Order 2011-6-9

Served: June 10, 2011 

UNITED STATES OF AMERICA

DEPARTMENT OF TRANSPORTATION

OFFICE OF THE SECRETARY

WASHINGTON, D.C.

Issued by the Department of Transportation

on the 10th Day of June, 2011

Docket DOT-OST-2009-0155

FINAL ORDER

I. SUMMARY

By this Order, the Department of Transportation grants approval of, and antitrust immunity 

for, Delta Air Lines and the Virgin Australia Carriers1

, together referred to as the “Joint 

Applicants” or “applicants,” to form an alliance and coordinate flights between the United States 

and Australia. Our action here is subject to the terms and conditions proposed in Order 2011-5-8

and reiterated below. 

II. BACKGROUND

The applicants filed a joint application on July 9, 2009, requesting approval of, and a grant of

antitrust immunity for, commercial alliance agreements in the U.S.-Australia market and certain 

behind and beyond points in North America and the South Pacific.

2

 1

 Virgin Australia, V Australia, Pacific Blue Airlines (NZ), and Pacific Blue Airlines (Aust).

 

2 Joint Application at 5 (July 9, 2009). In their July 9, 2009 filing, the applicants sought approval of, and antitrust 

immunity for, the following agreements: (i) Bilateral alliance cooperation agreements between Delta, on the one 

hand, and Virgin Australia, V Australia, Pacific Blue Airlines (NZ), and Pacific Blue Airlines (Aust), on the other 

hand; (ii) A multilateral alliance coordination agreement among the Joint Applicants; (iii) A multilateral joint 

venture agreement among the Joint Applicants; and (iv) Any existing and future implementing agreements in 

Joint Application of:

DELTA AIR LINES, INC.

VIRGIN AUSTRALIA PTY LTD d/b/a

 VIRGIN AUSTRALIA;

VIRGIN AUSTRALIA INTERNATIONAL AIRLINES

 PTY LTD d/b/a V AUSTRALIA

PACIFIC BLUE AIRLINES (NZ) LTD; and

PACIFIC BLUE AIRLINES (AUST) PTY LTD

Under 49 U.S.C. §§ 41308-41309 for Approval of and 

Antitrust Immunity for Alliance Agreements
2

The Department issued Show Cause Order 2010-9-4 on September 8, 2010, tentatively 

denying the application primarily because the applicants’ failed to show that the proposed 

alliance would deliver sufficient public benefits to justify a grant of antitrust immunity. The 

applicants responded to Order 2010-9-4 on October 13, 2010 proposing changes to their 

agreements.3 The Department issued Interim Order 2010-11-22 on November 19, 2010

requesting further documentation from the applicants.

4

 

On May 10, 2011, the Department issued its second Show Cause Order, Order 2011-5-8, this 

time tentatively approving the application because the applicants had sufficiently addressed the 

Department’s concerns outlined in Order 2010-9-4 and provided all necessary follow-up 

documentation requested in Order 2010-11-22. In the second Show Cause Order, the 

Department found that the applicants had clarified that the Virgin Australia Carriers had 

restructured and now operate with one management structure. Also, on April 18, 2011 the 

Virgin Australia Carriers completed the update of their reservation system allowing fully 

automated codesharing across the Delta and Virgin Australia networks.

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 In addition, the 

applicants expanded the scope of their joint venture to include more points beyond the gateway 

cities, including destinations in Canada, Mexico, and New Zealand. Finally, the applicants 

submitted market data that reflect more favorable conditions for immunized cooperation than 

those that existed last year, and they have committed to maintain their existing capacity in the 

market for two years from the date of this Order. 

III. RESPONSIVE PLEADINGS

Mr. Hubert Horan filed Comments on the Second Show Cause Order on June 1, 2011. The 

Reply of the Joint Applicants was filed on June 3, 2011.6

 Mr. Horan filed a Reply to the Reply 

of the Joint Applicants on June 6, 2011.7

IV. DECISION

The Department has decided to grant final approval of the application of Delta and the Virgin 

Australia Carriers to form an immunized alliance. The Department has concluded that, with the 

changes made to their alliance agreements as well as new evidence and commitments 

specifically designed to address the concerns expressed in the September 10, 2010 Show Cause 

Order, the immunized alliance will generate substantial public benefits not otherwise obtainable. 

In addition, we find that the proposed transaction is unlikely to have any significant deleterious 

effect on competition in the U.S.-Australia market. Three carrier groups, each with its own 

 

furtherance of the foregoing agreements and any transaction undertaken pursuant to any of the foregoing 

agreements.

3 Joint Applicants’ Response to Show Cause Order 2010-9-4 (October 13, 2010). 4 Interim Order 2010-11-22 at 2 (November 19, 2010). 5 Letter from Alexander Van der Bellen, Managing Director and Associate General Counsel for Delta, to Dorothy 

Beard, Chief of DOT Dockets (April 18, 2011).

6 We will address the Joint Applicants’ comments below.

7 Mr. Horan’s June 6, 2011 submission did not include a motion for leave to file and was unauthorized. See 14 CFR 

§ 302.6(b). We accept the pleading but note that it does not raise any new issues.
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alliance, in a long-haul market, are likely to continue to operate in a competitive environment 

that benefits the traveling and shipping public.

The Department reached its final decision by applying the decisional standards set forth in 49 

U.S.C. §§ 41308 and 41309 to the particular facts of this case. We are adopting the findings and 

conclusions of Show Cause Order 2011-5-8 without modification.

We found nothing in the submissions of Mr. Horan that would persuade us to reach a 

different result. Mr. Horan alleges in his June 1, 2011 filing that the Department’s tentative 

decision is fundamentally inconsistent with the findings of its competitive analysis and argues 

that the Department must impose conditions consistent with that competitive analysis.8 First, 

Mr. Horan states that the two-year capacity agreement “improperly allows the applicants to 

reduce capacity in ways that would harm consumers if there are any ‘external events beyond the 

Parties’ control that materially affect the demand for or the cost of providing transpacific air 

service.’”9 Mr. Horan misunderstands the conditions that would allow the applicants to reduce 

capacity below their stated commitment. It is not, as he asserts, an “open ended loophole” nor a 

“self-granted ‘right’ to cut flying” while retaining the benefits of antitrust immunity.10 The 

applicants’ capacity commitment will be met if, on an annual basis, Delta operates 656 

transpacific segments and Virgin Australia operates 1,260 transpacific segments. If the 

applicants expect their annual service levels to drop below the levels specified in their capacity 

agreement as a result of certain force majeure events, the applicants must seek prior approval 

from DOT.11 

Second, Mr. Horan claims that the agreement “improperly defines ‘capacity’ in terms of 

flight departures instead of available seat miles/kilometers (or seat departures).” However, we 

find his concern that the applicants could downgauge aircraft in the market “causing far greater 

harm to consumers”12 is without merit. Since both applicants currently operate Boeing 777 

aircraft in the market and have few other aircraft types that can be deployed on these ultra longhaul routes, the effect on capacity of requiring available seat miles/kilometers (or seat 

departures) versus a certain number of flights would be marginal in this case. 

Third, Mr. Horan states that allowing the applicants 18 months to implement their joint 

venture is both inconsistent with the proximate benefits standard and “with the commitment to 

maintain capacity levels for 24 months from the time of the Final Order.”13

 8 Comments on Second Show Cause Order, June 1, 2011. Mr. Horan also submitted comments on Order 2010-9-4 

on October 12, 2010, arguing that the Department’s findings should be rejected because it failed to accept the 

applicants’ benefit claims at face value and therefore imposed a benefits standard that was different from those used 

in other immunity cases. October 12, 2010.

 We disagree on both 

issues. In several recent cases, we imposed this 18-month requirement for joint venture 

integration. We do not see an adequate basis in this case to deviate from our precedent and note 

that the Department has, throughout this case, required the applicants to make changes in their 

9 Comments on Second Show Cause Order at 3, June 1, 2011. 

10 Comments on Second Show Cause Order at 3, June 1, 2011. 11 Letter from Alexander Van der Bellen, Managing Director and Associate General Counsel for Delta, to Dorothy 

Beard, Chief of DOT Dockets (April 15, 2011). 12 Comments on Second Show Cause Order at 3 and 4, June 1, 2011. 13 Comments on Second Show Cause Order at 5, June 1, 2011. 
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joint venture that are intended to speed up the realization of public benefits. With respect to 

capacity, the two-year capacity commitment required by the Department begins at the time 

immunity is granted. Both carriers have been serving the U.S.-Australia market concurrently for 

nearly two years, and an additional two-year capacity commitment will provide additional 

consumer protection. 

Finally, Mr. Horan questions the Department’s public benefits analysis.14 The Department 

has, in other antitrust immunity cases, found that alliances increase capacity over the long-term

and reduce fares due to, among other factors, the elimination of double marginalization – both of 

which are substantial public benefits.

