BEFORE THE DEPARTMENT OF TRANSPORTATION WASHINGTON, D.C.

Joint Application of

AMERICAN AIRLINES, INC.

and

QANTAS AIRWAYS LIMITED

Under 49 U.S.C. § § 41308 and 41309 for Approval of and Antitrust Immunity for Proposed Alliance Docket No. DOT

- OST

- 2015

-

JOINT APPLICATION FOR APPROVAL AND ANTITRUST IMMUNITY

FOR PROPOSED ALLIANCE

Communications with respect to this document should be sent to:

For American Airlines: For Qantas Airways:

R. Bruce Wark Andrew Finch Vice President and Deputy General Counsel General Counsel and Company Secretary James Kaleigh Anna Pritchard Senior Antitrust Attorney Head of Legal

– Competition Kurt Stache Qantas Airways Senior Vice President

– Alliance s QCA/1, 10 Bourke Road, American Airlines, Inc. Mascot NSW 2020 433 Amon Carter Blvd. andrewfinch@qantas.com.au Fort Worth, Texas 76155 annapritchard@qantas.com.au bruce.wark@aa.com james.kaleigh@aa.com kurt.stache@aa.com

Howard Kass Vice President

– Regulatory Affairs Robert A. Wirick Managing Director Regulatory & In ternational A f fairs American Airlines, Inc. 1401 H St., N.W. Washington, D.C. 200 05 howard.kass@aa.com robert.wirick@aa.com

June 9, 2015

### TABLE OF CONTENTS

I. INTRODUCTION

................................ ................................ ................................ ............ 3

II. THE PARTIES’ EXISTIN G RELATIONSHIP HAS P RODUCED SUBSTANTIAL CUSTOMER BENEFITS

................................ ................................ .. 5

A. The Original JBA was an Evolution of the Parties‘ Longstanding Collaboration

................................ ................................ ................................ .......... 5

B. The Original JBA Has Yielded Substantial Public Benefits

................................ .. 6

III. RECENT DEVELOPMENTS NECESSITATE REVISION S TO THE PARTIES’ RELATIONSHI P, WHICH WILL EXPAND CUSTOMER BENEFITS AND ENHANCE COMPETITION

................................ ......................... 15

A. American‘s Su ccessful Reorganization and its Merger with US Airways has Enabled American to Operate Trans

- Pacific Service Alongside Qantas

...... 16

B. The Proposed Alliance Enables the Parties to Adapt to New Circumstances

................................ ................................ ................................ ...... 17

C. The Proposed Alliance Continues and Expands the Customer Benefits of the Original JBA

................................ ................................ ................................ .. 20

IV. THE PROPOSED ALLIANC E EASILY MEET S THE DEPARTMENT’S LEGAL STANDARDS FOR GRANTING APPROVAL AN D ANTITRUST IMMUNITY

................................ ................................ ................................ .................... 24

A. The Department has Articulated Clear Standards of Review for Approval and Antitrust Immunity Applications

................................ ................................ .. 24

B. The Proposed Alliance Should Be Approved Because It Promotes the Public Interest by Providing Important Public Benefits without Substantially Reducing Compet ition in any Relevant Market

............................. 25

C. The Public Interest Requires a Grant of Antitrust Immunity and the Parties Will Not Proceed With the Proposed Alliance Without Antitrust Immunity

...... 29

V. CONCLUSION

................................ ................................ ................................ .............. 33American

- Qantas Joint Application

Page 1

JOINT APPLICATION OF AMERICAN AIRLINES, INC. AND QANTAS AIRWAYS LIMITED FOR APPROVAL OF AND ANTIRUST IMMUNITY FOR PROPOSED ALLIANCE

Executive Summary 1

American Airlines and Qantas Airways seek approval of, and antitrust immunity for, a

Proposed Alliance that will build up on and expand the success of their O riginal Joint Business

Agreement which was approved by the Department in 2011. The Proposed Allian ce will do even

more than the Original JBA, further increasing capacity, reducing travel times, generally

improving the customer experience, and increasing competition.

The Original JBA has been a tremendous success for customers and for the Parties to the

agreement. By improving their joint product offering, American and Qantas realized the

potential for customer benefit recognized by the Department‘s approval order. Although their

largest competitors , Del ta

- Virgin Australia an d United

- Air New Zealand

, have had the

significant competitive advantage of antitrust immunity from the Department, the Parties

increased competition, added capacity to the market, and garnered significant incremental

passenger traffic.

At the time the O riginal JBA was approved, American was not able to serve Australia

due to equipment and labor agreement limitations, and the Parties, therefore, were unable to

adopt the fully integrated alliance structure that the Department has recognized leads to the

gr eatest customer benefits. Those constraints have been removed and the Parties propose to

expand their collaboration by adding American

- operated service between the U.S. and Australia

and by adopting a fully metal

- neutral alliance structure to facilitate t he greatest possible

1 Capitalized terms are defined in the body of the Application.American

- Qantas Joint Application

Page 2

integration and maximum possible customer benefits. With more complete integration, a better

alignment of incentives and the elimination of inefficiencies like double marginalization in their

fare structures, American and Qantas will be able to compete more effectively and on more equal

footing with the immunized Delta (SkyTeam)

- Virgin Australia and United

- Air New Zealand

(Star) alliances . The Parties project further incremental passenger traffic gains, which

demonstrate the additiona l customer benefit that they can deliver. But the extent of integration

required to generate these benefits creates too great an antitrust risk for the Parties to be able to

go forward without antitrust immunity.

This pro

- competitive Proposed Alliance pre sen ts the most compelling case yet under the

Department‘s long

- standing criteria for granting for antitrust immunity. No existing competition

will be lessened because the Parties do not currently compete. To the contrary, competition will

be immediately increased as the Proposed Alliance will foster more integrated service and add

capacity on the high

- traffic L os Angeles

- Sydney and S an F rancisco

- Sydney routes (the latter

currently served only by United ). Competition will be further increased as rivals re act to these

improvements and the Proposed Alliance adds capacity to other routes. Customers , once again,

are the beneficiaries. But antitrust immunity is necess ary because without it, the history of

antitrust litigation, particularly in the airline indu stry, makes the full integration of the Proposed

Al liance too risky to maintain.

The Parties respectfully request prompt approval of, and antitrust immunity for, the

Proposed Alliance.American

- Qantas Joint Application

Page 3

I. Introduction

American and Qantas 2 (the ― Parties ‖ or ― Joint Applicants ‖ ) apply (the ―Application‖)

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

, and antitrust immunity for

, an Amended

and Restated Joint Business Agreement (―Restated JBA‖), an Alliance Agreement , and other

implementing agreements (collectively the ―Proposed Alliance‖ )

. 3

American and Qantas currently operate a Joint Business Agreement (― Original JBA ‖),

which the Department of Transportation (―Department‖)

, the Australian Competition &

Consumer Commission (―ACCC‖) , and the New Zealand Ministry of Transportation

(―NZMOT‖) all approved in 2011

. 4 This relationship has already produced substantial public

benefits and increased competition by offering passengers better access to the Parties ‘ extensive

networks in North America, Australia , and New Zealand , increas ed capacity , and improved

products and services

. Passenger traffic between the U

. S

. and Australia has increased. By now

creating a metal

- neutral alliance structure , the Proposed Alliance will further benefit passengers

2 Common names are used throughout. ―American‖ includes American Airlines Group Inc., along with its principal, wholly

- owned subsidiaries American Airlines, Inc., US Ai rway s Group, Inc. (―US Airways‖), Envoy Aviation Group Inc. (formerly known as AMR Eagle Holding Corporation) , and include commercial activities by non

- wholly

- owned affiliates operating as American Eagle . ―Qantas‖ includes Qantas Airways Limited, along wi th all Qantas affiliates including Jetstar Airways Pty Limited.
3 See Exhibit 1 , Alliance Agreement; see al so Exhibit 2 , t he Restated JBA , the Alliance Settlement Agreement, Amendment No. 5 to the Original JBA, and the Codeshare Agreement ( collectively, fi led as part of the Parties‘ Confidential Production Pursuant to the Motion of Joint Applicants for Confidential Treatment )

. In addition to the Restated JBA and Alliance Agreement, the Parties seek approval and antitrust immunity for any related and future agreements necessary to implement these agreements. See Exhibit 3 , s ummary of material t erms of the Restated JBA

. 4 See Exhibit 4 , American

- Qantas Final Order 2011

- 11

- 12 (Nov. 9, 2011); Exhibit 5 , ACCC

, Determination o f Applications for Authorisati on by Qantas Airways Limited & American Airlines Inc., 29 September 2011; Exhibit 6 , Ne w Zealand Ministry of Transportation authorization letter, dated 27 September 2011.American

- Qantas Joint Application

Page 4

without reduci ng competition and , consistent with the Department‘s precedent

, warrants prompt

approval and full antitrust immunity.

Circumstances have changed s ince the Parties‘ Original JBA was approved in 2011,

enabl ing American and Qantas to expand the scope of their collaboration

. Following the

successful reorganization and merger of American and US Airways

, American has the capability

to add service between the U

. S

. and Australia /New Zealand for the first time in over twenty

years . Americ an

- operated service on Trans

- Pacific routes will facilitate the introduction of

additional route s and impr oved connectivity for customers while enhancing competition on the

Trans

- Pacific routes the Parties currently serve. 5

Accordingly, the Parties seek to expand their existing joint business through the Proposed

Alliance to facilitate the introduction of American

- operated joint busin ess flight s alongside

flights already operated by Qanta s. The Restated JBA features a truly metal

- neutral arrangement

with the parties coordinating on scheduling, network planning, sales, customer services, and

capacity decisions to efficiently integrate the Parties‘ operations and compete more effectively

and on the same footing as Delta (SkyTeam)

- Virgin Aus tralia and United

- Air New Zealand

(Star ), which have had antitrust immunity on their Trans

- Pacific alliances for years. 6

5 For purposes of this document, ―Trans

- Pacific‖ refers only to flights between North America and Australia/New Zealand. Today, Qantas is the only Joint Applicant that op erates Trans

Pacific service to and from Australia/New Zealand. The trunk routes that Qantas operates to the mai nland U.S. are LAX

- SYD, LAX

- MEL, LAX

- BNE, and DFW

- S YD . Qantas also operates flights on YVR

- SYD and H NL

- SYD . Its Jetstar affiliate also serves H NL

- MEL and HNL

- BNE

. 6 Sky T eam founding member Delta enjoys an immunized alliance wit h Virgin Australia, formerly Virgin Blue Airlines

. See Delta

- Virgin Blue Group Final Order 2011

- 6

- 9 (June 10, 2011). On June 4, 2015, the ACCC issued a Draft Determination and Interim Authorisation of that alliance (―Delta

- Virgin Australia ACCC Draft Det ermination and Interim Authorisation‖). Star enjoys an immunized alliance between United and Air New Zealand. See United

- Air New Zealand Final Order 2001

- 4

- 2 (April 3, 2011)

.American

- Qantas Joint Application

Page 5

G iven that American

- operated service between U.S. and Australia would make the

Parties competitors

, the extent of integration necessary to create the desired customer benefits

creates too great a risk under applicable antitrust laws and therefore cannot be undertaken

without a grant of antitrust immunity. Accordingly , the Parties now require antitrust immunity in

order to deliver the additional customer benefits that the Parties expect to achieve moving

forward with this plan

. 7

II. The Parties’ Existing Relationship Has Produced Substantial Customer Benefits

A. The Original JBA was an Evolution of the Parties‘ Longstanding Collaboration

The longstanding relationship between American and Qantas began almost thirty years

ago when the carriers first allowed passengers to earn and redeem frequent flyer miles on each

other‘s flights . At that time, Qantas was just the second freq uent flyer partner of American

. T he

Parties entered i nto a codeshare agreement in 19 8 9 and were two of the founding members of the

one world alliance in 1999. American and Qantas expanded their codeshare agreement further

after the U.S. and Australia signed an Open Skies agreement in 2008.

T he Parties entered into the Original JBA in 2011 , initiating a closer relationship between

the carriers and offer ing customers a more integrated and competitive product. Prior to 2011

,

American had not operated service to Australia in nearly twenty years , and lacked the ability to

offer T rans

- Pacific service because of fleet limitations and restrictions in its labor agreements

.
As a result, the Parties had no overlapping routes in 2011

. In approv ing the Origin al JBA in

2011 , t he Department acknowledged that the agreement promised to deliver a host of public

benefits, including ―improved network schedules, aligned frequent flier benefits, new corporate

7 The Parties are also seeking author ization from the ACCC and NZMOT

.American

- Qantas Joint Application

Page 6

and leisure fare products, lower fares, and greater availabi lity.‖ 8 The Department also concluded

that the Original JBA would bring about competitive synergies by ―promot[ing] inter

- alliance

competition in the U.S.

- Australia and U.S.

- New Zealand markets and produc[ing] a stronger

overall competitive environment.‖ 9

The Original JBA has exceeded the initial promise identified by the Department in 2011

. The scope of the Parties‘ collaboration has grown since the Original JBA was implemented.

Today, American codes on 26 Qantas routes, including all Trans

- P acific routes. Qant as codes on

120 American routes (including 107 U.S. routes, 8 Canadian routes, and 5 in Latin

America/Caribbean) and has access to 76 more through interline connections. Qantas has

expanded its codesharing on American

- operated flights by 33%

, offering service on 86% more

destinations

. 10 Passengers on both sides of the Pacific have benefitted from the c oordination

between American and Qantas under the Original JBA and the enhanced competition on T rans

Pacific routes that it has fostered

.

B. The Original JBA Has Yielded Substantial Public Benefits

The joint business between American and Qantas has been so successful because it

combine s two highly complemen tary networks. 11 Passengers rely on Qantas‘ network to access

destinations around Australia and the Pacific and American‘s network to link Qantas ‘ gateways

with hundreds of U.S. and international destinations. 12 Worldwide, Qantas and American serve

70 and 312 airports

, respectively, empowering passengers to travel to more than 5,000 cit y pairs

8 Exhibit 4 , A merican

- Qantas Final Order 201 1

- 11

- 12, at 1

- 2 (Nov. 9, 2011).
9 Id. at 1.
10 See Exhibit 7, American

- Qantas Codeshare Flights and Destinations.
11 See Exhibit 8 , Complementary Networks of American and Qantas.
12 See Exhibit 9

, Qantas Domestic and Interna tional Routes through Sydney; Exhibit 10

, Qantas Gateways Connecting to U.S. Destinations through American Hubs.American

- Qantas Joint Application

Page 7

on th e Parties‘ combined network. 13 P assenge rs connecting at either end of Qantas‘ Los Angeles

(―LAX‖)

- Sydney (―SYD‖) flig ht s traveled in 2014 to a total o f 283 destinations (53 beyond the

Australian gateway and 230 beyond the U

. S

. gateway). Similar ly, passenge rs connecting at

either end of Qantas‘ Dallas /Fort Worth (―DFW‖)

- SYD flight s traveled to a total of 305

destinations in 2014 ( 61 beyond the Australian gateway and 244 beyond the U

. S

. gateway). 14

Given the benefit to passenge rs of the combined network, the Original JBA has resulted

in significant gains in passenger traffic since it was implemented in 2011. To enable that traffic

growth, the Parties significantly increased capacity. Between 2011 and 2014, 35% more seats

were added to Qantas flights between mainland U.S. and Australia , increasing total available seat

miles (―ASMs‖) by 37 %

. 15 P assenger traffic between mainland U.S. and Australia on Qantas

flights increased by nearly 25 %. 16 Many of these capac ity and traffic gains related to Qantas‘

new DFW service and American‘s improved service through LAX

. In addition, coordination by

the Parties on multiple dimensions of the service offering has attracted incremental passengers

and conferred on all alliance passengers the benefits described below.

1. Expanded capacity and increased connectivity through the successful launch of the D allas/

F ort W orth g ateway

T he Original JBA enabled the introduction of Qantas ‘ service between DFW and

Australia starting in May 2011. The introduction of DFW service provided passengers new

13 Total possible American/Qantas connection city pairs were calculated by including all codeshare and interline flights and excluding: (1) flig hts operated or marketed by other airlines; (2) flights with more tha n two connections; (3) flights with connection times of more than 12 hours; and (4) flights with a circuity factor over 2.5.
14 These numbers represent actual destinations flown to by pass engers traveling on Qantas‘ LAX

- SYD and DFW

- SYD routes.
15 See Exhibit 13 , Qantas Mainland U.S. to Australia ASM s and Seats: 2011 vs. 2014.
16 See Exhibit 12 , Y ear

- over

- Year Qantas Passenger Traffic between Mainland U.S. and Australia.American

- Qantas Joint Application

Page 8

connections through American‘s largest hub airport and easy access to and from the Dallas/Fort

Worth metropolitan area, itself a rapidly growing business and tourism destination

. Connections

through DFW make Trans

- Pacific travel more efficient by providing streamlined access to

American‘s extensive network across the U.S., Canada, Mexico, and Latin America

. 17

For 99 cities in the U.S. and 25 additional cities abroad, the introduction of DFW service

also meant shortening itineraries from two stops through LAX to a single stop through DFW.

Thus , passengers who might previously have flown DCA

- STL

- LAX

- SYD were giv en the option

to travel DCA

- DFW

- SYD. As a result, travel times for passengers flying between Washington

(― DCA ‖) and S ydney were slashed by almost two hours. Flights to S ydney from other cities

such as Charlotte, El Paso, Indianapolis, Detroit and Mexico City enjoyed savings of over an

hour in travel time.

In September 2014, due to the sustained popularity of the DFW service, Qantas up

gauged its B747 service to its flagship A380, expanding capacity by over 13,000 seats from

2013. 18 The switch included th e introduction of new premium service classes

, with fourteen

First Class and eight Business Class seats added to each flight. Further, up

- gauging to the A380

eliminate d the need for a stopover in B risbane (―BNE‖) on westbound service to S ydney

, giving

travelers the benefit of fewer stops en route to their destinations.

