

General Accounting Office (GAO) expressed concern about the competitive implications 

of such an alliance; in particular, that if American Airlines and British Airways were to 

receive compensation for any slots they may give up, it would increase the costs of 

market entry. GAO Testimony, T-RCED 97-103, "International Aviation: Competitive 

Issues in the U.S.-U.K. market," Testimony of John H. Anderson, Jr. (Jun. 4, 1997), at 
PUBLIC VERSION 

14. As Virgin Atlantic has indicated, it is especially troubled by the prospect that these 

slots only be made available for a short-term lease, with no clear right of renewal. 

(Virgin Atlantic also raised several concerns about the potential administration of the slot 

remedy, which will not be repeated here.) 

The Joint Applicants complain that the application of a slot remedy would impose 

an alleged "value transfer" between themselves and others serving the U.S.-London 

Heathrow market. JA Comments at 5. This assertion—that the remedy imposed would 

not be needed to mitigate a loss of competition and would unfairly "benefit" other 

competitors—is well wide of the mark. First of all, the objective of the remedies does not 

concern whether or not they benefit an individual carrier, but rather whether the 

remedies compensate against the harm done to consumers. The Joint Applicants' 

position grossly understates the threat to competition posed by their alliance. Second, 

the Department has proposed that the Joint Applicants receive compensation for the use 

of these slots (a feature to which Virgin Atlantic objects). SCO at 27. Third, the 

requirement that carriers pay for these slots may create a strong disincentive for new 

service, as the carrier paying for this slot already is taking the considerable commercial 

risk of attempting to compete against an entrenched incumbent. 

The Joint Applicants also argue that the creation of "flex" slots is inappropriate, 

and that those slots should be required (at least initially) to be used at specific gateways 

which face a loss of competition as a result of the BA-American quasi-merger. JA 

Comments at 7. These markets are MIA-LHR, and DFW-LHR. Id. Virgin Atlantic urges 

DOT to impose stronger and wider slot divestiture conditions than those which were 

proposed in the Show Cause Order. Thus, while Virgin Atlantic would not object to 

having the "flex" slots initially held aside for carriers which propose nonstop service 

between Miami or Dallas/Ft. Worth and London Heathrow, Virgin Atlantic believes that 
PUBLIC VERSION 

the number of slots on offer to do this is quite inadequate. If the Department were 

minded to make the slots available for use for nonstop service from other U.S.-London 

Heathrow overlap gateways or for one-stop service on the overlap routes, Virgin Atlantic 

considers that summer 2013 (as suggested by the Joint Applicants, JA Comments at 7) 

is too early to make slots available for such services. Services from non-overlap 

markets (which may offer only a one-stop alternative to the overlap markets) deserve 

lower priority than applying nonstop remedies because DOT has concluded that onestop service is not an effective constraint on nonstop service. SCO at 16 (finding that 

connecting services via other European points provide no meaningful competition to the 

nonstop overlap services). 

A significant failing of the proposed remedy is that it does not require the slots to 

be taken up as a pre-condition to the proposed alliance proceeding (i.e., a "fix it first" 

type of approach). This seriously and detrimentally affects the effectiveness and viability 

of the proposed commitments. This approach is critically important in this case because 

a "fix it first" approach is the only way to stop BA/AA from the outset from entrenching 

their dominant positions before slot commitments are taken up, if ever. Allowing the 

Joint Applicants to begin coordinating (i.e., jointly setting prices, maximizing their 

schedules) without a pre-confirmed and pre-approved new entrant in place will make it 

increasingly difficult for effective entry to occur as BA/AA would already have 

commenced benefitting from the advantages of the alliance (e.g., the advantages of 

additional frequencies, higher penetration of frequent travelers through a joint FFP and 

greater corporate account penetration through capacity, frequency and schedule 

domination), thus increasingly entrenching the Joint Applicants' dominant market 

positions over time. 
PUBLIC VERSION 

C. The "Fixes" to the JBA Suggested by the Joint Applicants are 

Insufficient to Address DOT Concerns. 

In the Show Cause Order, DOT took issue with several provisions with the JBA, 

determining that they would not create incentives for the Joint Applicants to expand 

service and capacity in the market. In fact, DOT determined that several provisions of 

the JBA will likely inhibit, not encourage, the introduction of new capacity under the joint 

venture. In response, the Joint Applicants have proposed certain amendments to the 

JBA. 

As will be explained below, many of the proposed "fixes" to the JBA that have 

been proposed by the Joint Applicants are entirely cosmetic, and do not in any 

meaningful way change the basic thrust of the agreement, which is to maintain a firm 

clamp on pricing and capacity on U.S.-London Heathrow market. 

Specifically, the Joint Applicants have proposed to strike the provisions of the 

§§ 3.3.1 and 5.6.6. Instead, the parties now propose that 

§3.3.4.1. However, it is very easy under this agreement 

| See JBA (revised) at 

British Airways and American attempt to make much of the change to their 

agreement 

However, 
PUBLIC VERSION 

Id. at art. 4. 

In short, the various "fixes" to the agreement being advanced by the Joint 

Applicants are not really "fixes" at all. They are window-dressing that is intended to 

mask the true intention behind this deal, 

Indeed, the call for 

decision making by "consensus" gives 

III. CONCLUSION 

In urging approval of their anticompetitive arrangement, the Joint Applicants 

would have the Department ignore years of settled precedent. For example, the Joint 

Applicants assert (fancifully) that airline passengers are more interested in networks 

than they are in specific routes, and that London Heathrow no longer is a separate 

relevant market. Although one of the primary justifications given for this decision is that 

it is needed to preserve "parity" amongst the various multicarrier airline alliances, the 

fact is that approval of this deal will distort competition, not restore it. 

As Virgin Atlantic has argued before, the Department should resist the claim that 

this deal should be rubber stamped because other alliances already have received ATI. 

There are critical distinctions between this alliance and those which preceded it. None 

of the other alliance cases centered around an airport which is closed to new growth, 

and the Department is obliged as a matter of law to base its decision on the record 

before it. Blind adherence to prior decisions in the interest of "parity" is not required. 

Indeed, in the presence of wide disparate facts, such adherence is not permitted. 
PUBLIC VERSION 

Accordingly, the Department should not make final the tentative conclusions of 

Order 2010-2-8, and should instead issue an order disapproving the proposed alliance. 

In the alternative, the Department must strengthen the conditions that would be imposed 

to mitigate the anticompetitive impact of this arrangement. 

fully submitted, 

Anita M. Mosner 

Sophy Chen 

HOLLAND & KNIGHT LLP 

2099 Pennsylvania Avenue NW, Suite 100 

Washington, DC 20006-6801 

Phone:(202)419-2604 

Fax: (202) 955-5564 

Email: anita.mosner@hklaw.com 

Email: sophy.chen@hklaw.com 

Attorneys for 

VIRGIN ATLANTIC AIRWAYS LTD. 

10 
PUBLIC VERSION 

CERTIFICATE OF SERVICE 

I hereby certify that I have this date served the foregoing document on the persons 

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

anbird@fedex.com 

andrew.forman@cwt.com 

aserranzana@geclaw.com 

benjamin.slocum@usairways.com 

bill@mietuslaw.com 

bkeiner@crowell.com 

blabow@omm.com 

bob.kneisley@wnco.com 

bruce.rabinovitz@wilmerhale.com 

byerlyjr@state.gov 

carl.nelson@aa.com 

cdonley@ssd.com 

cgosain@steptoe.com 

cjsimpson@zsrlaw.com 

cwilson@omm.com 

david.heffernan@wilmerhale.com 

dfisher@kelleydrye.com 

dhainbach@ggh-airlaw.com 

diarmuid.ryan@hammonds.com 

dkirstein@yklaw.com 

donna.kooperstein@usdoj.gov 

dvaughan@kelleydrye.com 

dwight.moore@ustranscom.mil 

ebailey@wileyrein.com 

efaberman@wileyrein.com 

gmurphy@crowell.com 

howard_kass@usairways.com 

james.garzia@apgnet.com 

jashetaylor@gibsondunn.com 

jeff.ogar@aa.com 

jeffrey.manley@united.com 

jennifer.trock@pillsburylaw.com 

jhill@dlalaw.com 

jill.ptacek@usdoj.gov 

jim.ballough@faa.gov 

jrichardson@johnlrichardson.com 

julie.oettinger@united.com 

jyoung@yklaw.com 

karine.faden@freshfields.com 

kevin.montgomery@polaraircargo.com 

konstantinos.adamantopoulos@hammonds.com 

kquinn@pillsburylaw.com 

lachter@sta rpower. net 

leslie.abbott@wnco.com 

lhalloway@crowell.com 

libowd@sullcrom.com 

mamaila@airfrance.fr 

mchopra@jamhoff.com 

mcmillin@woa.com 

mgerchick@gerchickmurphy.com 

mgoldman@sgbdc.com 

mholland@condonlaw.com 

mroller@rollerbauer.com 

mrosia@crowell.com 

msinick@ssd.com 

npeterson@wileyrein.com 

paul.jasinski@ba.com 

paul.yde@freshfields.com 

peter.irvine@dot.gov 

pmurphy@gerchickmurphy.com 

pmurphy@lopmurphy.com 

prrizzi@hhlaw.com 

pruden@asta.org 

rbkeiner@crowell.com 

rclayman@geclaw.com 

recohn@hhlaw.com 

rick.rule@cwt.com 

robert.land@jetblue.com 

rsilverberg@sgbdc.com 

russell.bailey@alpa.org 

sametta.c.barnett@delta.com 

sami.sarelius@finnair.fi 

sascha.vanderbellen@delta.com 

scott.mcclain@delta.com 

sllunsford@fedex.com 

thomas.bolling@coair.com 

tmuris@omm.com 

todd.homan@dot.gov 

wkaras@steptoe.com 

Jennifer M. Nowak 

April 14,2010 

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