15 The capacity commitment required by the Department in 

this case ensures that any fluctuating conditions particular to the U.S.-Australia market will not 

erode the public benefits resulting from this alliance.

In their reply to Mr. Horan, the applicants state that “Mr. Horan’s criticisms of the 

Department’s Order and proposed conditions are without merit.”16 The applicants point out that 

Mr. Horan argued, in his October 12, 2010 filing, that “DOT must accept the Delta-Virgin 

application on the ground that it produces sufficient public benefits under section 41208(b) to 

justify a grant of antitrust immunity”17 and now claims, with what the Department considers a 

much improved alliance agreement for consumers, that benefits have not been adequately 

demonstrated. 

The applicants also argue that “[c]ompetition in the U.S.-Australia and U.S.-South Pacific 

market is now more robust than ever.”18 They note that Qantas has shifted its San Francisco 

flight to Dallas/Ft. Worth providing far more connecting opportunities for oneworld passengers 

at American’s largest hub. The applicants also state that United/Continental announced 

Houston-Auckland nonstop service once 787 aircraft begin arriving into their fleet in 2012. In 

addition, the applicants point out that “United, already the largest hub carrier at Los Angeles, has 

been further strengthened by its recent merger with Continental.”19

 14 Mr. Horan has previously raised similar arguments in other proceedings involving applications for antitrust 

immunity. See, e.g. oneworld, Docket OST-2008-0252, Show Cause Order 2010-2-8 at 9 (February 13, 2010), Final 

Order 2010-7-8 at 5, 8, 11, 12 (July 20, 2010); U.S. Japan Alliance Case, Docket DOT-OST-2010-0059, Show 

Cause Order 2010-10-4 at 4, 18 (October 6, 2010). 15 Double marginalization, also called multiple mark-ups, occurs when two airlines have basic interline or code 

share arrangements to handle multiple segments but are unwilling to cooperatively price the combined itinerary for

the consumer. Thus, for example, Airline A is not willing to accept a cooperative price for the segment it operates 

because it risks losing revenue to Airline B, which might operate the longer, more profitable segment in the 

itinerary. The consumer is ultimately not offered the most competitive fare or optimal routing. However, in a 

“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. The airlines are willing to cooperatively price itineraries 

because they share the same incentive to make the sale and share the revenues. See generally W. Tom Whalen, A 

panel data analysis of code-sharing, antitrust immunity, and open skies treaties in international aviation markets, 

Review of Industrial Organization, 30(1), pp.39-61(2007). 16 Reply of the Joint Applicants at 2 (June 3, 2011). 17 Comments on Show Cause Order 2010-9-4 (October 12, 2010); Reply of the Joint Applicants at 2 (June 3, 2011). 18 Reply of the Joint Applicants at 2 (June 3, 2011).

19 Reply of the Joint Applicants at 2 (June 3, 2011).
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Finally, the applicants declare that Mr. Horan “fundamentally misreads the Joint Applicant’s 

capacity commitment agreement,”20 in that the applicants must seek prior approval from the 

Department if they intend to deviate from the terms of their capacity commitment.

We agree with the applicants that the concerns raised by Mr. Horan do not justify changing 

the tentative findings made in Order 2011-5-8 or reaching a different conclusion on the merits of 

this application.

ACCORDINGLY:

1. We approve and grant antitrust immunity to the Alliance Agreements21 between and 

among Delta Air Lines, Inc. (including its direct and indirect wholly owned 

subsidiaries), Virgin Australia Airlines Pty Ltd d/b/a Virgin Australia, Virgin 

Australia International Airlines Pty Ltd d/b/a V Australia, Pacific Blue Airlines (NZ) 

Ltd, and Pacific Blue Airlines (Aust) Pty Ltd (all parties together referred to as the 

“Joint Applicants”), insofar as such agreements relate to foreign air transportation.

Subject to the other terms and conditions described in the ordering paragraphs below, 

the approval and grant of antitrust immunity shall remain in effect indefinitely, 

subject to Ordering Paragraph 9, provided that the Joint Applicants: 

a. Submit for prior approval subsequent subsidiary agreements implementing their 

Alliance Agreements;

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b. Resubmit the Alliance Agreements before five years from the date of issuance of 

this Order; and

c. Obtain prior approval if they choose to operate or hold out service under a 

common name or use common brands.

2. We determine that, as a condition of obtaining the authority herein, that the Joint 

Applicants must operate at least their existing capacity in the U.S.-Australia market, 

as defined and measured by paragraph 4 of the Amended and Restated Mutual 

Capacity Commitment Agreement dated April 15, 2011, for a period of at least two 

years from the date of issuance of this Order.

23

 20 Reply of the Joint Applicants at 3 (June 3, 2011). 21 The Alliance Agreements shall mean those agreements referred to on page 2, footnote 3 of the Joint Application, 

submitted on July 9, 2009, as well as amendments and restatements submitted on January 31, 2011 and April 15, 

2011. See Letter from Alexander van der Bellen, Counsel for Delta, to Dorothy Beard, Chief of DOT Dockets 

(April 15, 2011) (placing the Amended and Restated Mutual Capacity Commitment Agreement and other 

commercial agreements on the public record).

22 Regarding this requirement, we do not expect the applicants to provide the Department with minor technical 

understandings that are necessary to implement fully their day-to-day operations but that have no additional 

substantive significance. We do, however, expect and direct them to provide the Department with unredacted copies 

of all contractual instruments that implement or materially alter, modify, or amend the cooperation agreements, joint 

ventures, or confidentiality/antitrust guidelines. All documents shall be submitted to the Director of the Office of 

Aviation Analysis.

23 During the term of the Amended and Restated Mutual Capacity Commitment Agreement, we expect the Joint 

Applicants to provide a full accounting of their compliance with the capacity commitments as part of the annual 
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3. We direct the Joint Applicants to file the following evidence within 10 days of the 

date on which they execute and implement their Joint Venture Agreement: 

a. Verified statement(s) attesting that the Joint Venture Agreement has been 

executed and implemented, submitted in Docket DOT-OST-2009-0155; and

b. A copy of the complete executed Joint Venture Agreement with appendices, 

submitted to the Director of the Office of Aviation Analysis.

We determine that, unless the Joint Applicants make the filings described in this 

Ordering Paragraph within eighteen months of the issuance of this Order, the 

authority granted will expire and the grant of antitrust immunity will no longer be 

effective.

4. We direct the Joint Applicants to submit annual progress reports beginning one year 

from the date of issuance of this Order, and continuing each year thereafter while 

their respective Alliance Agreements are effective.

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5. We direct the Joint Applicants to withdraw, or to remain withdrawn, from 

participation in any International Air Transport Association tariff coordination 

activities that discuss any proposed through fares, rates, or charges applicable 

between the United States and any countries whose airlines have been or are 

subsequently granted antitrust immunity, or renewal thereof, to participate in similar 

alliance activities with a U.S. airline(s).

6. We delegate to the Director of the Office of International Aviation the authority to 

determine the applicability of the directive set forth in Ordering Paragraph 5 as to 

specific prices, markets, and tariff coordination activities, consistent with the scope 

and purpose of the condition, as previously described.

7. We direct Virgin Australia Airlines Pty Ltd d/b/a Virgin Australia, Virgin Australia 

International Airlines Pty Ltd d/b/a V Australia, Pacific Blue Airlines (NZ) Ltd, and 

Pacific Blue Airlines (Aust) Pty Ltd to report full-itinerary Origin-Destination Survey 

of Airline Passenger Traffic on a quarterly basis for all passenger itineraries that 

include a U.S. point.25

 

progress reports described in Ordering Paragraph 4. As explained in Section VI of this Order, we further request 

that the Joint Applicants provide the Office of Aviation Analysis with an informal update on status of compliance 

within 30 days of the sixth and eighteen month anniversary date of issuance of a final order in this case.

24 We expect the Joint Applicants to deliver the progress report to the Director of the Office of Aviation Analysis by 

the close of business on the anniversary date of this order. If that date falls on a weekend or federal holiday, the 

Joint Applicants may deliver the report by the close of business on the following business day. 25 We expect applicants to report the O&D data beginning with the first full quarter following the date of the 

issuance of a final order. Detailed instructions are available from the Department’s Office of Airline Information at 

the Bureau of Transportation Statistics. We treat the foreign airlines’ O&D data as confidential, do not allow U.S. 

airlines any access to the data, and do not allow foreign airlines any access to U.S. airline O&D Survey data. We 

use these data only for internal analytical purposes.
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8. We defer action on all motions for confidential treatment submitted in this docket to 

date.

9. We may amend, modify, or revoke this authority at any time without hearing.

10. We will serve this Order on all parties on the service list in this docket. 

By:

SUSAN L. KURLAND

Assistant Secretary for Aviation

and International Affairs

(SEAL)

An electronic version of this document is available at: http://www.regulations.gov