These enhancements to t he Parties‘ DFW service have proven popular with pas sengers as

demonstrated by significant , steady gains in traffic and capacity since the route was launched :

17 See Exhibit 11

, American DFW Domestic and International Connections.
18 See Exhibit 14 , Qantas M ainland U.S. to Australia Scheduled Seat Capacity

.American

- Qantas Joint Application

Page 9

Between 2011 and 2014, the Parties increased seat capacity on Qantas flights to and from

DFW from roughly 100,000 to 276,000, a 166% increase. 19 Over the same period, passenger

traffic grew from approximately 70 ,000 to nearly 200,000, a 196 % uptick. Anticipating

continued growth in demand

, Qantas scheduled an additional 31,168 seats for 2015 as compared

to 2014.

19 See Exh ibits 12 and 14, con taining the data from which the DFW passenger traffic and seat capacity graphs above were created, respectively.

- 50,000 100,000 150,000 200,000 250,000 300,000 350,000

2010 2011 2012 2013 2014 2015 

## Qantas Annual Scheduled Seat Capacity between DFW and Australia

- 50,000 100,000 150,000 200,000 250,000

2010 2011 2012 2013 2014 

## Qantas Annual Passenger Traffic between DFW and AustraliaAmerican

- Qantas Joint Application Page 10

2. Increased frequency, capacity, and services through L os Angeles

The Original JBA enabled Qantas to consistently expand its services through LAX. I n

December 2013, Qantas increased the frequency of its L os Angeles to/from Brisbane service to a

daily service, resulting in a 12% increase in capacity. Since January 2015

, Qantas has increased

its LAX to/ from Melbourne (―MEL‖) service from daily to ten flights per week and revised

schedules so that Qantas is the only carrier to offer morning, afternoon and evening return

departures from Australia back to the U.S.

These expanded services have driven significant and consistent gains in passenger t ra ffic

through LAX during the lifespan of the Original JBA :

1,000,000 1,050,000 1,100,000 1,150,000 1,200,000 1,250,000 1,300,000 1,350,000

2010 2011 2012 2013 2014 2015 

## Qantas Annual Scheduled Seat Capacity between LAX and AustraliaAmerican

- Qantas Joint Application Page 11

Between 2011 and 2014, traffic on Qantas

- operated flights to LAX expanded by over

100,000 passengers, a 12% increase. 20 This year, in order to serve this demand , Qantas

scheduled 95,000 more seats for LAX s ervice than were available in 2014.

Qantas‘ expansion of capacity and traffic through LAX has also supported the growth of

American ‘s hub in Los Angeles. American‘s flights out of LAX expanded from 42 destinations

in 2011 to 51 by the end of 2014

. L ast year, American launched additional flights from LAX to

new destinations like Vancouver and Atlanta

. The Original JBA has been so successful at LAX

t hat the Parties intend to add services and in crease capacity as part of the Proposed Alliance

. 21

3. Improved airport services and customer experience

T he Parties collaborate on airport operations and management through the Joint Business

Airport Working Group , which has enabled servi ce improvements, particularly for passengers

transferring at key gateways like LAX

. The Parties‘ respective operational teams meet regularly

20 See Exhibits 12 and 14 , contain ing the data from which the LAX passenger traffic and seat capacity graphs were created, respectively.
21 See Section III.

750,000 800,000 850,000 900,000 950,000 1,000,000

2010 2011 2012 2013 2014 

## Qantas Annual Passenger Traffic between LAX and AustraliaAmerican

- Qantas Joint Application Page 12

to manage and improve the transfer experience. Monthly local management meetings are held at

both LAX and DFW airports to review t hrough

- check systems and baggage transfer systems and

collaborate on improving the efficient transfer of passengers between the Parties‘ networks

.
Additionally, during construction at LAX in 2013 and 2014 , the Parties collaborated to improve

the connectio n experience at LAX by creating a dedicated transfer gate area in T4 (where

American domestic flights operates from) to enable connections to TBIT (where Qantas departs

from). The improvements included a Qantas check

- in counter and a bus access to enable better

inter

- terminal transfers. In 2013, American and Q antas aligned hotel and restaurant voucher

practices for Premium customers during flight disruption.

4. Better products for corporate customers and agencies

The Original JBA has yielded significant benefits for corporate customers and agencies

.
First, the Original JBA has helped the Parties simplif y corporate fares and streamline the

procurement process for customers. The Parties are now better

- positioned to meet the demands

of c orporate customers for alliance

- based deals based on their respecti ve experience and

relationships. American and Qantas also enjoy improved marketing and promotion for joint fare

products through their respective home point

- of

- sale strengths. The Parties currently have

app roximately 150 joint business contracts with large corporate customers who benefit from joint

pricing opportunities across extended flying networks, a majority of which did not have any

co rporate discount program from American or Q antas on flights to Austr alia prior to the Original

JBA. The Parties have provided more choice and discounted pricing alternatives to a significant

number of customers that are part of the $300 million annual corporate travel segment for North

America to Australia travel. Some 2 5,000 annual corporate travelers access discounts through

these American and Qantas programs.American

- Qantas Joint Application Page 13

Second, the Original JBA has improved benefits for Business ExtrAA members

, American‘s reward program targeted at Small and Me dium Enterprise (―SME‖) customers.

Business ExtrAA customers became eligible for point accrual on American/Qantas flights in

February 2013. Some 4,900 passengers annually now earn Business Extr AA p oints flying

Qantas

- operated flights to and from Australia

– benefits they would not have enjoyed absent the

Original JBA. SME customers also benefitted from a double

- points promotion targeted at SME

accounts, which has resulted in additional opportunities for SME cu stomers to accrue points

while traveling to Australia. Certain corporate customers have also enjoyed special

accommodations when traveling between the Parties‘ networks, including retiming certain flights

to make certain itineraries more efficient.

Thi rd, t he P arties have also developed a new sales model to help develop agency partner

business and marketing plans. Representatives from both airlines attend meetings with agents to

ensure the codeshare and network offerings are appropriately promoted. Qa ntas promotes

A merican on the Qantas Industry Sales Site and through the Qantas Industry Centre, including

by advisin g travel agents of updates to American ‘s schedule and product offerings and by

providing sales, servicing and operational support , ensuring that joint customers are provided

streamlined assistance by those travel agents. The Parties have also held joint agency partner

events to showcase the joint network, including at a recent event in Sydney in November 2014

.
Likewise, American has been ab le to provide additional benefits to certain agencies by providing

a new upfro nt commission program for American bookings on Qantas

- operated flights. These

commissions were not provided prior to the Original JBA ; now agencies benefit when booking

either c arrier.American

- Qantas Joint Application Page 14

5. Better frequent flyer programs

Over the course of the Original Joint Business, the Parties have implemented

comprehensive, reciprocal privileges for each other‘s frequent flyers when travel ing on the other

airline

. The carriers now offer what is effectively full y reciprocal

, earn

- and

- burn programs

between the two airlines on all domestic and international flights. In June 2012

, American

introduced the ability for AAdvantage members to book awards on Qantas on AA.com

,
facilitating even greater vis ibility for the program. Since August 2013, members of the Parties‘

loyalty programs earn points in all fare classes on both airlines‘ marketed services. 22

The Parties‘ fully reciprocal frequent flyer privileges have greatly benefited passengers

over the life of the Original JBA. AAdvantage members have earned nearly 3.6 billion miles

flying on Qantas, whose Frequent Flyers in turn have earned 1.5 billion miles on American

flights. Between 2011 and 2014, total miles earned by both Parties‘ passengers hav e increased

by 9%. All told, AAdvantage members have redeemed awards on over 164,000 Qantas

- operated

flights, while Qantas‘ Frequent Flyers have redeemed awards on over 129,000 American

operated flights since 2011

.

6. Sales, marketing, and tourism

Under the Original JBA , t he Parties have coordinated closely to conduct joint marketing

programs focused on generating more traffic for the joint network and stimulating tourism

. Co

branded marketing initiatives have helped the Parties better utilize their home mar ket sales and

distribution networks while avoiding duplication. American and Qantas sales representatives

22 AAdvantage members are now eligible to earn 50% mileage credit in dis count N class, and 25% mileage credit in Q class on Qantas

- marketed flights, while Qantas FFP members are now eligible to earn 25% in O & Q discount classes on American

- marketed flights. In addition, Qantas increased the status bonus from 50% to 75% for Q antas FFP Gold Status m embers on AA marketed flights.American

- Qantas Joint Application Page 15

have worked together to develop effective strategies and conduct joint sales calls to trade

partners. American‘s sales representatives in Australia have benefitted by gaining access to key

travel partners in Aust ralia, promoting not only the American/Qantas joint business and network

benefits, but also to help promote the U.S. as a top travel destination for Australians.

A merican also supported the ma rketing launch for Qantas‘s new DFW

- SYD services , and

worked with Qantas to raise the visibility for the route by coordinating messages and marketing

materials through newsletter, web advertising, and social media channels. There are numerous

other examples of American working with Qantas on major marketing initiatives to support the

joint network

. The Parties have consistently and successfully utilized each other‘s marketing

assets t o maximize reach :

  ̳Discover USA‘ was a sw eepstake offered at the Australian point of sale to promote travel to the U

. S

. and raise awareness of Qantas‘ network, service fr equency and relationship with American

. Frequent Flyers were encoura ged to earn and burn miles on American for the chance to w in a luxury trip for two to Las Vegas.

 In 2012 Qantas ran a promotion with American associated with the ―G‘day USA‖ campaign, which was designed to promote travel from Australia to the U.S. (and vice versa). 7,000 Qantas Frequent F lyers entered this competition.

 In April 2012, the Parties launched a joint promotion offering AAdvantage bonus miles/Qantas Frequent Flyer points for travel between Australia and the U.S.

 I n February 2015, Qantas ran a promotion, supported by America n, offering members the chance to win a business class trip to Las Vegas, flying with Qantas and American. 41,000 Qantas Frequent Flyer mem bers entered this competition.

III. Recent Developments Necessitate Revision s to the Parties’ Relationship , Which Will

Ex pand Customer Benefits and Enhanc e Competition

As described above, the Original JBA has delivered substantial benefits to customer s

s ince its inception i n 2011. Circumstances have changed, however, and now American and

Qantas have a unique opportunity to further expand their relationship and offer greater benefitsAmerican

- Qantas Joint Application Page 16

through the Proposed Alliance

.

A. Ameri can‘s Successful Reorganization and i ts Merger with US Airways has Enabled American to Operate Trans

- Pacific Service Alongside Qantas

American‘s parent

, AM R Corporation

, in November 2011 filed voluntary petitions for

relief under Chapter 11 of the U

. S

. Bankruptcy Code. In October 2013, the Bankruptcy Court

entered an order approving and confirmin g the Debtor‘s plan of reorganiz ation. 23 American‘s

emergence from reorganization included the merger of American and US Airways in December

2013 , bringing together two highly complementary domestic networks that offer travel ers access

to more destinations with greater ease. T he merger also allowed American to proce ed with

substantial new investments in its fleet, equipment, facilities and other improvements. And,

importantly, the merger allowed American to reach new agreements with its labor groups,

including p ilots, enabling flights to new destinations.

Accordingly, A merican now has the ability to introduce service between Australia /New

Zealand and the U

. S

. , which was simply not possible at the inception of the Original JBA

. The se

developments permit the expansion of joint business activities on Trans

- Pa cific routes and thus

require the P arties to revis e their agreement. In doing so, the Parties propose to adopt a fully

metal

- neutral a lliance structure in order to compete effectively and on equal footing with the

immunized Trans

- Pacific alliances of Delt a (SkyTeam)

- Virgin Australia and United

- Air New

Zealand (Star ) , and to provide still greater benefits to passengers.

23 See Findings of Fact, Conclusions of Law, and Order Pursuant to Sections 1129(a) and (b) of the Bankruptcy Code and Rule 3020 of the Federal Rules of Bankruptcy Procedure Confirming Debtors‘ Fourth Am ended Joint Chapter 11 Plan, In re AMR Corp. , Case No. 11

- 15463 (SHL) (Bankr. S.D.N.Y. Oct. 22, 2013), ECF No. 10367.American

- Qantas Joint Application Page 17

B. T he Proposed Alliance Enables the Parties to Adapt to New Circumstances

American and Qantas entered into the Alliance Agreement and Restated JBA on June 9,

2015, each of which will have an ini tial term of 10 years following regulatory approvals

. T he

Proposed Alliance recalibrates and expands the scope of the Original JBA similar to American‘s

other joint businesses that were previously approved by the Department

. 24 Critically, the

Proposed Alliance between American and Qantas i s intended to i mplement a metal

- neutral joint

business between the Parties where the Parties enjoy the rewards of collaboration and share the

economic risks without regard to which carrier is operating a par ticular segment

. The structure

of the agreement is designed to align the Parties‘ incentives and drive investment and further

integration of their networks through cooperation. 25 As the Dep artment has recognized, these

arrangements benefit customer s and alliances alike. 26 The Restated JBA is designed to generate

these benefits, and notes that ―t he parties intend to achieve  ̳metal neutral‘ selling

. . . in order to

maximize customer benefit b y increasing service options as well as fare benefits, providing

customers with a broad range of competitively priced products. ‖ 27

The Restated JBA covers all long

- haul Trans

- Pacific routes between North America and

Australia/New Zealand , and its management structure is designed to ensure close collaboration

24 See American

– Japan Airlines Final Order 2010

- 11

- 10 (Nov. 10, 2010); see also one world Trans

- Atlantic JB Case Final Order 2010

- 7

- 8 (Jul y 20, 2010).
25 Restated JBA § 5.1.
26 Delta

- Virgin Blue Group Final Order 2011

- 6

- 9, at 4 (June 10, 2011) (explaining that, ―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‖).
27 Restated JBA § 5.1.American

- Qantas Joint Application Page 18

between the parties. 28 The new joint b usiness will be governed by a Management Committee

whose decisions require a unanimous vote by members from both Parties. 29 The Restated JBA

also provides for a Steering Committee to set major policy decisions and resolve disputes of the

Management Committee, and its decisions must also be made through unanimous vote. 30

Functional Committees consisting of representatives from each Party will assist in implementing

initiatives in key areas such as revenue management, network planning, reservations, and airport

services. 31

The Restated JBA promises to improve customer experience by providing for

commitments by the Parties to work together in a number of key areas, including:

 Coordinating schedules. The Parties commit to coordinating the schedules of joint business flights ― in order to minimize connecting passenger waiting time and to maximize passenger convenience and service, subject to their respecti ve operational constraints and commercial considerations. ” 32

 Launching additional routes. As noted in the Restated JBA, ― It is the intent of the parties that each of them be encouraged to explore and pursue new growth opportunities, which would create new customer benefits in addition to revenue benefits for the Joint Business... includ[ing] the parties exploring new potential gateways in North America and the Australian Region. ‖ 33

 Aligning sales organizations. Under the Restated JBA, the Parties agree to ― develop a joint business organizational structure to ensure the alignment of the parties across the Joint Business, to enable the parties to respond swiftly and efficiently to market demand and facilitate the delivery of improved customer benefits. ‖ 34 To e nsure metal

- neutral selling, the agreement also provides that ― [a] ny incentives for carriers‘ respective sales

28 See Exhib it 3

, summary of material terms o f the Restated JBA (explaining that the joint business scope covers services of the Parties and their affiliates flying non

- stop between North America (including Puerto Rico and the U.S. Virgin Islands but excluding Hawaii, Guam and other U.S. territories) and Australia/New Zealand
29 Restated JBA § 4.1.
30 Restated JBA § 4.2.
31 Restated JBA § 4.3.
32 Restated JBA § 3.1.1.
33 Restated JBA § 3.2.2.
34 Restated JBA § 5.2.American

- Qantas Joint Application Page 19

forces to sell the Joint Services will include all routes of the Joint Services regardless of operating carrier. ‖ 35

 Pricing p hilosophy. The Parti es shall endeavor to develop General Pricing Guidelines that enable the Joint Business to (i) provide customers with a broad range of competitively priced Services on as many city

- pair routings within the Joint Business as practicable, (ii) remain competit ive in the markets served, (iii) respond swiftly and efficiently to market demand, (iv) standardize the price distribution process and (v) maximize selling opportunities. 36

 Expanding discounted fare options . Per the Restated JBA, the Parties intend to expl ore a new dealing strategy in order to ― introduce new Capacity and greater availability of discounted fares .‖ 37

 Inventory a vailability. The Parties shall coordinate to improve access to inventory of Trans

- Pacific joint business flights and flights connecting to those Trans

- Pacific joint business flights to ensure a level of availability for customers. 38

 Ensuring quality control . ― The parti es agree to use commercially reasonable efforts to work together to achieve reasonable target customer satisfaction levels for the Joint Services in the following quality categories: overall customer satisfaction, comfort, ground experience, entertainment , catering, crew, reservations, ticket counter efficiency, boarding efficiency, lounges, baggage delivery, punctuality and any other attribute as may be mutually agreed. ‖ 39

The Alliance Agreement complements the Restated JBA by providing an overarching

fram ework for the types of collaboration envisioned by the parties. In addition to providing for

the implementation of the Restated JBA, the Alliance Agreement covers additional agreements

between the parties including a Codeshare Agreement, a Lounge Access A greement, and

Frequent Flyer Agreements. 40 The Alliance Agreement also reflects the Parties‘ intent to

coordinate in a number of areas, including : (1) cooperating to identify mutual commercial and

strategic opportunities with respect to cargo services; (2 ) cooperating in determining distribution

35 Restated J BA § 5.3.2.
36 Restated JBA § 5.4.2.
37 Restated JBA § 5.7.1.
38 Restated JBA § 5.5.1.
39 Restated JBA § 3.6.
40 Alliance Agreement § 1(A).American

- Qantas Joint Application Page 20

strategies, including Internet and GDS distribution; (3) cooperating in travel agency and GSA

commission levels and override and incentive programs; (4) harmonizing service and product

standards in order to provid e a seamless product to passengers; (5) reducing costs and

redundancies through coordinated or joint acquisition of goods and services from third party

suppliers and vendors or through acquisition of goods and services from each other or from

Af filiates; ( 6) harmonizing IT systems ; and (7) cooperating on the methodology for the

settlement of revenue and costs from certain codeshare flights and other flights, including, if

mutually agreed, the settlement of revenue and costs on selected routes and optimizing pricing

opportunities

. 41

C. The Proposed Alliance Continues and Expands the Customer Benefits of the Original JBA

T he Proposed Alliance promises to deliver a host of additional benefits on top of what

has been achieved by the Parties‘ existing arrangement by expanding the scope a nd scale of their

collaboration.

New Services and More Choices for Passengers. In response to passenger demand for

the Parties‘ complementary networks, the Parties intend to launch a new joint business service on

American‘s state

- of

- the

- art Boeing 777

- 3000 aircraft between L os Angeles a nd S ydney in

December 2015. The Parties anticipate that American‘s service wil l facilitate a 20% increase in

the number of LAX

- SYD flights per week, and a 12% weekly increase in seats on that route

.
At the same time, the launch of American ‘s LAX

- S YD service will enable Qantas to

expand its Trans

- Pacific network to encompass the cu rrently under

- serv ed route between San

Francisco and S ydney

. Together with American‘s new LAX

- SYD route, the Parties anticipate

41 Alliance Agreement § 1(B).American

- Qantas Joint Application Page 21

an estimated increase in weekly seat ca pacity of 49% o n joint business flights between S ydney

and the U.S. West Coast

.

Both American‘s new LAX

- SYD service and Qantas‘ new SFO

- SYD service will deliver

improved connectivity and increased schedule choice for passengers flying from points within

the U

. S

. , Canada

, and Mexico to Australia and New Zealand

. Customers will benefit from

aligned schedules and increased frequencies, with American operating LAX

- SYD service using

its Boeing 777

- 300 aircraft which offer s a premium customer experience, while Qantas continues

to operate flights on th at route.

In keeping with the Parties‘ commitment to ― explore and pursue new growth

opportunities, ‖ 42 the Parties are also committed to launching several additional new services

under evaluation, which would create new customer benefits and fuel investment and expansion

of the Joint Business

. These new services are likely to include routes not currently served by

either of the Parties and are only made possible in the context of the Proposed Alliance

.

Enhanced I nter

- A lliance C ompetition . The Proposed Alliance will create a superior

product f or passengers and allow American and Qantas to compete more effectively with Delta

(SkyTeam)

- Virgin Australia and United

- Air New Zealand (Star)

. New service from S an

Francisco to Australia will introduce fresh competition to a route where only United curr ently

provides non

- stop s ervice. And the addition of a new American

- operated flight on LAX

- S YD

will add a new product and new capacity for passengers , and generate publicity and excitement

while enhancing competition. And, importantly, as noted abo ve, the Parties are studying the

launch of additional new joint business routes currently served only by other carriers

.

42 Restated JB A § 3.2.2.American

- Qantas Joint Application Page 22

Improved F are O ptions

. The Proposed Alliance will enable greater availability and

variety of price points for customer s through recipr ocal inventory access and management. By

eliminating double

- marginalization, the Parties will enjoy greater efficiencies that will lower

costs and allow them to offer a more competitive product. 43 Likewise, the new agreement will

facilitate schedule optim ization as additional American

- operated Trans

- Pa cific services are

introduced.

Substantial F requent F lyer B enefits. The Proposed Alliance will ensure that

passengers continue to enjoy fully reciprocal and comprehensive benefits on both airlines ‘

frequent flyer programs, particularly through earning and redemption opportunities as well as on

boar d recognition for each airline‘s frequent flyer members ( including those travelling on

A merican ‘s new services to and from Australia ). 44 The Restated JBA also contains

commitments to provide FFP m embers of each program with more access to offers, incentives

and promotions from the other party

. 45

Enhanced A irport S ervices and C ustomer E xperience

. The Proposed Alliance

reinforces the Partie s‘ strong commitment to customer service by requiring the Parties to

undertake efforts to achieve customer satisfaction, including by focusing on passenger comfort,

43 See Delta

- Virgin Atlantic

- Air France/KLM

- Alitalia Show Cause Order 2013

- 8

- 21 , at 16 (Aug. 30, 2013) (―As the Department has no ted in the past, the economic incentives of non

- immunized codesharing encourage each carrier to maximize its own profit without regard to the financial position of the other carrier. In an immunized joint venture, both carriers become indifferent as to whi ch carrier operates the flight, focusing instead on maximizing traffic flows across combined netwo rks. This dynamic may eliminate double marginalization pricing and other inefficiencies that burden consumers.‖); see also Delta

- Virgin Australia ACCC Draft D etermination and Interim Authorisation, at 23 (―The ACCC considers the removal of double marginalisation under the Alliance is a benefit to the Applicants‘ passengers, and should lead to lower prices for journeys connecting separate services operated by ea ch of the Applicants...the removal of double marginalisation is likely to result in some public benefit.‖).
44 Restated JBA § 6.1.
45 Restated JBA § 6.1.2.American

- Qantas Joint Application Page 23

ground experience, entertainment, catering, crew, reservations, ticket counter efficiency,

boarding efficiency, lounges, baggage delivery, and punctuality

. 46 For example, the Parties

intend to progress with plans to make ground handling improvements such as investing in

dedicated  ̳bag runners‘ during evening departure times in LAX to enable otherwise late transfer

bags to be taken between terminals and reduce the frequency of ―missed‖ baggage. The Parties

also contemplate pursuing additional efficiencies through new co

- location initiatives designed to

enhance the customer experience , including the possibility of moving American and Qantas

flights to the same terminal at JFK and introducing a joint lounge at DFW. T he Proposed

Alliance will also facilitate expanding recip rocal lounge access for club members of both

airlines.

More Efficient Utilization of Aircraft Equipment

. Th rough the Proposed Alliance, the

Parties plan to allocate aircraft to better match demand and potentially further increase capacity

on existing Tran s

- Pacific routes through improved fleet choice and increased frequencies on

certain r outes. The Restated JBA also requires the parties to coordinate on flight schedules and

develop a joint network plan. 47

Seamless Integration w ith US Airways

. Following the Merger between American and

US Airways in 2013, passengers traveling from Australia gained access to an even broader

domestic U.S. network, especially connecting US Airways hubs in Phoenix Charlotte, and

Washington D.C. to Qantas gateways. The Proposed A lliance will also allow Qantas passengers

expanded access to lounges in US Airways hubs where there was previous ly no American or

Qantas lounge. Looking forward, once American completes its integration of reservations

46 Restated JB A § 3.6.
47 Restated JBA § 3.1.American

- Qantas Joint Application Page 24

systems with US Airways, as is expect ed to occur later this year, and all flights of the combined

carrier are displayed under the AA code, the Parties expect to add additional routes to the

C ode share A greement , including flights between L os Angeles and Charlotte, Columbus,

Philadelphia, Pitts burgh, and Raleigh

- Durham.

Strengthened E conomic T ies between the U.S. and Australia

. By encouraging cross

marketing initiatives and encouraging increased travel between the U.S. and Australia, the

Restated JBA will have a positive impact on U.S. tourism and U.S. businesses. It will also help

expedite the growth of A merican in Australia, leading to further employment in Australia and

other economic benefits.

Neither carrier, actin g alone, could achieve all th e benefits that are expect ed from the

continued and evolving collaboration between the Parties.

IV. The Proposed Alliance Easily Meet s the Department’s Legal Standards for

Granting Approval and Antitrust Immunity

The Parties‘ A pplication easily satisfies the Department‘s standards and therefore

warrants approval and antitrust immunity. 48

A. The Department has Articulated Clear Standards of Review for Approval and Antitrust Immunity Applications

The Department employs a two

- step process to review alliance agreemen ts. First, under

49 U.S.C. § 41309, the Department must determine that an inter

- carrier agreement is not adverse

48 As noted above, the Department determined that there was no need to grant antitrust immunity for the Original JBA in 2011 because the Parties had no overlapping routes and American lacked the ability to operate its own Trans

- Pacific service. Now that those constraints have been lifted, the Parties seek antitrus t immunity to enable increased coordination and activities that are a natural evolution of the Original JBA. Absent the grant of antitrust immunity, the risk to the Parties once they become competitors would be too great to warrant close cooperation.American

- Qantas Joint Application Page 25

to the public interest and not in violation of the statute before granting approval. 49 The

Department cannot approve an inter

- carrier agreement that substantially reduces or eliminates

competition unless the agreement is necessary to meet a serious transportation need or to achieve

important public benefits. 50 Second, after approving an agreement pursuant to § 41309(b), the

Department ha s the discretion under 49 U.S.C. § 41308 (b) , to exempt a legal person from the

antitrust laws ―to the extent necessary to allow the person to proceed with the transaction,‖

provided that the Department determines that the exemption is required by the publi c interest.

Accordingly, t he Department‘s established policy is to approve and grant immunity for

inter

- carrier agreements if: (1) the agreements do not eliminate or substantially reduce

competition and are not adverse to the public interest; and (2) a gra nt of immunity is required by

the public interest and for the parties to proceed with the transaction. 51 The Department‘s tests

for both approval and antitrust immunity are satisfied here.

B. The Proposed Alliance Should Be Approved Because It Promotes the Pu blic Interest by Providing Important Public Benefits without Substantially Reducing Competition in any Relevant Market

1. The Proposed Alliance does not reduce competition in any relevant market

In evaluating the competitive impact of alliance applications, the Department applies the

Clayton Act ―substantial lessening of competition‖ test to predict the competitive effects of a

proposed alliance

. 52 This test considers ―whether the alliance would significantly increase

concentration in relevant markets, whether the alliance raises concerns about potential

anticompetitive effects in light of other factors, and whether entry into the market would be

49 § 41309(b)

. 50 § 41309(b)(1)(A) and (B)

. 51 one world Tran

- A tlantic JB Case Final Order 2010

- 7

- 8, at 8 (July 20, 2010).
52 Star Alliance Show Cause Order 2009

- 4

- 5, at 7 (April 7, 2009).American

- Qantas Joint Application Page 26

tim ely, likely, and sufficient either to deter or counteract a proposed alliance‘s potential for

harm.‖ 53

This Application is unusual in that there is no existing competition between the Parties on

either a country

- pair or city

- pair level

. American has not of fered any Trans

- Pacific service on its

own metal to either Australia or New Zealand in more than twenty years as a result of fleet

limitations and restrictions in its labor agreements. As the Parties‘ networks are currently

entirely complementary, the Pro posed Alliance will not eliminate or substantially reduce any

actual competition in Trans

- Pacific services. The Department has previously recognized that

there are ―no significant competitive issue[s]‖ when two carriers ―are not operating competitive

serv ices in the relevant...market.‖ 54 For the same reason, the Proposed Alliance cannot increase

concentration in any relevant market. 55 Accordingly, the Proposed Alliance will not

substantially reduce or eliminate competition.

2. The Proposed Alliance will achiev e important public benefits, including by expanding competition in the highly

- competitive Trans

- Pacific marketplace

As detailed above, the Proposed Alliance promises to deliver a number of important

public benefits. But in addition to the benefits detail ed there, the Proposed Alliance will also

increase competition by add ing more options and greater capacity on Trans

- Pacific routes as

American and Qantas expand and launch new services. Under the Proposed Alliance, the Parties

intend to introduce new service onto the highly

- competitive LAX

- SYD route while providing a

second, new option for customer s traveling on the underserved SFO

- SYD route.

53 Id.
54 America West

- Royal Jordanian Final Order 2005

- 1

- 23, at 8

- 9 (Jan. 27 , 2005); see also id. at 9 (― the Cooperation Agreement should not diminish competition in the U.S.

- Middle East market‖ because ―the Joint Applicants do not compete in any U.S.

– Middle East market.‖).
55 See id. at 10 (recognizing that the ―proposed . . . all iance will not increase concentration because [one of the applicants] does not operate its own flights to the [region]‖).American

- Qantas Joint Application Page 27

LA X

- SYD is the single most trafficked route between the U.S. and Australia, and Qantas

currently faces robust competition from Delta, Virgin, and United. On the LAX

- SYD route,

Qantas, United, Virgin Australia, and Delta have consistently held at least a 15% share seat

capacity. 56 As a result, members of all three major alliances currently offer LAX

- SYD service.

Under the Proposed Alliance, Qantas will continue to operate flights between Los

Angeles and Sydney, while American will launch its own service on American metal. In total,

the Parties anticipate that the Proposed Alliance will add three flights per week between the

cities, a 20% increase, and increase available weekly seats for customer s by 12%. In short, the

Proposed Alliance will increase competition by giving passengers even more choice on a route

already enjoying robust competition from other carrier s

— and passengers will reap the benefits.

Likewise, under the Proposed Alliance, Qantas intends to launch a new non

- stop service

on the underserved SFO

- SYD route. Since 2012, United has been the only carrier to fly non

- stop

betw een SFO

- SYD, carrying a tot al of 189,169 passengers in 2014. Qantas‘ entry will

immediately introduce new capacity and fresh competition by adding a second non

- stop carrier

on that route with six flights per week. As with American‘s new LAX

- SYD service, passengers

will benefit fro m increased choice, expanded connectivity, and the host of other benefits

described in Section III above. In total, the Parties anticipate that this new service under the

Proposed Alliance will expand seat capacity on joint business flights between SYD an d the U.S.

West Coast by

~ 49%. And the Parties are currently evaluating more new route options under the

Proposed Alliance.

These new services will add to the robust competition that already characterizes the

Trans

- Pacific market place and allow the Partie s to better compete with new offerings by Delta

-

56 Se e Exhibit 15 , LAX

- SYD Seat Capacity Share by CarrierAmerican

- Qantas Joint Application Page 28

Virgin Australia, and United. In October 2014, United launched new service on LAX

- MEL that

has since increased to daily service. 57 Also in 2014, United replaced its Boeing 747 flights on

LAX

- SYD and SFO

- SYD with Boeing 777s. 58 Meanwhile, Delta and Virgin Australia have

continued to upgrade their capacity on Trans

- Pacific routes while enjoying an alliance that likely

helped ―attract[ ] and retain[] corporate customers on the Trans

- Pacific, including customers that

may otherwise have signed with Qantas.‖ 59 Indeed, the Department approved the Delta

- Virgin

Australia alliance in part because it found that the ―immunized alliance

. . . is u nlikely to have

any significant deleterious effect on competition in the U.S.

- Australia market,‖ 60 because

competition ―in the U.S.

- Australia and U.S.

- South Pacific is now more robust than ever.‖ 61

Given the competitive vigor on Trans

- Pacific routes between ―three carrier groups, each with its

own allia nce,‖ the Department concluded that all competitors would ―continue to operate in a

competitive environment that benefit s the...public.‖ 62

New service introduced as a result of the Proposed Alliance will also l ikely provoke

competitive fares and new service offerings from rival airlines and alliances. Indeed, in Delta

and Virgin Australia‘s recent application to the ACCC to renew their alliance, the ACCC

observed that ―Qantas represents a major consideration fo r the [Delta

- Virgin Australia] Alliance

in formulating its competitive strategy.‖ 63 Accordingly, American and Qantas expect swift

reaction s from competitors, particularly from the Delta

- Virgin and United

- Air New Zealand

alliances, who will fight to compete with the Parties‘ new services and wider network

. I n the

57 Delta

- Virgin Australia ACCC Draft Determination and Interim Authorisation, at 44.
58 Id.
59 Id. at 6, 27.
60 Delta

- Virgin Blue Group Final Order 2011

- 6

- 9, at 2 (June 10, 2011).
61 Id. at 4.
62 Id. at 2

- 3.
63 Delta

- Virgin Australia ACCC Draft Determination and Interim Authorisation, at 39

.American

- Qantas Joint Application Page 29

immediate wake of the ACCC‘s draft authorization to reauthorize the Delta

- Virgin Australia

alliance, United Airlines‘ Managing Director for Japan and Pacific Sales reiterated the

―significant importance‖ of the Australian market to United, and that remaining competitive on

Trans

- Pacific routes is ―absolutely paramount for us... .‖ 64 The expected reactions from the

Parties‘ competitors will result in more efficient, better quality and lower prices services for

customers flying Trans

- Pacific routes.

In sum, the Proposed Alliance will allow American and Qantas to compete aggressively

and effectively with the immunized Delta (SkyTeam)

- Virgin Australia and United

- Air New

Zealand (Star) alliances, and p rovide a range of public benefits without substantially reducing

competition in any relevant market

. The Proposed Alliance promotes, and is no way adverse to

the public interest.

C. The Public Interest Requires a Grant of Antitrust Immunity and the Parties W ill Not Proceed With the Proposed Alliance Without Antitrust Immunity

1. The Parties will not proceed with the Proposed Alliance without the Department’s grant of antitrust immunity

The Original JBA between American and Qantas became effective on May 6, 201 1,

shortly after receiving final approvals from the Department of Transportation, the ACCC, and

the NZMOT. Since that relationship began, the Parties have seen the public benefits envisioned

in their initial application come to fruition. 65 However, the Or iginal JBA has enabled the Parties

to realize only a portion of the untapped potential of a more comprehensive relationship between

American and Qantas as contemplated by the Proposed Alliance. The Proposed Alliance

represents a truly metal

- neutral joint business between the Parties where both share in the

64 The Australian,  ̳United lifts in a battle for the Pacific

, ‘ 5 June 2015.
65 See Section II above.American

- Qantas Joint Application Page 30

economic risk of the collaboration and share in the success of the enterprise regardless of which

carrier is operating the Trans

- Pacific segment. The added alignment of incentives will drive

American an d Qantas to further integrate their networks, thus delivering to passengers the

benefits of greater cooperation.

All of the existing cooperation and future expansion plans assume access to the flow

accumulated at the other carrier‘s respective gateways. W ithout tight integration of the Proposed

Alliance, American and Qantas would not have the same incentives to allow each broad access to

the other‘s network.

With the tight integration of the Proposed Alliance, the one world alliance will be able to

compete on equal footing with Delta (SkyTeam)

- Virgin Australia and United

- Air New Zealand

(Star) , who already enjoy immunized Trans

- Pacific alliances. As the Department has observed

in the past, close integration in an alliance enables parties to ―achieve merger

- like

- efficiencies

and deliver benefits that would not otherwise be possible.‖ 66 Virgin and Delta highlighted the

importance of alliance integration in the Trans

- Pacific, stating that it ―facilitates services which

Virgin Australia and Delta would not alone be able to offer either in the short term, or at all. As

the integration and benefits of the Alliance deepen, new . . . routes are also more likely to

become viable.‖ 67 Each of these statements applies equally to the present Application.

The ultra

- long s tage length and limited number of available Trans

- Pacific gateways

require close collaboration and integration to efficiently and effectively serve these routes. The

other two Trans

- Pacific alliances coordinate closely, align their operations, and continu e

improving the Trans

- Pacific services they provide. Star Alliance grew its passenger traffic on

66 SkyTeam II Case Show Cause Order 2008

- 4

- 17, at 15 (April 9, 2008).
67 Alliance between Virgin Australia and Delta Airlines, ACCC Submission in support of application for revocation and substitution, 30 December 2014, p 24.American

- Qantas Joint Application Page 31

U.S. to Australia

- New Zealand routes by over 115,000 from 2010 to 2014, a 2.5% compound

annual growth rate. 68 Likewise, the Delta (SkyTeam)

- Virgin Australia a lliance saw total

increases of over 80,000 passengers on U.S. to Australia

- New Zealand routes since 2010, a 3.7%

CAGR. The Parties seek to achieve similar pro

- competitive efficiencies through the Proposed

Alliance

.
While the Parties lawfully engage in close cooperation under the Original JBA, they have

determined that they will not proceed with the implementation of the Proposed Alliance without

a grant of immunity. Even though the Proposed Alliance will allow American and Qantas to

enhance competition , provide a range of benefits to customers, and generally achieve merger

type efficiencies, there still remains a significant risk of antitrust lawsuits from third parties,

however unwarranted, particularly once both Parties are operating U.S. to Australia service. 69

The persistent threat of this expensive and burdensome antitrust litigation is a weight that the

Parties have determined is too great for the joint business to sustain absent a grant of immunity.

T he Department has previously acknowledged the importance of antitrust immunity in this

context, noting that the commercial agreements fostering the close integration that generate

68 See Exhibi t 16 : Passe nger Traffic on U.S. to AU/NZ by Alliance.
69 Airlines have had to defend themselves in multiple lawsuits driven by plaintiffs‘ counsel involving antitrust claims, regardless of the lack of merit. See, e.g.

, Taleff v. Sw. Airlines Co.

, 554 F. App‘ x 598 (9th Cir.) ( issuing sanctions order against plaintiffs‘ attorneys), cert. denied

, 135 S. Ct. 231 (2014); Fjord v. AMR Corp et al , U.S. Supreme Court, Docket No. 11

- 15463

- SHL ( P laintiffs‘ emergency request for st ay of orders approving American

- US Airways merger denied by the Bankruptcy Court of the U.S. District Court of S.D.N.Y, the Second Circuit Court of Appeals, and finally the U.S. Supreme Court); Malaney v. UAL Corp. , 552 F. App‘ x 698, 700

- 01 (9th Cir.) (uph old ing lower court‘s denial of plaintiffs‘ motion for injunction to prevent merger of United Airlines Inc. and Continental Airlines Inc.), cert. denied

, 135 S. Ct. 136 (2014); In re Northwest Airlines Corp. Antitrust Litig. , 208 F.R.D. 174 (E.D. Mich. 2002 ), review denied, 310 F.3d 953 (6th Cir. 2002), cert. denied, 539 U.S. 904 (2003); In re Airline Ticket Commission Antitrust Litig. , 268 F.3d 619 (8th Cir. 2001).American

- Qantas Joint Application Page 32

substantial public benefits ―involve revenue and benefit

- sharing arrangements that create a

greater risk of antitrust liti gation and potential antitrust liability.‖ 70

2. The substantial public benefits of the Proposed Alliance cannot be realized without a grant of antitrust immunity

The Department has accepted that most of the pro

- competitive customer benefits of such

collaborati ons require close integration and that ―a grant of antitrust immunity is . . . necessary to

achieve most of these benefits.‖ 71 The same is true here. Without the protection of antitrust

immunity for the Parties‘ efforts to coordinate on capacity, scheduli ng, information sharing, or

otherwise engaging in their joint business, the Parties will not be able to expand on the benefits

achieved through the Original JBA. Moreover, the inability to obtain immunity would create a

moat between the Parties and provid e a clear signal that would profoundly impact the launch of

new services and joint programs along the Trans

- Pacific.

The services and benefits of the Proposed Alliance are achievable by the Parties only in

the context of immunized coordination. O nly witho ut fear of private antitrust actions , however

meritless , can American and Qantas comfortably undertake the Proposed Alliance and continue

the joint business sustainably. The public interest requires the grant of antitrust immunity to the

Proposed Alliance , just as it required immunity for the Delta (SkyTeam)

- Virgin Australia and

United

- Air New Zealand (Star) alliances

.

70 United

- Lufthansa

- SAS

- Austrian

- bmi

- LOT

- Swiss

- TAP

- Air Canada Show Cause Order 2006

- 12

- 17, at 17 (Dec. 19, 2006).
71 one world Trans

- Atlantic JB Case Show Cause Order 2010

- 2

- 8, at 30 (Feb. 13, 2010).American

- Qantas Joint Application Page 33

V. Conclusion

T he Proposed Alliance firmly meets all the Department‘s requirements for approval and a

grant of antitrust immunity under 49 U.S.C. §§ 41308 and 41309. First, the Proposed Alliance is

firmly in the public interest, as it would ( 1) enhance the already

- robust airline competitio n

between North America and Australia /New Zealand ; and ( 2) generate important public benefits

to customer s that could not be achieved without the merger

- type efficiencies arising from an

immunized alliance akin to those already enjoyed by the Delta (SkyTea m)

- Virgin Australia and

United

- Air New Zealand (Star) alliances

. Second, as the Department has acknowledged in prior

grants of immunity, antitrust immunity is necessary for the Parties to ( 1) achieve the full, pro

competitive range of public benefits that would arise from the Proposed Alliance ; and ( 2)

proceed with the Proposed Alliance without the risk of meritless antitrust litigation

.Exhibit 1 : Alliance AgreementExhibit 2 : Restated JBA, Alliance Settlement Agreement, Amendment No. 5 to the Original JBA, and Codeshare Agreement

Exhibit 2 is being provided as part of the Parties‘ Confidential Production Pursuant to the Motion of Joint Applicants for Confidential TreatmentExhibit 3 : Summary of Material Terms of the Restated JBA

Joint Business Scope  Covers services of the parties and their affiliates flying non

- stop between North America

(including Puerto Rico and the U.S. Virgin Islands but excluding Hawaii, Guam and other U.S. territories) and Australia/New Zealand (“Joint Services”)

 Intended to cover new joint business routes introduced by American and Qantas that are currently being evaluated

Revenue and Cost Settlement  Metal

- neutral revenue and cost settlement as set out in the Alliance Settlement

Agreement

Joint Business Management  Management Committee consisting of two representatives of each party meeting at least

quarterly, with decisions only by unanimous vote

 Stee ring Committee consisting of no more than two representatives of each party meeting at least twice per year, with decisions only by unanimous vote

 Functional Committees overseeing (1) revenue management and pricing; (2) network planning and schedule manage ment; (3) sales; (4) reservations and online distribution; (5) marketing, customer experience and product, including frequent flyer programs; (6) airports; (7) finance and accounting; (8) procurement and cost reduction; (9) IT and other infrastructure; (10 ) legal/regulatory matters; and (11) quality assurance

 Consensus decision

- making for network and capacity decisions relative to the Joint Services with certain limited exceptions

Capacity Governance  The intent is for the parties to explore and pursue new growth opportunities and mutually

agree on new routes and added capacity pursuant to a rolling five

- year network plan

 First two years of the rolling network plan are considered fixed after approval by the Steering Committee, and any changes to the plan req uire consent

 Last three years of the rolling network plan are for planning purposes only

Financial Settlement  Settlement of Joint Business net revenue attributable to consensual capacity in

accordance with the parties’ relative capacity proportions subje ct to adjustments for net revenue resulting from certain T rans

- pacific routes, and equal sharing of Joint Business net revenue attributable to non

- consensual excess capacity

Exclusivity  Qantas to be American’s exclusive (a) airline partner in the Australian Region with regard

to codesharing and frequent flyer arrangements; (b) partner with respect to codesharing on flights to, from, via or within the Australian Region ; and (c) lessor or benefit sharing partner with regard to direct flights b etween the Australian Region and North America, in each case except for certain grandfathered arrangements, legacy arrangements of new affiliates, arrangements with other one world carriers and arrangements imposed by governmental authorities

 American to be Qantas’ exclusive (a) North American airline partner with regard to codesharing and frequent flyer arrangements; (b) partner with respect to codesharing on flights to, from, via or within North America ; and (c) lessor or benefit sharing partner with regar d to direct flights between the Australian Region and North America, in each case except for certain grandfathered arrangements, legacy arrangements of new affiliates, arrangements with other one world carriers and arrangements imposed by governmental autho rities

Term  Initial term of ten years from the date the parties receive notice that the Australian and US

authorities have granted antitrust immunity; terminable if antitrust immunity is not granted or renewedExhibit 4 : American

- Qantas Final Order 2011

- 11

- 12 (Nov. 9, 2011)Order 2011

- 11- 12 Served: November 9, 2011



### UNITED STATES OF AMERICA DEPARTMENT OF TRANSPORTATION OFFICE OF THE SECRETARY WASHINGTON, D.C.

Issued by the Department of Transportation on the 9 th Day of November , 2011

Joint Application of :

AMERICAN AIRLINES, INC.

and

QANTAS AIRWAYS LIMIT ED

under 49 U.S.C. § 41309 for approval of Joint Business Agreement Docket DOT

- OST

- 2011- 0111

FINAL ORDER

I. S UMMARY By this order, the Department of Transportation grants approval of the application of American Airlines, Inc. and Qantas Air ways Li mited ( “American/Qantas”

, “ AA /QF ” or

“ oneworld ”). The oneworld a pplicants have requested a pproval to implement a Joint Business Agreement (“ JBA ”). T hese air carriers already have basic marketing agreements in place to sell each other’s products and servi ces and are seeking to increase integration of their respective networks through the JBA.

Based on our evaluation of the oneworld a pplication, we determine that approving the JBA would likely promote inter

- al liance competition in the U.S.

- A ustralia and U.S.

- New Zealand markets and produce a stronger overall competitive environment, leading to enhanced consumer benefits

.
By optimizing the joint network, the oneworld a pplicants state that they will be able to “more closely coordinate and improve their product offerings between the U.S. and the South Pacific.” 1 More specifically, American and Qantas claim that approval of the JBA will result in improved network schedules, aligned frequent flyer benefits, new corporate and leisure fare products,

1 Se e Joint Application, at 6.2 lo w er far es , and greater availability. We conclude that the oneworld a pplicants have provided evidence that substantial public benefits are likely to result from their proposed cooperation

. These benefits include a broad range of service, fare, facility, and product improvements.

Provided that the oneworld a pplicants abide by the conditions that we propose here , we conclude that the potential benefits of the application outweigh any potential harm. Therefore,

we approve the Joint Business Agreement , subject to the conditions in Section V

.

II. S UMMARY OF THE R ECORD
On June 8 , 20 11 , the oneworld a pplicants filed the AA/QF Appl ication , which included a copy of the JBA, in Docket DOT

- OST

- 2011- 0 111 . The Applicants note that they will not proceed with the proposed J BA absent approvals from the U.S. and Australian governments

. 2

On June 10, 20 11, we issued a N otice granting interim access to confidential documents submitted with the applications, limited to interested parties who filed confidentiality affidavits. 3
W e also declared the record in the case to be substantially complete and established a procedural schedule for public comments and responses. Answers were due on July 1 and r eplies were due on July 13.

Dallas

- Fort Worth International Airport (“ DFW ” ) fi led an answer. DFW expressed strong support for the American/Qantas a pplication

, encouraging the D epartment to approve th is application in order to allow AA and QF to better coordinate services related to QF’s new Dallas/Fort Worth

– Sydney route as well as to enhance U.S.

- South Pacific competition among global alliances

. 4 No other answers and no replies were filed.

III. D ECISIONAL S TANDARDS The request pending in this docket is for approval of a Joint Business Agreement between AA/ QF

.
Under 49 U.S.C § 41309, we engage in a n analysis of foreign air transportation agreements submitted for our approval. We determine under § 41309 (b) whether the agreements are adverse to the public interest because they would substantially reduce or eliminate competition (th e “competitive analysis” ). If we make that affirmative determination

, § 41309 (b)(1)(A) directs us to decide whether the agreements are nevertheless necessary to meet a serious transportation need or to achieve important public benefits ; U.S. foreign poli cy goals are a key element of these benefits

. If , however, we do not find the agreements to be adverse to the public interest, § 41309(b) directs us to approve them.

2 See Joint Application, at 4.
3 See Docket DOT

- OST

- 2011

- 0111; Notice Providing Access to Documents and Suspending Procedural Schedule ( June 10, 2011 ).
4 See Docket DOT

- OST

- 2011

- 0111; Answer of Dallas

- Fort Worth International A irport, at 1 ( July 1, 2011 ).3 IV. D ECISION
Under § 41309 (b) , we must determine whether the agreement is adverse to the p ublic interest because it would substantially reduce or eliminate competition

. The oneworld a pplicants provided, within their application, a competitive summary table using Marketing Information Data Tapes ( “MIDT” ) booking data. 5 Between the U.S. and Aus tralia, Qantas ’ booking share totaled 40 percent

, followed by immunized United/Air New Zealand at 27 percent and immunized Delta/V Australia at 22 percent.

AA and QF have no overlapping nonstop transpacific routes . AA states that i t does not have aircr aft currently capable of providing nonstop service between the U.S. and Australia and that its existing labor agreements preclude nonstop flights over U.S.

- South Pacific stage lengths

. 6
A ccordingly , we conclude that American is unlikely to become a nonsto p competitor between the U.S. and Australia

, and that no reduction in the number of nonstop competito rs would result from approving the application.

In their joint application, the oneworld a pplicants point to a number of benefits to be realized by cons umers , including : (1) improved schedules and frequencies ; (2) increased behind and beyond Pacific Gateway connecting opportunities; (3) joint use airport facilities ; (4) improved coordination of connecting passengers and streamlined check

- in ; (5) new fare products and zonal fare reductions ; (6) enhanced frequent flyer reciprocity; and (8) cohesive product offering s to corporate clients. 7

We have evaluated the claimed benefits in light of their commercial incentives, the provisions of the JBA, the structu re and evolution of the transpacific market, and our historical
exper ience with alliances. We specifically note the oneworld a pplicants ’ intention to support and expand new ly launched QF nonstop services , implement product enhancements, and invest in join t

- use facilities

. 8

Additionally, we find that a pproving the JBA will lead to e nhanc ed inter

- alliance competition across the South Pacific. United and Air New Zealand have operated with immunity for 10 years and Delta and V Australia received antitrust im munity for their transpacific joint venture this
year

. Approving the AA/QF JBA will allow these oneworld carriers to deepen their cooperation, compete more effectively with the existing immunized carrier groupings, and create and sustain consumer benefits

.
Based on our analysis of the potential competitive effects and public benefits of the proposed

a greements, we approve the oneworld J BA

.

5 See Joint Application, at 15.

6 See Joint Application, at 2.
7 See Joint Application, at 5

- 6.
8 See Joint Application, at 5.4 V. C ONDITIONS In this section, we summarize and explain the proposed conditions and remedies to be applied to our approval of the JBA

.

A. A NNUAL R EPORTING We find that it is necessary for the oneworld a pplicants to report to the Department concerning commercial developments in their alliance and the degree to which the public benefits envisioned in the A pplication ar e being realized. As we have in recent decisions, we are requiring annual report ing. 9 The report should focus on progress made toward achieving the JBA’s stated goals, specific actions taken to implement the JBA, present or future planned cooperation bet ween AA/QF in all core airline functions, and a discussion of the public benefits that are being realized.

B. O PERATION UNDER A C OMMON N AME

Becaus e implementation of the oneworld a pplicant ’ s JBA could raise important consumer issues and “holding out” questio ns , if AA/ QF choose to operate under a common name or use “common brands,” the oneworld applicants must seek separate approval from the Department prior to such operations. For example, it is Department policy to consider the use of a single air carrier d esignator code by two or more airlines to be unfair and deceptive

, unless the airlines give reasonable and timely notice to passengers of the actual operator of the aircraft. 10

A CCORDINGLY :

1. We approve the Joint Business Agreement 11 between American Airli nes, Inc., and Qantas Airways Limited , in so far as such agreements relate to foreign air transportation. Without regard to other conditions described in the ordering paragraphs below, the approval shall remain in effect indefinitely, subject to Ordering Paragraph 4, provided that the oneworld a pplicants :

a. Submit for prior approval subsequent subsidiary agreements implementing their
most recent Joint Business A greement ; 12

b. Resubmit the JBA before five years from the date of issuance of this order;

c. Obtain prior approval if they choose to operate or hold out service under a common name or use common brands;

9 See Star Final Order 2009

- 7

- 10, at 26 (July 10, 2009); oneworld Final Order 2010

- 7

- 8, at 15 (July 20, 2010)
10 See 14 C.F.R. § 399.82.
11 The Joint Business Agreement is Exhibit 1 of the Joint Application of American Airlines, Inc. and Qantas Airways Limited for approval of Joint Business Agreement (June 8, 2011).
12 Regarding this requiremen t, we do not expect the oneworld a pplicants 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 di rect them to provide the Department with all unredacted contractual instruments that implement or materially alter, modify, or amend the cooperation agreements, joint ventures, or confidentiality guidelines.5 2. We direct the oneworld applicants to file with the Director of the Office of Aviation Analysis a verified statement(s) in Docket OST

- 2011- 0111 attesting that the Joint Business Agreement has been executed and implemented and a complete and unredacted copy of the most recent American/Qantas Joint Business Agreement and any appendices;

3. We direct the A pplicants to submit annual progress reports to the Office of Aviation Analysis, beginning one year from the date of issuance of this order, and continuing each year thereafter while their JBA is effective; 13

4. We determine that we may amend, modify, or revoke this authority at any time without hearing; and

5. We wi ll serve this Order on all parties on the service list in this docket.

By:



### S USAN 

### L. K URLAND Assistant Secretary for Aviation and International Affairs

(SEAL)

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

13 We expect the oneworld applicants to delive r the progress report by the close of business on the anniversary date. If that date falls on a weekend or federal holiday, the oneworld a pplicants may deliver the report by the close of business on the following business day.Exhibit 5 : ACCC Determination of Applications for Authorisation by Qantas Airways Limited & American Airlines Inc., 29 September 2011DETERMINATION A91265 & A91266 ii 

## Summary

The ACCC grants authorisation for a Joint Business Agreement between Qantas and American Airlines until 21 October 2016.

On 12 May 2011, Qantas and American Airlines lodged applications for authorisation of a Joint Business Agreement (JBA). Under the JBA, the airlin es will coordinate operations on services between Australia/New Zealand and the United States (the trans-Pacific routes), and on their respective services which support the trans-Pacific routes.

The applicants propose to coordinate all business o perations, including flying operations, pricing and revenue management, scheduling, cargo, passenge r sales and marketing, airport services and frequent flyer programs.

The ACCC considers that the JBA is likely to result in new and improved products and services, (including improved schedules and connectivity, a g reater choice of connection and stop-over options, and the possibility of new and improved ro utes) and enhanced value added services (including reciprocal lounge access, equivalent fre quent flyer privileges and improved check-in procedures). The ACCC also considers that the JBA w ill provide the applicants with an incentive to offer new fare products, which may res ult in lower fares on many trans-Pacific
routes.

Qantas and American Airlines do not directly compet e on any routes, and the information currently available suggests that they are unlikely to directly compete in the future. In light of this, the ACCC considers that the JBA is unlikel y to result in any public detriment.

Therefore, the ACCC grants authorisation to the app licants for the JBA for five years.

On 9 June 2011, the ACCC granted interim authorisat ion, allowing the parties to commence the JBA while it considers the substantive applications for authorisation.DETERMINATION A91265 & A91266 iii 

## Contents

1. THE APPLICATIONS FOR AUTHORISATION ................................................. 1

2. BACKGROUND TO THE APPLICATION

................................................... .......... 3

T HE APPLICANTS

................................................... ................................................... .................. 3 Qantas

................................................... ................................................... ............................ 3 American Airlines

................................................... ................................................... ....... 3 T HE JBA

................................................... ................................................... ............................... 4 T HE AVIATION INDUSTRY

................................................... ................................................... .... 6
3. SUBMISSIONS RECEIVED BY THE ACCC

................................................... ..... 8

4. ACCC EVALUATION

................................................... ................................................ 10

T HE MARKET

................................................... ................................................... ....................... 10 T HE COUNTERFACTUAL

................................................... ................................................... ...... 14 P UBLIC BENEFIT

................................................... ................................................... ................. 15 New and improved products and services

................................................... ........ 15 New fare products and lower fares

................................................... ...................... 17 Increased tourism

................................................... ................................................... ... 21 Streamlined corporate travel procurement

................................................... ...... 22 A stronger frequent flyer proposition

................................................... ................. 22 ACCC conclusion on public benefits

................................................... .................... 23 P UBLIC DETRIMENT

................................................... ................................................... ............ 23 International air passenger transport services .................................................. 2 3 International air freight transport services

................................................... ...... 24 The sale of air transport services

................................................... ......................... 24 Australian domestic air passenger transport service s .................................... 25 ACCC conclusion on public detriments

................................................... ............... 25 B ALANCE OF PUBLIC BENEFIT AND DETRIMENT

................................................... .................. 25 L ENGTH OF AUTHORISATION

................................................... ................................................ 26 V ARIATIONS TO THE JBA

................................................... ................................................... . 26

5. DETERMINATION

................................................... ................................................... . 27

T HE APPLICATION

................................................... ................................................... .............. 27 T HE NET PUBLIC BENEFIT TEST

................................................... ............................................ 27 C ONDUCT FOR WHICH THE ACCC GRANTS AUTHORISATION ............................................... 28 I NTERIM AUTHORISATION

................................................... ................................................... . 28 D ATE AUTHORISATION COMES INTO EFFECT

................................................... ...................... 28 A TTACHMENT A

— THE AUTHORISATION PROCESS

................................................... ........... 29 A TTACHMENT B

— CHRONOLOGY OF ACCC ASSESSMENT FOR APPLICATIONS A91265 & A91266

................................................... ................................................... ............................ 30 A TTACHMENT C

— THE TESTS FOR AUTHORISATION AND OTHER RELEVANT PRO VISIONS
OF THE A CT

................................................... ................................................... ........................ 31DETERMINATION A91265 & A91266 iv 

## List of abbreviations

ACCC Australian Competition and Consumer Commission The Act The Competition and Consumer Act 2010 The applicants Qantas Airways Limited & American Ai rlines Inc.

Codeshare

The applicants’ Codeshare Agreement Code sharing refers to arrangements involving the a ssignment

of one airline’s designator code to a flight operat ed by another airline. The applicants currently sell tickets on each other s’ services under a free-sale Codeshare Agreement dated 23 Sept ember 2004. Free sale A type of code share where the marketing carrier effectively

only pays for the seats it sells Interline agreement Interlining involves the carria ge of passengers and/or freight

between two points using more than one airline unde r an arrangement which typically involves baggage check through and the honouring of tickets between airlines Load factor Load factors measure the percentage of seats filled on an

aircraft on any given route. This is derived from d ividing the number of passengers travelled by the number of sea ts available Sector A sector is a non-stop flight leg between tw o points

(excluding technical stops where no passengers or c argo are picked up or dropped off) The Tribunal The Australian Competition TribunalDETERMINATION A91265 & A91266 1 

## 1. The applications for authorisation

1.1. On 12 May 2011, Qantas Airways Limited (Qantas) & A merican Airlines Inc. (American Airlines) (together, the applicants) lodg ed applications for authorisation A91265 & A91266 with the ACCC.

1.2. Authorisation is a transparent process where the AC CC may grant immunity from legal action for conduct that might otherwise breach the Competition and Consumer Act 2010 (the Act). The ACCC may ‘authorise’ businesses to engage in anti-competitive conduct where it is satisfied that the public benef it from the conduct outweighs any public detriment. The ACCC conducts a public consu ltation process when it receives an application for authorisation, inviting interest ed parties to lodge submissions outlining whether they support the application or n ot. Further information about the authorisation process is contained in Attachment A . A chronology of the significant dates in the ACCC’s consideration of these applicat ions is contained in Attachment B

.

1.3. Application A91265 was made under subsections 88(1) and 88(1A) of the Act to:

 make and give effect to a contract, arrangement or understanding, a provision of which is or may be an exclusionary provision within the meaning of section 45 of the Act

 make and give effect to a provision of a contact, a rrangement or understanding, a provision of which is, or may be, a cartel provisio n and which is also, or may also be, an exclusionary provision within the meaning of section 45 of that Act.

1.4. Application A91266 was made under subsections 88(1) and 88(1A) of the Act to:

 make and give effect to a contract or arrangement, or arrive at an understanding, a provision of which would have the purpose, or would have or might have the effect, of substantially lessening competition with in the meaning of section 45 of the Act

 make and give effect to a contract or arrangement, or arrive at an understanding a provision of which would be, or might be, a cartel provision (other than a provision which would also be, or might also be, an exclusion ary provision within the meaning of section 45 of that Act).

1.5. In particular, Qantas and American Airlines have so ught authorisation to make and give effect to a Joint Business Agreement (JBA). Under t he JBA, they would coordinate operations on international air passenger transport services between Australia/New Zealand and the United States (the trans-Pacific ro utes), and on extensive Qantas and American Airlines services which support the trans- Pacific routes. The applicants have sought authorisation for five years.

1.6. Qantas will operate trans-Pacific services and conn ecting services in Australia and to New Zealand on behalf of the proposed JBA. American Airlines will operate connecting services in the United States, Canada an d Mexico, and provide sales support for the trans-Pacific routes.DETERMINATION A91265 & A91266 2 

### Interim authorisation

1.7. On 9 June 2011, the ACCC granted interim authorisat ion to allow the parties to commence the proposed JBA while the ACCC considers the substantive authorisation. Interim authorisation will remain in place until th e ACCC’s final determination comes into effect or until the ACCC decides to revoke int erim authorisation.



### Draft determination

1.8. Section 90A(1) requires that before determining an application for authorisation the ACCC shall prepare a draft determination.

1.9. On 22 August 2011, the ACCC issued a draft determin ation proposing to grant authorisation to Qantas and American Airlines for f ive years.

1.10. A conference was not requested in relation to the d raft determination.DETERMINATION A91265 & A91266 3 

## 2. Background to the application

The applicants

Qantas 1

2.1. Qantas was incorporated in Queensland in 1920 and i s Australia's largest domestic and international airline. The Qantas Group employs app roximately 32,500 people and offers services across a network covering 182 desti nations in 44 countries - 59 in Australia and 123 in other countries (including tho se covered by code share partners).

2.2. As at 1 September 2010, Qantas operated a fleet of 252 aircraft. Qantas also operates airline related businesses which include airport su pport services, catering, freight operations, loyalty programs, defence support servi ces and engineering.

2.3. Qantas operates flights using the following brands:

 Qantas: a full-service airline offering domestic an d international services

 Jetstar: a low fare airline offering domestic and i nternational services

 QantasLink: a full-service regional domestic airlin e.

2.4. Qantas also has interests in Jetstar Asia and Valua ir (both Singapore-based airlines, of which Qantas owns 49%), Jetstar Pacific (a Vietnam- based airline of which Qantas owns 27%) and Air Pacific (a Fiji based airline of which Qantas owns 46%).

2.5. Domestically, Qantas (including QantasLink and Jets tar) operates over 5,600 flights each week. These flights serve 59 city and regional destinations in all states and mainland territories. Internationally, Qantas (incl uding Jetstar) operates more than 970 flights each week, of which approximately 630 are Q antas flights and 340 are Jetstar flights.

2.6. For the financial year ended 30 June 2010, Qantas r eported revenue of A$13.8 billion and a profit before tax of A$178 million.

American Airlines 2

2.7. American Airlines, the principal subsidiary of AMR Corporation, was founded in 1934. As at 31 December 2010, American Airlines provided services to approximately 160 destinations throughout North America, the Caribbea n, Latin America, Europe and Asia. The majority of American Airlines flights ope rate to or from five major United

1 The majority of information under this sub-heading is sourced from:

- Qantas and American Airlines, Submission in support of applications for authoris ation , 11 May 2011

- Qantas, Annual report 2010
2 The majority of information under this sub-heading is sourced from:

- Qantas and American Airlines, Submission in support of applications for authoris ation , 11 May 2011

- AMR Corporation, Annual report 2010.DETERMINATION A91265 & A91266 4 States cities: Dallas/Fort Worth, Chicago O’Hare, M iami, New York City and Los Angeles.

2.8. AMR Eagle Holding Corporation is a wholly owned sub sidiary of AMR Corporation and owns two airlines, American Eagle Airline, Inc. and Executive Airlines, Inc, collectively known as American Eagle. Established in 1984, American Eagle is American Airlines’ regional affiliate. As at 31 Dec ember 2010, American Eagle operated approximately 1,500 daily departures servi ng over 175 destinations in North America, Mexico and the Caribbean.

2.9. American Airlines also operates airline related bus inesses:

 AAdvantage: a travel awards/frequent flyer program

 AA Vacations: a holiday business offering flights, accommodation, ground transportation and activities

 American Airlines Cargo: providing cargo capacity t o major cities in the United States, Europe, Canada, Mexico, the Caribbean, Lati n America and Asia using the cargo holds of its passenger fleet.

2.10. For the 2010 financial year (to December), American Airlines reported revenue of US$22.2 billion and a loss before tax of US$506 mil lion.

The applicants’ other alliances

2.11. Both Qantas and American Airlines are part of the o neworld marketing alliance, which links the networks of its member airlines to facili tate global passenger travel, and also links the members’ frequent flyer programs and acce ss to lounge facilities. Other members include British Airways, Cathay Pacific, Fi nnair, LAN Airlines, Iberia, Japan Airlines (JAL), Malev Hungarian Airlines, Mexicana, Royal Jordanian and S7 Airlines.

2.12. Qantas and British Airways have a Joint Services Ag reement, most recently authorised by the ACCC on 31 March 2010. American Airlines has been granted antitrust immunity by the United States Department of Transpo rtation (US DOT) for an integrated alliance with British Airways, Iberia, F innair and Royal Jordanian, and by the European Union’s Directorate General Competitio n for a joint business agreement with British Airways and Iberia in respect of their European Union to North America operations. Additionally, an integrated alliance be tween American Airlines and Japan Airlines covering their trans-Pacific services betw een North America and Asia has recently been approved by the US DOT and the releva nt Japanese regulatory authorities.



### The JBA

2.13. The applicants currently sell tickets on each other s’ services under a free sale Codeshare Agreement dated 23 September 2004. Since American Airlines ceasedDETERMINATION A91265 & A91266 5 operations on the trans-Pacific routes in 1992, it has placed its code on a number of services within Qantas’ trans-Pacific and domestic Australian and New Zealand network. Qantas places its code on American Airline s domestic services within the United States, and also on services between the Uni ted States and Canada/Mexico. 3

2.14. The JBA will supersede the existing Codeshare Agree ment. The JBA involves the coordination of operations on certain designated ro utes (the JB Services), including:

 trans-Pacific routes;

- Brisbane – Los Angeles and Dallas/Fort Worth

- Sydney – Los Angeles, New York (JFK), Dallas/Fort W orth and Honolulu

- Melbourne – Los Angeles

- Auckland – Los Angeles

 and ‘behind and beyond’ codeshare routes 4

.

2.15. Qantas will operate trans-Pacific services and conn ecting services in Australia and on the trans-Tasman on behalf of the JBA. American Air lines will operate connecting services in the United States, Canada and Mexico an d provide sales support for the Trans-Pacific Routes.

2.16. Qantas and American Airlines (and their related bod ies corporate) may coordinate the following under the JBA:

 flying operations

 codesharing

 interlining

 pricing and revenue management

 scheduling (including frequencies and connection re quirements)

 cargo

 passenger sales and marketing

 holiday/vacation products and packages

 frequent flyer programs

3 Qantas and American Airlines, Submission in support of applications for authorisa tion , 11 May 2011.
4 For a complete list of existing routes see: Qantas and American Airlines, Submission in support of applications for authorisation , 11 May 2011, Appendix E - The JB Services.DETERMINATION A91265 & A91266 6  distribution

 customer rebates, incentives and discounts

 agency arrangements (including coordinating agency commissions, rebates, incentives and discounts)

 ground handling

 airport services

 co-branded joint offices

 corporate dealing and

 joint procurement.

2.17. For example, the applicants propose to:

 establish a Joint Management Committee to conduct t he JBA and govern the activities of the applicants on the JB Services

 develop new fare products and promotions and conduc t integrated marketing campaigns drawing on the marketing presence of both carriers in their respective home markets and

 establish joint management and planning of ground p roducts and services, including; coordinating the use of airport faciliti es by expanding reciprocal airport lounge access, developing joint lounges at certain airports and streamlining checkin facilities.


### The aviation industry

International aviation regulation

2.18. The international airline industry is highly regula ted. The 1944 Convention on International Civil Aviation established the principle that each country has exc lusive sovereignty over its airspace. This principle conti nues to guide the regulatory framework today.

2.19. International air transport cannot occur unless it is specifically authorised pursuant to a government to government bilateral air services agr eement (ASA).

2.20. An ASA specifies the terms and conditions of airlin e activity between two countries. An ASA may indicate the destinations that can be se rved in a particular country, the permitted frequencies per week and any rights to op erate via or beyond to third countries. Typically, the rights granted under an A SA can only be exercised by designated carriers of the countries that are parti es to them.

2.21. An Open Skies Agreement is one form of ASA between two countries. In essence, it is an agreement which provides minimal (or no) restric tions on the ability of the airlines of two countries to operate services between countr ies.DETERMINATION A91265 & A91266 7 Australia/United States Open Skies Agreement

2.22. On 14 February 2008, Australia and the United State s concluded the Open Skies Agreement (OSA), allowing all Australian and Americ an owned carriers to provide unlimited direct services between the two countries . Air New Zealand can provide unlimited direct services by combining rights estab lished under the United States/New Zealand and Australia/New Zealand open skies arrang ements.

2.23. Under the OSA, the carriage of traffic over domesti c sectors is reserved for national carriers. The agreement only allows the beyond carr iage of genuine international traffic between international gateways (for example, Qantas ’ own trans-Pacific passengers between Los Angeles and New York). 5 This means international airlines depend on commercial arrangements with domestic carriers in o rder to offer behind or beyond international gateway markets.

5 Air Transport Agreement between the Government of the United States and the Government of Australia, 1944, Annex I, section 1.DETERMINATION A91265 & A91266 8 

## 3. Submissions received by the ACCC

3.1. The ACCC tests the claims made by the applicant in support of an application for authorisation through an open and transparent publi c consultation process. To this end the ACCC aims to consult extensively with intereste d parties that may be affected by the proposed conduct to provide them with the oppor tunity to comment on the application.

3.2. Broadly, Qantas and American Airlines submit that t hey can achieve the following public benefits by working together under the JBA:

 improved product and services including new routes, additional frequencies, improved schedules, enhanced connectivity and bette r ground product and services

 new fare products and lower fares to more destinati ons through a revision of fare zones, the introduction of a ‘Walkabout Pass’ and p rovision for preferential availability ensuring more availability for discoun ted fares across a broader travel period

 increased tourism though increased passenger traffi c and a focus on strategic joint promotion

 streamlined corporate travel procurement and

 a stronger frequent flyer proposition.

3.3. The ACCC sought submissions from approximately 90 i nterested parties potentially affected by the application, including competitors, airports, travel agents, government departments, regulators and tourism and industry gr oups. The ACCC received submissions from Sydney Airport, Brisbane Airport a nd Virgin Australia.

3.4. Sydney Airport considers the proposed JBA will resu lt in a number of public benefits, which will be seen across the broader economy and t he Australian tourism industry from an improvement in their travel experience. Syd ney Airport considers airline passengers will benefit from an improvement in thei r travel experience, particularly outbound international passengers as they will be a ble to purchase online journeys across international and United States networks off ered by American Airlines.

3.5. Brisbane Airport supports the application, noting t he potential public benefits, including improved tourism from the United States, and also noting that there is no lessening of competition on the trans-Pacific route

.

3.6. Virgin Australia opposed the granting of interim au thorisation to the JBA, but did not directly comment on whether final authorisation sho uld be granted. Virgin Australia queried whether the commercial imperatives on which the application for interim authorisation was based were still applicable; whet her Qantas would still continue to offer the Dallas/Fort Worth services even if it did not obtain interim authorisation for the alliance; and how the applicants would unwind t he alliance if final authorisation were not granted.DETERMINATION A91265 & A91266 9 3.7. The applicants only responded directly to Virgin Au stralia’s submission. The applicants submitted that the commercial imperatives for seeki ng interim authorisation were applicable as the critical launch period for a new service extends into subsequent months; the expansion to daily Dallas/Fort Worth se rvices would be unlikely without the JSA; and unwinding the alliance will present li ttle difficulty given American Airlines does not operate on the trans-Pacific.

3.8. On 22 August 2011, the ACCC issued a draft determin ation proposing to grant authorisation. A conference was not requested, and the ACCC did not receive any further submissions from interested parties, in rel ation to the draft determination.

3.9. The views of the applicants and interested parties are outlined in the ACCC’s evaluation of the JBA in Chapter 4 of this determin ation. Copies of public submissions may be obtained from the ACCC’s website (www.accc.g ov.au/AuthorisationsRegister) and by following the links to this matter.DETERMINATION A91265 & A91266 10 

## 4. ACCC evaluation

4.1. The ACCC’s evaluation of the JBA is in accordance w ith tests found in:

 section 90(8) of the Act which states that the ACCC shall not authorise a proposed exclusionary provision of a contract, arrangement o r understanding, unless it is satisfied in all the circumstances that the propose d provision would result or be likely to result in such a benefit to the public th at the proposed contract, arrangement or understanding should be authorised.

 sections 90(6) and 90(7) of the Act which state tha t the ACCC shall not authorise a provision of a proposed contract, arrangement or un derstanding, other than an exclusionary provision, unless it is satisfied in a ll the circumstances that:

- the provision of the proposed contract, arrangement or understanding in the case of section 90(6) would result, or be likely to result, or in the case of section 90(7) has resulted or is likely to result, in a benefit to the public and

- that benefit, in the case of section 90(6) would ou tweigh the detriment to the public constituted by any lessening of competition that would result, or be likely to result, if the proposed contract or arran gement was made and the provision was given effect to, or in the case of se ction 90(7) has resulted or is likely to result from giving effect to the provisio n.

 sections 90(5A) and 90(5B) of the Act which state t hat the ACCC shall not authorise a provision of a proposed contract, arran gement or understanding that is or may be a cartel provision, unless it is satisfie d in all the circumstances that:

- the provision, in the case of section 90(5A) would result, or be likely to result, or in the case of section 90(5B) has resulted or is likely to result, in a benefit to the public and

- that benefit, in the case of section 90(5A) would o utweigh the detriment to the public constituted by any lessening of competition that would result, or be likely to result, if the proposed contract or arran gement were made or given effect to, or in the case of section 90(5B) outweig hs or would outweigh the detriment to the public constituted by any lessenin g of competition that has resulted or is likely to result from giving effect to the provision.

4.2. For more information about the tests for authorisat ion and relevant provisions of the Act, please see Attachment C

.


### The market

4.3. The first step in assessing the effect of the condu ct for which authorisation is sought is to consider the relevant markets affected by that c onduct.

4.4. Previously, the ACCC has considered the impact of a viation alliance agreements on competition in the following markets:DETERMINATION A91265 & A91266 11  international air passenger transport services, wit h regard to particular geographic and product segments

 international air freight transport services

 the sale of air passenger transport services and

 Australian domestic air passenger transport service s.

4.5. The applicants note that the ACCC draws the data fo r the analysis of these markets from the Australian Bureau of Statistics (ABS). The applicants consider that this data distorts the market definition because it is collec ted on the basis of ‘purpose of travel’ rather than actual class travelled, and it would ar guably be more accurate to characterise the market in terms of a premium segme nt and an economy segment reflecting cabin of travel rather than purpose of t ravel. Nevertheless, for the purposes of this matter, the applicants have provided informati on based on the markets previously identified by the ACCC.

International air passenger transport services

4.6. As set out above, the JBA provides for coordinated commercial arrangements between Qantas and American Airlines in respect of air pass enger services on the trans-Pacific routes and all ‘behind and beyond’ routes; includin g Qantas’ international services between Australia and New Zealand, and American Air lines domestic United States network and international services between the Unit ed States and Canada and Mexico.

4.7. The applicants currently do not operate any overlap ping direct services 6 . Given the current international aviation regulatory environme nt, and absent any stated intention of American Airlines to enter the trans-Pacific market , the ACCC considers that the applicants are unlikely to offer any competing serv ices in the future.

Product dimension

4.8. The ACCC has previously identified separate product markets for leisure and business passenger services on long haul routes, including i n its 2009 determination in relation to the alliance between Virgin Blue and Delta Air L ines on trans-Pacific routes. 7

6 The ACCC recognises that Qantas and American Airl ines could be said to be operating competing servic es for those passengers who may choose to travel indirectl y between an Australian gateway city and Dallas/For t Worth or New York City. Specifically, a passenger travelling from Sydney – Dallas/Fort Worth could fly directly with Qantas, or indirectly with Qantas on the Sydney – L os Angeles segment and with American Airlines on th e Los Angeles – Dallas/Fort Worth segment. Similarly, a p assenger travelling from Sydney – New York City has the option to fly on Qantas services for the entire jou rney, or fly the Sydney – Los Angeles segment with Qantas and the Los Angeles – New York City segment with Americ an Airlines.
7 ACCC, Determination for applications A91195 & A911 96 lodged by Qantas & British Airways (2010); ACCC, Determination for applications A91227 & A9122 8 lodged by Virgin Blue & Air New Zealand (2010); ACCC, Determination for applications A91151-2 & A91 172-3 lodged by Virgin Blue & Delta Air Lines (2009 ); ACCC, Determination for applications A91097 & A9109 8 lodged by Air New Zealand and Air Canada (2009).DETERMINATION A91265 & A91266 12 4.9. This approach is based on the view that there are l imitations in demand and supply side substitutability which make it appropriate to disti nguish between more price sensitive (leisure) passengers and more time sensitive (busin ess) passengers, in particular on long-haul routes.

4.10. The ACCC understands that leisure travellers are re latively more price sensitive and relatively less concerned about factors such as tra vel time, flexibility, connectivity, convenience and comfort when compared to business p assengers. Notwithstanding the applicants’ submissions, the ACCC considers that, p articularly on long haul routes, these sensitivities generally apply regardless of w hich cabin a business or leisure passenger chooses to travel in.

4.11. The ACCC considers that in the market for internati onal air passenger transport services, adopting a narrow or broad product market is not likely to alter the assessment in this case, since the applicants do not currently offer any competing services.

Geographic dimension

4.12. The ACCC has previously considered both a city-pair s/point-to-point approach and a regional approach in defining the geographic scope of the market for international air passenger transport services. 8

4.13. The ACCC notes that adopting a point-to-point or re gional market is not likely to alter the assessment in this case, since the applicants c urrently do not operate any overlapping direct services.

4.14. In light of this, the ACCC considers that the servi ces to be provided under the JBA give some guidance on the relevant geographic market. Th e ACCC considers that this indicates the relevant geographic market is the pro vision of international air transport services for passengers travelling between Australi a and the United States, and on extensive ‘behind and beyond’ services across both their networks to the extent they support the trans-Pacific services.

International air freight transport services

4.15. No information has been provided which suggests tha t the ACCC should depart from the view adopted in previous analysis that differen t types of freight represent different freight segments rather than different markets. The availability of indirect route options suggests that the geographic dimension is unlikely to be narrower than a regional market.

4.16. The ACCC considers that for the purposes of assessi ng the impact of the JBA with regard to the provision of air freight transport se rvices, it is appropriate to consider a market for air freight transport services on a regi onal basis, that is, between Australia and the United States.

8 ACCC, Determination for applications A91195 & A9119 6 lodged by Qantas and British Airways (2010); ACCC, Determination for applications A91227 & A9122 8 lodged by Virgin Blue & Air New Zealand (2010); ACCC, Determination for applications A91151-2 & A91 172-3 lodged by Virgin Blue & Delta Air Lines (2009 ).DETERMINATION A91265 & A91266 13 The sale of air passenger transport services

4.17. In previous determinations in respect of aviation a lliances, the ACCC has recognised a separate market for the sale of air passenger trans port services, which includes tickets sold directly by airlines to travellers as well as those sold through indirect channels such as travel agents.

4.18. Similarly to the market for international air freig ht transport, no information has been provided which suggests that the ACCC should depart from this view.

Australian domestic air passenger transport service s

4.19. The ACCC has previously recognised that an internat ional aviation alliance could affect competition in the market for domestic air p assenger transport services by directing domestic on-carriage or feeder traffic to a particular carrier, at the expense of the competitive position of other domestic carriers

.

4.20. The ACCC notes that the JBA could have such an effe ct, by directing American Airlines’ United States originating passengers on t o Qantas’ trans-Pacific services and then to onward domestic connections with Qantas.

4.21. The ACCC has not received any information which sug gests that it should depart from a consideration of the impact of the JBA on domesti c air passenger transport services. Therefore, the ACCC considers it relevant to consid er the impact of the JBA on the market for domestic air transport services for pass engers travelling within Australia

Conclusion on relevant areas of competition

4.22. For the purpose of assessing this application, on t he basis of the issues outlined above the ACCC considers the relevant areas of competitio n for the purpose of assessing the impact of the JBA are:

 international air passenger transport services betw een Australia and the United States, between Australia and Canada or Mexico via the United States, and between the United States and New Zealand via Australia

 international air freight transport services betwee n Australia and the United States

 the sale of air passenger transport services and

 domestic air passenger transport services in Austra lia.DETERMINATION A91265 & A91266 14 

### The counterfactual

4.23. The ACCC applies the ‘future with-and-without test’ established by the Tribunal to identify and weigh the public benefit and public de triment generated by conduct for which authorisation has been sought. 9

4.24. Under this test, the ACCC compares the public benef it and anti-competitive detriment generated by arrangements in the future if the auth orisation is granted with those generated if the authorisation is not granted. Thi s requires the ACCC to predict how the relevant markets will react if authorisation is not granted. This prediction is referred to as the ‘counterfactual’.

4.25. The applicants submit that without authorisation th ey would:

 continue to act independently in marketing and sale s while offering an inferior network, schedule and capacity and frequent flyer o ffering and a less efficient procurement process compared to what they would be able to offer as a joint business.

 be unable to realise the benefits and efficiencies of integration and would be disadvantaged compared to the Virgin/Delta alliance (recently granted anti-trust immunity in the United States) and the United/Air N ew Zealand alliance (both are members of the Star Alliance).

4.26. In their submission in support of interim authorisa tion, the applicants stated that without the ability to cooperate, the current frequ ency of the new Dallas/Fort Worth services may not be sustainable, and expansion to d aily services would be unlikely. 10

4.27. The ACCC did not receive any other submissions on t he likely counterfactual.

4.28. The ACCC considers that without authorisation:

 the parties would continue to operate non-overlappi ng direct services under their existing free sale Codeshare Agreement

 American Airlines would continue to place its code on a number of services within Qantas’ trans-Pacific, Australian and New Zealand n etwork, and Qantas would continue to place its code on American Airlines’ do mestic services within the United States, and also on services between the Uni ted States and Canada/Mexico.

 Qantas will continue to operate some services betwe en Sydney and Dallas/Fort Worth with fewer frequencies than anticipated under the Alliance.

9 Australian Performing Rights Association (1999) ATPR 41-701 at 42,936. See also for exampl e: Australian Association of Pathology Practices Incorporated (2004) ATPR 41-985 at 48,556; Re Media Council of Australia (No.2) (1987) ATPR 40-774 at 48,419.
10 Qantas and American Airlines, Submission in support of application for interim au thorisation , 2 June 2011.DETERMINATION A91265 & A91266 15 

### Public benefit

4.29. Public benefit is not defined in the Act. However, the Tribunal has stated that the term should be given its widest possible meaning. In pa rticular, it includes:

...anything of value to the community generally, any contribution to the aims pursued by society including as one of its principle elements ... the ac hievement of the economic goals of efficiency and progress. 11

4.30. The applicants submits that the JBA, will deliver p ublic benefits, including:

 new and improved products and services

 new fare products and lower fares

 increased tourism

 streamlined corporate travel procurement and

 a stronger frequent flyer proposition.

4.31. The ACCC’s assessment of the likely public benefits of the JBA follows.

New and improved products and services

4.32. The applicants submit that the JBA will enable the addition of new routes, increased frequencies, improved schedules, enhanced connectiv ity and better ground products and services.

4.33. Dallas/Fort Worth is the major hub of American Airl ines, where it operates (with American Eagle) approximately 750 flights to 186 de stinations worldwide. The applicants note that Qantas’ new Sydney – Dallas/Fo rt Worth services are supported by 28 codeshare destinations from Dallas/Fort Worth to a wide range of major cities across the United States, Canada and Mexico.

4.34. The applicants consider that the JBA provides a joi nt platform for the applicants to ensure the viability of the new Dallas/Fort Worth s ervices and increase these services to a daily frequency as soon as possible.

4.35. The applicants submit that the JBA will also provid e them with an incentive and opportunity to explore the expansion of their codes hare network and launch new transPacific routes and connections. They note that unde r their existing codeshare relationship, the addition of new codeshare destina tions is limited by the perception that administrative costs may outweigh any benefit of in creased traffic. The applicants consider that the detailed sharing of market inform ation under the JBA will lead to

11 Re 7-Eleven Stores (1994) ATPR 41-357 at 42,677. See also Queensland Co-operative Milling Association Ltd (1976) ATPR 40-012 at 17,242.DETERMINATION A91265 & A91266 16 improved demand forecasting, prompt identification of market opportunities and enhanced ability to cater for growth through the ad dition of routes and frequencies.

4.36. By way of example, the applicants note that initial response to the Dallas/Fort Worth service indicates Vancouver, Calgary and Toronto ar e high demand ‘beyond’ destinations. At the moment these destinations invo lve relatively long connection times. The applicants submit that the JBA would pro vide the opportunity to reduce transit times by the better coordination of schedul es.

4.37. Finally, the applicants submit that an integrated m anagement and planning structure allowed under the JBA will enable a coordinated str ategy to improve ground products and service for passengers through the expansion of reciprocal lounge access and improved check-in processes.

4.38. The ACCC recognises that when airlines providing co mplementary services act independently, the effect that each airline has on the demand for the other airline’s services is not taken into account by either party in planning network products and services. The consequence of this ‘externality’ 12 can include less convenient or more time consuming connections and/or lower levels of p rovision of ground services such as airport lounges and check-in services.

4.39. For instance, air travel from Adelaide to Chicago r equires a domestic segment in Australia (Adelaide – Melbourne), an international segment (say, Melbourne – Los Angeles) and a domestic segment in the Unites State s (Los Angeles – Chicago). The carriers operating these segments provide complemen tary services. A change in scheduling of a carrier operating one segment, say Melbourne – Los Angeles, can affect the demand for travel on the connecting domestic se gments. However, as independent airlines, Qantas will not take into consideration a ny change in demand for American Airlines’ services in making decisions about produc ts and services on its segments. Similarly, American Airlines will not take into acc ount the effect of changes to products and services on its Los Angeles – Chicago segment on the demand for Qantas’ Adelaide – Melbourne and Melbourne – Los Angeles se gments.

4.40. The ACCC accepts that cooperation agreements can pr ovide a means to address this externality or inefficiency by enabling airlines to share the benefits of an increase in demand across complementary segments. Typically, th ese cooperation agreements involve the ability to jointly set schedules and fa res, and often some revenue sharing mechanism between the airlines.

4.41. The ACCC considers that the applicants are likely t o have the incentive under the JBA to optimise their joint network offering. To the ex tent that the JBA facilitates this network optimisation, the ACCC considers that it is likely to result in public benefit by providing consumers with improved schedules and con nectivity, a greater choice of connection and stop-over options, and the possibili ty of new and improved routes.

12 An externality is an economic term referring to a cost or benefit that affects a third party (a party who did not agree to the action causing the cost or benefit) an d is not reflected in market prices. In the presenc e of an externality, market prices do not reflect the full costs or benefits of producing or consuming a produ ct or service. This results in an economic inefficiency or market failure.DETERMINATION A91265 & A91266 17 4.42. Additionally, the ACCC considers that the JBA is li kely to provide the applicants with strong incentives to offer ground services to each others’ customers on an equal basis. The ACCC accepts that this is likely to result in p ublic benefit by providing consumers with expanded reciprocal lounge access (which will be of benefit to business passengers in particular) and improved check-in pro cesses.

New fare products and lower fares

4.43. The applicants submit that the JBA will enable the development of new fare products and lower fares for passengers travelling from Aust ralia to the United States, such as a simplified zoned pricing structure and the creation of a ‘Walkabout’ multi-sector pass. The applicants submit that these initiatives will c reate tangible benefits to consumers, including:

 additional discounts to the majority of the top 20 United States destinations

 offering new tactical destinations and

 a preferential availability agreement with American Airlines.

4.44. The applicants currently offer fares in the United Stated according to a geographic zone structure. Under the applicants’ proposed simplific ation of zoned pricing, the current six zones will be reduced to three, as set out in f igures 4.1 and 4.2 below.DETERMINATION A91265 & A91266 18 Figure 4.1: Current six zone structure 13

Figure 4.2: Proposed three zone structure 14

13 Qantas and American Airlines, Submission in support of applications for authorisa tion , 11 May 2011, p. 28.
14 Qantas and American Airlines, Submission in support of applications for authorisa tion , 11 May 2011, p. 28.DETERMINATION A91265 & A91266 19 4.45. The applicants submit that the new three zone prici ng structure will:

 be simpler to manage and communicate to consumers a nd trade

 result in fare reductions for 64% of United States destinations

 allow a broader offering of discounted tactical far es to an increased number of destinations and

 allow expanded stop-over options between gateway ci ties in the United States and end destinations.

4.46. In their submission, the applicants illustrate the difference in fares under the six and three zone fare structure and set out the resulting fare reductions to 20 ‘popular’ United States destinations (see figures 4.3 and 4.4 below)

.
Figure 4.3: Comparison of the six and three zon e fare structure 15

15 Qantas and American Airlines, Submission in support of applications for authorisa tion , 11 May 2011, p. 29.DETERMINATION A91265 & A91266 20 Figure 4.4: Fare reductions by city 16

4.47. The applicants consider that the joint approach to planning and pricing facilitated by the JBA would involve common use and access to fare s, and enable them to optimise the number of discounted seats available through th e booking life of a flight as well as the strategic release of discounted inventory to dr ive volume on poor performing
routes.

4.48. The applicants submit that the JBA will allow them to introduce a ‘Walkabout Pass’ for passengers travelling to the United States from Aus tralia and New Zealand. Using the Walkabout Pass, a passenger can fly multiple sector s on the same ticket as opposed to purchasing sector fares. Currently, passengers trav elling to the United States can use a oneworld ‘Visit North America Pass’, but the applic ants submit that this product is not stop-over friendly and involves ‘add-ons’ to the Lo s Angeles tariff.

4.49. The applicants consider that the proposed Walkabout Pass would enable more effective marketing of beyond gateway multi-sector itinerarie s, under which fares would be based on mileage and tiered accordingly. They submi t that these tiered fare levels would result in lower lead-in fares. Qantas propose s to offer American Airlines access to a domestic Australia pass to boost American Airl ine’s ex-United States offering.

4.50. The applicants also consider that the JBA would ena ble them to develop and promote fare products for multi-stop itineraries across a r ange of destinations in a way not

16 Qantas and American Airlines, Submission in support of applications for authorisa tion , 11 May 2011, p. 29.DETERMINATION A91265 & A91266 21 facilitated by the current oneworld multi-sector pr oducts, such as United States – Australia via Asia or United States – Asia via Euro pe.

4.51. The ACCC considers that the JBA creates potential f or lower connecting fares between the parties and new fare products as a result of:

 better coordination of available capacity on their respective domestic sectors to realise higher load factors and

 removal or reduction of ‘double marginalisation’, w hich is a situation that occurs where suppliers of vertically related or complement ary products independently charge a price which includes a mark-up over their costs to maximise their individual profits and do not take account of the i mpact of these prices on demand for the other airline’s services. The net result i s higher prices on connecting routes than if the two firms were to coordinate their pric ing, for example, through a cooperation agreement or alliance such as the JBA.

4.52. The ACCC considers that the JBA is likely to result in public benefit by facilitating new fare products and lower fares.

Increased tourism

4.53. The applicants submit that by drawing on the expert ise of Qantas and American Airlines in their respective home countries, and th e provision of better information to agents, the JBA will be able to achieve more effici ently and effectively the promotion of travel to Australia.

4.54. Drawing on Qantas’ Australian expertise and infrast ructure, the applicants submit that the JBA would allow American Airlines’ AAVacations to develop a comprehensive range of Australian and Asia Pacific land, air and integrated products and actively market this to residents of the United States and i ts own customer base. To achieve this, it is proposed that AAVacations would partner with Tour East Australia, a majority owned subsidiary of Qantas. The applicants submit:

Cooperation between Qantas and AAVacations will dri ve improved access to lower priced land inventory in Australia as a result of the increased purchasing scale. This would enable both Qantas and AAVacations to pass these savings on to consumers. In the case of AAVacations, it is estimated that these arrangements would enable it t o offer integrated holiday packages at a 5 to 15% discount to the cost of purchasing flights and land components separately. 17

4.55. AAVacations estimates that, based on its experience of conversion rates in other markets and the specific characteristics of Austral ia as a destination, the launch of Australian vacations packages could initially gener ate up to 360 additional visitors to Australia and New Zealand per month.

4.56. The ACCC has noted previously that there are a wide range of factors which influence tourism demand, including general purchasing power in source countries, the relative

17 Qantas and American Airlines, Submission in support of applications for authorisa tion , 11 May 2011, p. 32.DETERMINATION A91265 & A91266 22 cost of other destinations, the total cost of visit ing Australia (land as well as air component) and the perceived quality of Australia a s a destination. 18

4.57. In this case, the ACCC considers that the JBA may s timulate tourism both by enhancing the applicants’ joint network offering an d by integrating the sales and distribution network of AAVacations and Qantas’ Tou r East Australia. The ACCC notes the applicants’ estimates of holiday package cost savings and increased visitor numbers, and considers that stimulation of tourism may be a source of some public benefit under the JBA.

Streamlined corporate travel procurement

4.58. The applicants submit that together, they can devel op a joint strategy to better service their corporate customers by drawing on their respe ctive experience and perspective. They consider the JBA will enable them to develop j oint fare products for large corporate as well as small-to-medium enterprises, a nd provide incentives to leverage their home point-of-sale strengths to promote and d istribute these products.

4.59. The ACCC considers these public benefits have mostl y been considered by the ACCC in the three sections above: the ACCC recognises th at the JBA will provide incentives for the applicants to develop a range of new produc ts and services and offer lower fares. Therefore, this benefit claim will not be fu rther considered here.

A stronger frequent flyer proposition

4.60. The applicants submit that the JBA provides incenti ves for them to consider mutual automatic status recognition for members of both fr equent flyer programs, AAdvantage and Qantas Frequent Flyer. This means that frequent flyer members of either program will have increased opportunities to earn and/or re deem frequent flyer points and take advantage of other membership benefits when travell ing on the other airline, such as cabin upgrade offers and onboard loyalty status rec ognition. The applicants submit that this will benefit customers and make the airlines' loyalty programs more competitive.

4.61. Qantas and American Airlines also consider that the JBA provides incentives to better leverage their respective strengths of both AAdvant age and Qantas Frequent Flyer membership bases to conduct joint marketing program s, generating more traffic for the joint network. They submit that this benefit would not be possible absent the JBA.

4.62. The ACCC acknowledges that the JBA will enable the applicants to initiate reciprocal status recognition and point accrual, which will en hance the attractiveness of both airlines’ loyalty programs. Generally speaking, the ACCC considers that the public benefits from reciprocal access to loyalty programs are likely to accrue to passengers who prefer to fly with one of the alliance members, are members of an alliance loyalty program and who value the ability to earn or use fr equent flyer points.

18 ACCC Determination for applications A91097 and A91 098 lodged by Air New Zealand Limited and Air Canad a, January 2009, page 23.DETERMINATION A91265 & A91266 23 

### ACCC conclusion on public benefits

4.63. The ACCC considers that the JBA is likely to result in public benefits in the form of:

 new and improved products and services (including i mproved schedules and connectivity, a greater choice of connection and st op-over options, and the possibility of new and improved routes) and enhance d value added services (including reciprocal lounge access, equivalent fre quent flyer privileges and improved check-in procedures)

 new fare products and lower fares

 an enhanced frequent flyer proposition and

 potentially, the stimulation of Australian tourism.



### Public detriment

4.64. Public detriment is also not defined in the Act but the Tribunal has given the concept a wide ambit, including:

...any impairment to the community generally, any har m or damage to the aims pursued by the society including as one of its principal elements the achievement of the goal of economic efficiency. 19

4.65. Qantas and American Airlines submit that the propos ed JBA will not result in any anticompetitive detriment, as they have complementary r ather than overlapping networks.

4.66. The ACCC’s assessment of whether the JBA would be l ikely to result in any public detriment is set out below.

International air passenger transport services

4.67. The applicants submit that American Airlines passen gers represent only 2.8% of the 1,860,935 passengers carried between Australia and the United States in the financial year ending June 2010. They consider that this smal l share reflects the reality that American Airlines does not operate its own services on the trans-Pacific route, has limited sales presence and recognition in Australia , and does not actively market Australia as a destination.

4.68. The applicants do not consider the JBA will give th em the ability or incentive to increase prices or offer diminished service as they are constrained by the other carriers operating on the trans-Pacific and the threat of en try (or re-entry) afforded by the Open Skies Agreement.

4.69. The applicants submit that the recent entry and rap id expansion of Virgin Australia and Delta demonstrates the ease with which carriers can establish a presence on the trans-

19 Re 7-Eleven Stores (1994) ATPR 41-357 at 42,683.DETERMINATION A91265 & A91266 24 Pacific routes. The applicants also note that over the last two years the trans-Pacific routes have been characterised by constant sale 20 activity in all cabins with a view to maintaining load factor in light of the increased c apacity on the routes and heightened price sensitivity of business and leisure traveller s.

4.70. The ACCC notes that the applicants face direct comp etition from United Airlines, the Virgin Australia/Delta alliance, and to a lesser ex tent Air New Zealand, which operates services between Australia and the United States vi a New Zealand. In addition, the ACCC considers that indirect carriers 21 may pose some, albeit limited, competitive constraint on the applicants.

4.71. The applicants note that the Qantas Group’s market share has declined over the last couple of years in the markets for both leisure and business passengers between Australia and the United States. They note that thi s decline can be attributed to the entry of Virgin Australia and Delta in 2009. 22

4.72. Despite Qantas’ recent decline in market share, the ACCC notes that it remains the largest player on the trans-Pacific route, with a 4 3% share of passengers (48% including Jetstar) in the year ended June 2010. 23 However, given American Airlines does not operate services on this route, the ACCC d oes not consider that the JBA will have any anti-competitive effect on these market dy namics.

International air freight transport services

4.73. The applicants note that Qantas and American Airlin es have an interline agreement in respect of the carriage of freight on the trans-Pac ific routes. The ACCC understands that the applicants do not offer any competing dire ct freight services. Based on the information available, the ACCC does not consider t he JBA raises any significant competition concerns in the international air freig ht transport services market.

4.74. The ACCC notes that there are a number of other com petitors in the market for air freight transport services between Australia and th e United States, including major players such as Virgin Australia/Delta, United, Fed Ex, and United Parcel Services.

The sale of air transport services

4.75. The ACCC considers that the JBA is unlikely to adve rsely affect the market for the sale of air transport services given the wide range of m echanisms for ticket purchases available to consumers. The ACCC notes that while the JBA allows the applicants to jointly market their services, there is strong comp etition in the sale of air transport

20 The ACCC takes this to mean frequent discounting o f fares
21 Access to mainland United States from Australia is also available through indirect services over Asia using airlines such as Singapore Airlines and Cathay Paci fic. The ACCC notes, however, that the market share s held by such carriers are relatively small in comparison to the direct carriers.
22 For more detailed information, see Qantas and Amer ican Airlines, Submission in support of applications for authorisation , 11 May 2011, pp. 23 - 24 and Appendices G - I.
23 Qantas and American Airlines, Submission in support of applications for authorisa tion , 11 May 2011, Appendix GDETERMINATION A91265 & A91266 25 services from travel agencies (online and in shop f ronts) as well as increasingly from the internet through global portals such as Zuji, E xpedia and Webjet.

Australian domestic air passenger transport service s

4.76. As noted above, an international alliance has the p otential to lessen competition in the market for domestic air passenger transport service s where the alliance directs domestic on-carriage or feeder traffic to a particular carri er (in this case, Qantas in Australia) at the expense of the competitive position of other do mestic carriers.

4.77. The ACCC notes that under the applicants’ current C odeshare Agreement, American Airlines passengers flying beyond or behind the Aus tralian gateway cities (Brisbane, Sydney, Melbourne) are placed on Qantas domestic co nnections in any event. The ACCC also notes that passengers can opt to purchase the domestic leg of their journey separately.

4.78. Therefore, the ACCC does not consider that the JBA is likely to have any significant anti-competitive effects in the Australian domestic air passenger transport services market.



### ACCC conclusion on public detriments

4.79. The ACCC considers that the JBA is unlikely to resu lt in any anti-competitive detriment, given the applicants do not currently di rectly compete, nor are they likely to directly compete in any of the relevant markets.


### Balance of public benefit and detriment

4.80. In general, the ACCC may only grant authorisation i f it is satisfied that, in all the circumstances, the JBA is likely to result in a pub lic benefit, and that public benefit will outweigh any likely public detriment.

4.81. In the context of applying the net public benefit t est in section 90(8) 24 of the Act, the Tribunal commented that:

... something more than a negligible benefit is requi red before the power to grant authorisation can be exercised. 25

4.82. For the reasons outlined in this chapter the ACCC c onsiders the public benefits likely to result from the JBA are new and improved product s and services, new fare products and lower fares, stimulation of tourism and an enha nced frequent flyer proposition. The ACCC does not consider that the JBA is likely to re sult any public detriment.

24 The test at 90(8) of the Act is in essence that c onduct is likely to result in such a benefit to the public that it should be allowed to take place.
25 Re Application by Michael Jools, President of the N SW Taxi Drivers Association [2006] ACompT 5 at paragraph 22.DETERMINATION A91265 & A91266 26 4.83. Accordingly, the ACCC considers the public benefit that is likely to result from the conduct is likely to outweigh the public detriment. The ACCC is therefore satisfied that the relevant tests are met.


### Length of authorisation

4.84. The Act allows the ACCC to grant authorisation for a limited period of time. 26 The ACCC generally considers it appropriate to grant au thorisation for a limited period of time, so as to allow an authorisation to be reviewe d in the light of any changed circumstances.

4.85. In this instance, Qantas and American Airlines seek authorisation for five years. The applicants submit that this period reflects the neg ligible detriment associated with the proposed JBA, and the significant public benefits t hat will be achieved.

4.86. The ACCC did not receive any interested party submi ssions in relation to the length of authorisation sought.

4.87. As indicated above, the ACCC considers that the JBA is likely to result in a number of public benefits, and there is unlikely to be any pu blic detriment. On this basis, the ACCC grants authorisation for the JBA for five year s.



### Variations to the JBA

4.88. The ACCC notes that any amendments to the JBA durin g the term of this authorisation would not be covered by the authorisation.

26 Section 91(1).DETERMINATION A91265 & A91266 27 

## 5. Determination

The application

5.1. On 12 May 2011, Qantas and American Airlines lodged application for authorisation A91265 & A91266 with the Australian Competition and Consumer Commission (the ACCC).

5.2. Application A91265 was made using Form A, Schedule 1, of the Competition and Consumer Regulations 2010

. The application was made under subsection 88(1A) of the Act to:

 make and give effect to a contract, arrangement or understanding, a provision of which is or may be an exclusionary provision within the meaning of section 45 of the Act.

 make and give effect to a provision of a contact, a rrangement or understanding, a provision of which is, or may be, a cartel provisio n and which is also, or may also be, an exclusionary provision within the meaning of section 45 of that Act.

5.3. Application A91266 was made using Form B, Schedule 1, of the Competition and Consumer Regulations 2010

. The application was made under subsections 88(1A) a nd 88(1) of the Act to:

 make and give effect to a contract or arrangement, or arrive at an understanding, a provision of which would have the purpose, or would have or might have the effect, of substantially lessening competition with in the meaning of section 45 of the Act.

 make and give effect to a contract or arrangement, or arrive at an understanding a provision of which would be, or might be, a cartel provision (other than a provision which would also be, or might also be, an exclusion ary provision within the meaning of section 45 of that Act).

5.4. In particular, Qantas and American Airlines seek au thorisation for a Joint Business Agreement (JBA).


### The net public benefit test

5.5. For the reasons outlined in Chapter 4 of this deter mination, the ACCC considers that in all the circumstances the conduct for which authori sation is sought are likely to result in a public benefit that would outweigh the detrime nt to the public constituted by any lessening of competition arising from the conduct.

5.6. The ACCC is satisfied that the conduct for which au thorisation is sought is likely to result in such a benefit to the public that the con duct should be allowed to take place.

5.7. The ACCC therefore grants authorisation to applications A91265 & A91266.DETERMINATION A91265 & A91266 28 

### Conduct for which the ACCC grants authorisation

5.8. Authorisation extends to Qantas and American Airlin es for a Joint Business Agreement until 21 October 2016.

5.9. Further, the authorisation is in respect of the JBA as it stands at the time authorisation is granted. Any changes to the JBA during the term of the authorisation would not be covered by the authorisation.

5.10. This determination is made on 29 September 2011.

5.11. Section 90(4) requires that the Commission state in writing its reasons for a determination. The attachments form part of the wri tten reasons for this determination.



### Interim authorisation

5.12. At the time of lodging the application, Qantas and American Airlines requested interim authorisation to commence the JBA. The ACCC grante d interim authorisation on 9 June 2011.

5.13. Interim authorisation will remain in place until th e date the ACCC’s final determination comes into effect or until the ACCC decides to revo ke interim authorisation.



### Date authorisation comes into effect

5.14. This determination is made on 29 September 2011. I f no application for review of the determination is made to the Australian Competition Tribunal (the Tribunal), it will come into force on 21 October 2011.DETERMINATION A91265 & A91266 29 

### Attachment A — the authorisation process

The Australian Competition and Consumer Commission (the ACCC) is the independent Australian Government agency responsible for admini stering the Competition and Consumer Act 2010 (the Act). A key objective of the Act is to preven t anti-competitive conduct, thereby encouraging competition and efficiency in business, resulting in a greater choice for consumers in price, quality and service.

The Act, however, allows the ACCC to grant immunity from legal action in certain circumstances for conduct that might otherwise rais e concerns under the competition provisions of the Act. One way in which parties may obtain im munity is to apply to the ACCC for what is known as an ‘authorisation’.

The ACCC may ‘authorise’ businesses to engage in an ti-competitive conduct where it is satisfied that the public benefit from the conduct outweighs any public detriment.

The ACCC conducts a public consultation process whe n it receives an application for authorisation. The ACCC invites interested parties to lodge submissions outlining whether they support the application or not, and their reasons f or this.

After considering submissions, the ACCC issues a dr aft determination proposing to either grant the application or deny the application.

Once a draft determination is released, the applica nt or any interested party may request that the ACCC hold a conference. A conference provides all parties with the opportunity to put oral submissions to the ACCC in response to the draft de termination. The ACCC will also invite the applicant and interested parties to lodge written s ubmissions commenting on the draft.

The ACCC then reconsiders the application taking in to account the comments made at the conference (if one is requested) and any further su bmissions received and issues a final determination. Should the public benefit outweigh the public detriment, the ACCC may grant authorisation. If not, authorisation may be denied . However, in some cases it may still be possible to grant authorisation where conditions ca n be imposed which sufficiently increase the benefit to the public or reduce the public detrimen t.DETERMINATION A91265 & A91266 30 

### Attachment B — chronology of ACCC assessment for ap plications A91265 & A91266

The following table provides a chronology of signif icant dates in the consideration of the applications by Qantas and American Airlines.

DATE ACTION 12 May 2011 Application for authorisation lodged with the ACCC, including an

application for interim authorisation. 27 May 2011 Closing date for submissions from interested partie s in relation to the

request for interim authorisation.
8 June 2011 Closing date for submissions from interested partie s in relation to the

substantive application for authorisation.
9 June 2011 The ACCC granted interim authorisation. 22 August 2011 Draft determination issued. 9 September 2011 Closing date for submissions from interested partie s in relation to the draft

determination. 29 September 2011 Determination issued.DETERMINATION A91265 & A91266 31 

## Attachment C — the tests for authorisation and othe r relevant provisions of the Act

Competition and Consumer Act 2010 Section 90—Determination of applications for author isations

(1) The Commission shall, in respect of an applicat ion for an authorization:
(a) make a determination in writing granting such a uthorization as it considers appropriate; or
(b) make a determination in writing dismissing the application.
(2) The Commission shall take into account any sub missions in relation to the application made to it by the applicant, by the Commonwealth, by a State or by an y other person.
Note: Alternatively, the Commission may rely on con sultations undertaken by the AEMC: see section 90B.
(4) The Commission shall state in writing its reas ons for a determination made by it.
(5) Before making a determination in respect of an application for an authorization the Commission sh all comply with the requirements of section 90A.
Note: Alternatively, the Commission may rely on con sultations undertaken by the AEMC: see section 90B.
(5A) The Commission must not make a determination g ranting an authorisation under subsection 88(1A) in respect of a provision of a proposed contract, arra ngement or understanding that would be, or might be , a cartel provision, unless the Commission is satisfie d in all the circumstances:
(a) that the provision would result, or be likely t o result, in a benefit to the public; and
(b) that the benefit would outweigh the detriment t o the public constituted by any lessening of competition that would result, or be likely to resu lt, if:
(i) the proposed contract or arrangement were made, or the proposed understanding were arrived at; and
(ii) the provision were given effect to.
(5B) The Commission must not make a determination g ranting an authorisation under subsection 88(1A) in respect of a provision of a contract, arrangement o r understanding that is or may be a cartel provisio n, unless the Commission is satisfied in all the circu mstances: (a) that the provision has resulted, or is likely t o result, in a benefit to the public; and
(b) that the benefit outweighs or would outweigh th e detriment to the public constituted by any lessening of competition that has resulted, or is l ikely to result, from giving effect to the provision.
(6) The Commission shall not make a determination granting an authorization under subsection 88(1), ( 5) or (8) in respect of a provision (not being a provisio n that is or may be an exclusionary provision) of a proposed contract, arrangement or understanding, in respect of a proposed covenant, or in respect of proposed conduct (other than conduct to which subse ction 47(6) or (7) applies), unless it is satisfied in all the circumstances that the provision of the propose d contract, arrangement or understanding, the propo sed covenant, or the proposed conduct, as the case may be, would result, or be likely to result, in a bene fit to the public and that that benefit would outweigh the detriment to the public constituted by any lesseni ng of competition that would result, or be likely to resu lt, if:
(a) the proposed contract or arrangement were made, or the proposed understanding were arrived at, and the provision concerned were given effect to;
(b) the proposed covenant were given, and were comp lied with; orDETERMINATION A91265 & A91266 32 (c) the proposed conduct were engaged in;
as the case may be.
(7) The Commission shall not make a determination g ranting an authorization under subsection 88(1) or (5) in respect of a provision (not being a provision that is or may be an exclusionary provision) of a contra ct, arrangement or understanding or, in respect of a co venant, unless it is satisfied in all the circumsta nces that the provision of the contract, arrangement or under standing, or the covenant, as the case may be, has resulted, or is likely to result, in a benefit to t he public and that that benefit outweighs or would outweigh the detriment to the public constituted by any less ening of competition that has resulted, or is likel y to result, from giving effect to the provision or comp lying with the covenant.
(8) The Commission shall not:
(a) make a determination granting:
(i) an authorization under subsection 88(1) in resp ect of a provision of a proposed contract, arrangement or understanding that is or may be an e xclusionary provision; or
(ii) an authorization under subsection 88(7) or (7A ) in respect of proposed conduct; or
(iii) an authorization under subsection 88(8) in r espect of proposed conduct to which subsection 47(6) or (7) applies; or
(iv) an authorisation under subsection 88(8A) for proposed conduct to which section 48 applies;

unless it is satisfied in all the circumstances tha t the proposed provision or the proposed conduct would result, or be likely to result, in such a ben efit to the public that the proposed contract or arrangement should be allowed to be made, the propo sed understanding should be allowed to be arrived at, or the proposed conduct should be allow ed to take place, as the case may be; or
(b) make a determination granting an authorization under subsection 88(1) in respect of a provision of a contract, arrangement or understanding that is or may be an exclusionary provision unless it is satisfied in all the circumstances that the prov ision has resulted, or is likely to result, in such a benefit to the public that the contract, arrangemen t or understanding should be allowed to be given effect to.
(9) The Commission shall not make a determination granting an authorization under subsection 88(9) in respect of a proposed acquisition of shares in the capital of a body corporate or of assets of a perso n or in respect of the acquisition of a controlling interes t in a body corporate within the meaning of section 50A unless it is satisfied in all the circumstances tha t the proposed acquisition would result, or be like ly to result, in such a benefit to the public that the ac quisition should be allowed to take place.
(9A) In determining what amounts to a benefit to t he public for the purposes of subsection (9):
(a) the Commission must regard the following as be nefits to the public (in addition to any other benefits to the public that may exist apart from th is paragraph):
(i) a significant increase in the real value of exp orts; (ii) a significant substitution of domestic product s for imported goods; and
(b) without limiting the matters that may be taken into account, the Commission must take into account all other relevant matters that relate to t he international competitiveness of any Australian industry.



### Variation in the language of the tests

There is some variation in the language in the Act, particularly between the tests in sections 90(6) and 90(8).DETERMINATION A91265 & A91266 33 The Australian Competition Tribunal (the Tribunal) has found that the tests are not precisely the same. The Tribunal has stated that the test under section 90(6) is limited to a consideration of those detriments arising from a lessening of compet ition but the test under section 90(8) is not so limited. 27

However, the Tribunal has previously stated that re garding the test under section 90(6):

[the] fact that the only public detriment to be tak en into account is lessening of competition does no t mean that other detriments are not to be weighed in the balan ce when a judgment is being made. Something relied upon as a benefit may have a beneficial, and also a detriment al, effect on society. Such detrimental effect as it has must be
considered in order to determine the extent of its beneficial effect. 28

Consequently, when applying either test, the ACCC c an take most, if not all, public detriments likely to result from the relevant conduct into acc ount either by looking at the detriment side of the equation or when assessing the extent of the be nefits.

Given the similarity in wording between sections 90 (6) and 90(7), the ACCC considers the approach described above in relation to section 90( 6) is also applicable to section 90(7). Further, as the wording in sections 90(5A) and 90(5B) is sim ilar, this approach will also be applied in the test for conduct that may be a cartel provision.



### Conditions

The Act allows the ACCC to grant authorisation subj ect to conditions. 29



### Future and other parties

Applications to make or give effect to contracts, a rrangements or understandings that might substantially lessen competition or constitute excl usionary provisions may be expressed to extend to:

• persons who become party to the contract, arrangeme nt or understanding at some time in the future 30

• persons named in the authorisation as being a party or a proposed party to the contract, arrangement or understanding. 31



### Six- month time limit

27 Australian Association of Pathology Practices Incor porated [2004] ACompT 4; 7 April 2004. This view was supported in VFF Chicken Meat Growers’ Boycott Authorisation [2006] AcompT9 at paragraph 67.
28 Re Association of Consulting Engineers, Australia (1981) ATPR 40-2-2 at 42788. See also: Media Council

case (1978) ATPR 40-058 at 17606; and Application of Southern Cross Beverages Pty. Ltd., Cadbury Schweppes Pty Ltd and Amatil Ltd for review (1981) ATPR 40-200 at 42,763, 42766.
29 Section 91(3).
30 Section 88(10).
31 Section 88(6).DETERMINATION A91265 & A91266 34 A six-month time limit applies to the ACCC’s consid eration of new applications for authorisation 32 . It does not apply to applications for revocation , revocation and substitution, or minor variation. The six-month period can be extend ed by up to a further six months in certain circumstances.



### Minor variation

A person to whom an authorisation has been granted (or a person on their behalf) may apply to the ACCC for a minor variation to the authorisation

. 33 The Act limits applications for minor variation to applications for:

... a single variation that does not involve a materi al change in the effect of the authorisation. 34

When assessing applications for minor variation, th e ACCC must be satisfied that:

• the proposed variation satisfies the definition of a ‘minor variation’ and

• if the proposed variation is minor, the ACCC must a ssess whether it results in any reduction to the net benefit of the conduct.


### Revocation; revocation and substitution

A person to whom an authorisation has been granted may request that the ACCC revoke the authorisation. 35 The ACCC may also review an authorisation with a view to revoking it in certain circumstances. 36

The holder of an authorisation may apply to the ACC C to revoke the authorisation and substitute a new authorisation in its place. 37 The ACCC may also review an authorisation with a v iew to revoking it and substituting a new authorisation in its place in certain circumstances. 38

32 Section 90(10A)
33 Subsection 91A(1)
34 Subsection 87ZD(1).
35 Subsection 91B(1)
36 Subsection 91B(3)
37 Subsection 91C(1)
38 Subsection 91C(3)Exhibit 6 : New Zealand Ministry of Transportation authorization letter, dated 27 September 2011Exhibit 7 : American

- Qantas Codeshare Flights and Destinations

Jan. 2011 Jan.

2012 Jan.

2013 Jan.

2014 Jan.

2015 % Increase (Jan.

2015 v. Jan. 2011)

Qantas

American Codeshare Flights 3

, 672 4

, 157 4

, 462 4

, 609 4

, 870 33%

Qantas

American Codeshare Destinations 66 116 116 124 123 86%

Source: Carrier Filed Schedules. Selected parameters: Non

- stop passenger flights, Qantas marketed, American operated, all destinations, Jan. 2011 to May 2015. Retrieved from www.diio.net on May 28, 2015

.Exhibit 8 : Complementary Networks of American and Qantas

American Airlines service Qantas Airways service

Source: Carrier Filed Schedules. Selected parameters: Non

- stop passenger flights, Qantas operated/marketed, American operated/marketed, All destinations excluding Europe, Jun. 2015. Retrieved from www.diio.net on Jun. 4, 2015.Exhibit 9 : Qantas Domestic and International Routes through Sydney

Qantas Domestic Routes through Sydney

Qantas Airways service

List of Destinations : Albury; Adelaide; Armidale; Alice Springs; Broome; Brisbane; Canberra; Coffs Harbour; Cairns; Dubbo City; Darwin; Hobart; Hamilton Island; Hervey Bay; Lord Howe Island; Melbourne; Moree; Gold Coast; Perth; Port Macquarie; Tamworth; Wagga Wagga; West Wellca mp

Source : Carrier Filed Schedules. Selected parameters: Non

- stop passenger flights, Qantas operated/marketed, Australia domestic network to/from Sydney, Jun. 2015. Retrieved from www.diio.net on Jun. 4, 2015.Qantas International Routes Through Sydney

Qantas Airways service

List of Destinations : Auckland; Bangkok; Jakarta; Christchurch; Dallas/Ft. Worth; Dubai; Hong Kong; Honolulu; Johannesburg; Los Angeles; Manila; New Caledonia; Queenstown; Tokyo; Shanghai; Santiago; Singapore; Wellington; Vancouver.

Source : Carrier Filed Schedules. Selected pa rameters: Non

- stop passenger flights, Qantas operated/marketed, International destinations to/from Sydney excluding Europe, Jun. 2015. Retrieved from www. diio.net on Jun. 4, 2015.Exhibit 10 : Qantas Gateways Connecting to U.S. Destinations through American Hubs

Qantas Gateways Connecting to American U.S. Destinations

Qantas Airways service

Source : Carrier Filed Schedules. Selected parameters: Non

- stop passenger flights, Qantas operated, Australia to/from U.S., Jun. 2015. Retrieved from www.diio.net on Jun. 4, 2015.American Domestic Network via Los Angeles ( LAX )

American Airlines service Qantas Airways service

List of Destinations : Albuquerque; Aspen; Atlanta; Austin; Nashville; Boston; Charlotte; Columbus (OH); Washington (DCA); Denver; Dallas/Ft. Worth; El Paso; Eugene; Fresno; Washington (IAD); Houston (IAH); Indianapolis; New York (JFK); Las Vegas; Orlando; Miami; Monterey (CA); Oklahoma City; Chicago (ORD); Philadelphia; Phoenix; Pittsburgh; Redmond; Raleigh/Durham; Reno; Santa Fe; San Diego; San Antonio; San Francisco; San Jose; Salt Lake City; Sacramento; S t. Louis; Tampa; Tucson; Northwest Arkansas

Source : Carrier Filed Schedules. Selected parameters: Non

- stop passenger flights, Qantas operated/marketed Australia to Los Angeles AND American operated/marketed, Continental U.S. destinations from Los Angeles, Jun. 2015. Retrieved from www.diio.net on Jun. 4, 2015.American Domestic Network via Dallas/Fort Worth (DFW)

American Airlines service Qantas Airways service

List of Destinations : Abilene; Albuquerque; Waco; Alexandria (LA); Amarillo; Aspen; Atlanta; Austin; Hartford; Birmingham (AL); Bismarck; Bloomington; Nashville; Boston; Beaumont (TX); Brownsville (TX); Baton Rouge; Baltimore; Columbia (SC); Chattanooga; Charleston (SC); Cedar Rapids; Cleveland; College Station; Charlotte; Columbu s (OH); Champaign; Colorado Springs; Columbia (MO); Corpus Christi; Charleston (WV); Cincinnati; Dayton; Washington (DCA); Denver; Durango; Des Moines; Detroit; Vail; El Paso; Evansville; Newark; Fargo; Fresno; Ft. Lauderdale; Sioux Falls; Ft. Smith; Garde n City (KS); Longview (TX); Grand Junction; Gulfport

- Biloxi; Grand Island (NE); Killeen

- Ft. Hood; Grand Rapids; Greensboro; Greenville (SC); Houston (HOU); Houston (IAH); Huntsville (AL); Washington (IAD); Wichita; Indianapolis; Jackson Hole; Jackson (MS); Jacksonville; New York (JFK); New York (LGA); Joplin; Las Vegas; Lawton (OK); Los Angeles; