BEFORE THE DEPARTMENT OF TRANSPORTATION WASHINGTON, D.C.

PUBLIC Joint Application of VERSION DELTA AIR LINES, INC.; VIRGIN BLUE AIRLINES PTY LTD; VIRGIN BLUE INTERNATIONAL AIRLINES PTY

LTD d/b/a V AUSTRALIA; PACIFIC BLUE AIRLINES (NZ) LTD; and PACIFIC BLUE AIRLINES (AUST) PTY LTD Docket DOT-OST-2009-0155

Under 49 U.S.C. §§ 41308 and 41309 for Approval of and Antitrust Immunity for Alliance Agreements

JOINT APPLICANTS’ RESPONSE TO INTERIM ORDER 2010-11-22

January 31, 2011i Communications with respect to this document should be sent to:

Merren McArthur Group Executive, Corporate Advisory Dayna Field Senior Counsel The Virgin Blue Group P.O. Box 1034 Spring Hill QLD 4004 Australia +617 3333 6801 merren.mcarthur@virginblue.com.au dayna.field@virginblue.com.au

Anita Mosner Holland & Knight 2099 Pennsylvania Avenue, N.W., Suite 100 Washington DC 20006 (202) 419-2604 anita.mosner@hklaw.com for: VIRGIN BLUE AIRLINES PTY LTD, VIRGIN BLUE INTERNATIONAL AIRLINES PTY LTD d/b/a V AUSTRALIA, PACIFIC BLUE AIRLINES (NZ) LTD, and PACIFIC BLUE AIRLINES (AUST) PTY LTD Andrea Fischer Newman Senior Vice President, Government

Affairs Alexander Van der Bellen, Managing Director, Government Affairs

and Associate General Counsel Jeff Morgan Regional Director, Government Affairs DELTA AIR LINES, INC. 1212 New York Avenue, N.W. Washington, DC 20005 (202) 842-4184 sascha.vanderbellen@delta.comBEFORE THE DEPARTMENT OF TRANSPORTATION WASHINGTON, D.C.

Joint Application of DELTA AIR LINES, INC.; VIRGIN BLUE AIRLINES PTY LTD; VIRGIN BLUE INTERNATIONAL AIRLINES PTY LTD d/b/a V AUSTRALIA; PACIFIC BLUE AIRLINES (NZ) LTD; and PACIFIC BLUE AIRLINES (AUST) PTY LTD Docket DOT-OST-2009-0155

Under 49 U.S.C. §§ 41308 and 41309 for Approval of and Antitrust Immunity for Alliance Agreements

JOINT APPLICANTS’ RESPONSE TO INTERIM ORDER 2010-11-22

INTRODUCTION Delta Air Lines, Inc. (“Delta”), Virgin Blue Airlines Pty Ltd (“Virgin Blue”), Virgin Blue International Airlines Pty Ltd (“V Australia”), Pacific Blue Airlines (NZ) Ltd, and Pacific Blue Airlines (Aust) Pty Ltd 1 (the “Joint Applicants”) appreciate the opportunity to respond to Interim Order 2010-11-22. The Interim Order directed the Joint Applicants to provide additional information regarding changes to their planned cooperation in four specific subject areas. Our responses to each of these items are detailed below. Item 1: Updated and finalized written alliance agreements incorporating the proposed commercial changes and capacity commitments. The Joint Applicants have provided an ex ecuted copy of a Mutual Capacity Commitment Agreement (“MCCC”) at Exhibit A. The Joint Applicants have provided an

1 These carriers are referred to collectively as the “Virgin Blue Carriers.”Joint Response Page 2 executed copy of an Amendment to their Join t Venture Framework Agreement at Exhibit

B. (A) The MCCC formalizes Delta and V Australia’s commitment that they will not reduce nonstop service between the U.S. and Australia below their respective historical service baselines as a result of the Department’s approval of and grant of antitrust immunity for the Virgin Blue Group/Delta alliance agreements. The MCCC is intended to eliminate any concern that Delta and Virgin Blue Group would reduce their nonstop U.S.-

Australia service level as a result of ATI. (B) The Amendment to the Joint Venture Framework Agreement brings behind/beyond segment revenue into the join t venture’s settlement mechanism, as specifically requested by the Department. This document formalizes the proposed revisions to Exhibit B of the joint venture agreement regarding calculation of beyond contribution in the joint venture settlement that the Joint Applicants submitted to the Department in their October 13, 2010 pleading.

Item 2: A report on the Navitaire programming and testing process and the date on which the upgrade was completed. The Joint Applicants explained in their response to the Show Cause Order that the Virgin Blue Group was expecting delivery of the Navitaire code necessary to support codesharing by Delta on Virgin Blue. This is contained in Navitaire’s New Skies version 3.3.1. The code was delivered and on-site testing of the functions relating to the Deltamatic and Navitaire code was conducted by Virgin Blue and Delta IT professionals in Delta’s Minneapolis office during January 2011. The testing systems were configured

for a direct link between Deltamatic and Navitaire which enabled successful communication between the systems and a comprehensive check of all functions (including core reservations, inventory and check-in) to be completed.Joint Response Page 3 Testing was successfully completed during the week of January 24-28. All minor issues that arose in the testing were resolved and re-tested, and there are no outstanding technical issues remaining to implement system-wi de freesale codeshare between Delta and Virgin Blue using Navitaire. Testing scenarios were successfully created to test the following:

Codeshare Carrier Disclosure Testing ensured that Delta Marketing flights correctly display Virgin Blue as the Operating Carrier on all codeshare flights when schedules or flight availability is searched, and when codeshare flights are sold. The testing also ensured that Virgin Blue can easily and clearly identify flights that are operating as Delta codeshare flights - see Screenshot # 1. Test itineraries were also produced to

show that all airline disclosure informat ion is displayed accurately and clearly. Booking creation and updates Testing was completed on various booking scenarios. Bookings were successfully created using various types of flights, combining Delta, Delta codeshare and Virgin Blue flights in one itinerary. The bookings were also cross referenced to show each other's booking reference numbers, and connecting flights between the two airlines are also shown in each airline’s reservation

record. Tests were also performed to ensure that any flight changes or cancellations were also successfully communicated between the two systems – see Screenshot # 2. Passenger split-aways, name changes and schedule changes were also tested to ensure all standard booking functionality is working correctly.Joint Response Page 4 Special Service Requests Testing was performed to ensure that all supported Special Service Requests (such as Wheelchairs, Infants, Frequent Flyer Numbers, and seat requests) could all be successfully communicat ed and confirmed between the systems –

see Screenshots # 3 and 4. Third Party bookings Testing was completed using travel agent systems such as Sabre and Worldspan. This was to ensure travel agents will also be able to sell the codeshare flights and ensure all bookings are synchronized. Availability Availability tests were performed to ensure that accurate flight availability is

transmitted between Deltamatic and New Skies. E-Ticketing E-Ticket testing was performed so that Delta electronic tickets can be issued and accepted by Virgin Blue.

Check-In Codeshare bookings were checked-in in the test system to ensure they will be correctly accepted at the airport. Post Departure Post departure testing was performed to ensure that flown passengers are identified correctly for purposes of accounting, revenue reporting and application of mileage points.Joint Response Page 5

NEXT STEPS The IT development required to enable the implementation of a freesale codeshare between Delta and Virgin Blue has been delivered and successfully tested; however, the new release of New Skies will not “go live” until early April 2011. The planned “go live” date is driven by factors unrel ated to the Navitaire system development necessary to support Delta codesharing on Virgin Blue; it is simply to enable Virgin Blue to conduct Disaster Recovery testing on its reservation system to ensure Virgin Blue’s core systems are stable and operational in case of an extraordinary circumstance or outage. This Disaster Recovery testing is an important precaution but wholly unrelated to the alliance between Delta and the Virgin Blue Group. The compatible systems and procedures necessary to support broad codesharing between Delta and each of the Virgin Blue Group carriers are now ready. Given that the Joint Applicants are now in a position to deliver the substantial public benefits resulting from the Alliance, the Joint Applicants respectfully request that the Department proceed with the substantive evaluation of their application.Joint Response Page 6

ILLUSTRATIVE SCREEN SHOTS:

Screenshot # 1 – Flight Disclose and booking cross referenceJoint Response Page 7

Screenshot # 2 – Booking cancelledJoint Response Page 8

Screenshot # 3 - InfantJoint Response Page 9

Screenshot # 4 – Hearing and Visually Impaired passengers

Item 3: A detailed status report on any third-country regulatory or other approvals required to implement the revised alliance agreements or an explanation of why approvals are not required. (A) Third-Country Competition Approvals The Joint Applicants seek to form a comprehensive Joint Venture for North America-South Pacific service. The relevant foreign jurisdictions affected by the proposed joint venture include Canada and Mexico in North America, and Australia and New Zealand in the South Pacific. All necessary filings in Australia have been completed and the Australian Competition and Consumer Commission (ACCC) approved the proposed joint venture without condition on December 10, 2009. With respect to compliance with local third-country competition laws, no further regulatory filings or approvals will be required pr ior to implementation of the joint venture in Canada or Mexico. The Joint Applicants have completed a self-assessment andJoint Response Page 10 concluded that because V Australia does not operate any service to/from Canada or Mexico and because the joint venture will have no adverse effect on competition, no further filings or approvals are required pursuant to the local competition laws in either Canada or Mexico. Canada does not have a mandatory notification and approval process for such joint ventures, and the notification and approval process in Mexico is not applicable because V Australia does not operate to/from that country. Delta does not operate service to/from New Zealand and the joint venture will have no adverse effect on competition in New Zealand. However, New Zealand competition law provides for a joint ventur e approval process, and the Joint Applicants decided to seek the approval of the New Zealand Ministry of Transport for the joint venture to minimize any legal risks of their cooperation in New Zealand. A copy of this application is attached at Exhibit C. (B) Third-Country Codeshare Approvals Third country codesharing is allowed under the respective bilateral aviation agreements between the U.S. and Australia, on the one hand, and Canada, Mexico, and New Zealand, on the other hand. The Joint Applicants have now completed all necessary regulatory filings in Canada, Mexico, and New Zealand to implement third country codesharing to and from these jurisdictions:

 Canada V Australia has applied for an economic license from the Canadian Transportation Agency (CTA) for the underlying authority to hold out codeshare service to/from Canada. Delta, V Australia, and SkyWest Airlines, Inc. (“SkyWest”) have also jointly applied to CTA for authorization for V Australia to place its code on U.S.-Canada flight segments operated by Delta and/or SkyWest, which will enable V Australia to offer online service between points in the South Pacific and Canada via the U.S. No other regulatory approvals areJoint Response Page 11 required to implement this codeshare other than the routine filing of schedules

and tariffs.

 Mexico V Australia and Delta, and V Australia and SkyWest, have filed applications with the Mexican DGAC for V Australia to codeshare on various Delta and/or SkyWest operated U.S.-Mexico routes, which will enable V Australia to offer online service between points in the South Pacific and Mexico via the U.S. No other regulatory approvals are required to implement this codeshare other than the routine filing of schedules and tariffs.

 New Zealand Delta has held an Open Aviation Market License from the New Zealand Ministry of Transport since 2002. Under the applicable regulations, Delta needs only to provide a codeshare schedule filing notification to the New Zealand Ministry of Transport 30 days in advance of the codeshare implementation date. No further regulatory steps are required by the New Zealand Ministry of Transport for Delta to implement codesharing on Virgin Blue Group carrier operations to/from New Zealand. 2

The Joint Applicants note the following additional positive regulatory developments which will support the immediate introduction of codesharing between them under the proposed joint venture:

 Delta submitted a codeshare safety audit of V Australia to FAA AFS-50, and FAA has since transmitted a “no objection” communication to DOT. Given these developments, we expect the D epartment’s licensing division will

2 For the sake of completeness, Virgin Blue notes that the Australian International Air Services Commission (IASC) has approved a variation to Pacific Blue Australia’s allocation of capacity on the Australia-New Zealand route to support the codeshare arrangement with Delta. No IASC approval is required for Canada or Mexico.Joint Response Page 12 promptly approve V Australia’s application in Docket DOT-OST-2009-0156 to carry Delta’s code.

 Delta submitted a codeshare safety audit of Pacific Blue New Zealand to FAA AFS-50. We expect that the Department’s licensing division willpromptly approve Pacific Blue New Zealand’s application in Docket DOTOST-2009-0156 to carry Delta’s code upon receipt of the “no objection”

communication from FAA. 3

 The Department has approved SkyWest’s application for a blanket statement of authorization for SkyWest to display V Australia’s code on intra-U.S. and U.S.-third country flights. This provides all necessary U.S. government authority for V Australia to codeshare on SkyWest’s Delta Connection flights, which will complement V Australia’s codesharing on Delta mainline flights

both within the U.S. and to Canada and Mexico. See Department Action on Application in Docket DOT-OST-2009-0156.

3 A codeshare safety audit of Pacific Blue Australia is not required because, as explained in Docket DOT-OST-2009-0157, Pacific Blue Australia does not have an Australian Aircraft Operator Certificate. Pacific Blue Australia re lies exclusively on aircraft wet-leased from Virgin Blue and Pacific Blue New Zealand to conduct it s operations. The Department has already authorized Delta to codeshare on Virgin Blue, and we expect that the Department will act to approve Pacific Blue Australia’s pending applicat ion in Docket DOT-OST-2009-0156 for a statement of authorization to display Delta’s code promptly upon receipt of a “no objection” communication from FAA regarding Pacific Blue New Zealand.Joint Response Page 13 Item 4: At such time as the Applicants submit the above additional information, they should also provide the latest available passenger and fare data, with additional explanation, to substantiate their assessment that market conditions have stabilized. The Joint Applicants are submitting updated internal traffic and fare data and MIDT data to the confidential docket on CDs. Specifically, Delta and Virgin Blue Group have each submitted monthly internal traffic and fare data for the period September 2010 through December 2010 inclusive, which picks up from the August 2010 endpoint of their most recent internal data submissions to the Department. The Joint Applicants have submitted U.S.-South Pacific MIDT data for calendar 2010, which supplements the year-ended August 2010 MIDT data most rec ently provided to the Department. The updated data continues to support the observations in the Joint Applicants’ October 13, 2010 pleading that the U.S.-Australia marketplace has stabilized. Capacity V Australia and Delta launched U.S.-Australia operations in February 2009 and July 2009 respectively. Figure 1 below shows t hat overall U.S.-Australia seat capacity increased concomitant with V Australia and Delta’s respective entries into the market. However, with the exception of some capacity expansion over the past couple of months (driven primarily by short-term seasonal frequency adjustments by United to its Los Angeles-Sydney services), seat capacity has effectively been stable for a year and half. United’s short-term service adjustments may have been an opportunistic response to Qantas’ suspension of A380 service as a result of the Singapore incident. In any event, the fact that the market has stabilized at this new, higher level of equilibriumdemonstrates that the market is no longer in flux and can sustain the type of procompetitive service envisioned by the joint venture.Joint Response Page 14 Figure 1

Booking Share A booking share time series analysis provides further evidence that the U.S.- Australia market has stabilized. As illustrated by Figure 2 below, prior to 2009, the U.S.- Australia market was dominated by Qantas/American and United/Air New Zealand, which held booking shares on the order of 55% and 30%, respectively. The market share picture changed instantly and significantly when V Australia and Delta began their U.S.-Australia operations in February 2009 and July 2009. However, Figure 2 shows a relatively stable new competitive equilibrium has emerged. Specifically, during the past year, there has been little variation in each competitor’s relative market position, with Qantas/American’s share ranging between 41% and 46%, United/Air New Zealand’s share ranging between 26% and 30%, V Australia’s share ranging between 13% and 15%, and Delta’s share ranging between 7% and 8%.Joint Response Page 15 Figure 2

Fares [CONFIDENTIAL]Joint Response Page 16Joint Response Page 17

[END CONFIDENTIAL]Joint Response Page 18

CONCLUSION In light of the additional information provided here, the Joint Applicants respectfully request that the Department approve and grant antit rust immunity to the Joint Applicants’ Alliance Agreements under 49 U.S.C. §§ 41308 and 41309. Respectfully submitted,

Merren McArthur for Virgin Blue Airlines Pty Ltd, Virgin Blue International Airlines Pty Ltd d/b/a V Australia, Pacific Blue Airlines (NZ) Ltd, and Pacific Blue Airlines (Aust) Pty Ltd Alexander Van der Bellen for Delta Air Lines, Inc.

# CONFIDENTIAL EXHIBIT A

# CONFIDENTIAL EXHIBIT B

# EXHIBIT CCERTIFICATE OF SERVICE A copy of the foregoing has been served this 31st day of January, 2011, upon the following persons via email:

carl.nelson@aa.com howard_kass@usairways.com benjamin.slocum@usairways.com hkamen@coair.com dan.weiss@coair.com jeffrey.manley@united.com steve.morrissey@united.com jhill@dlalaw.com urskr@state.gov todd.homan@dot.gov peter.irvine@dot.gov christopher.mandel@dot.gov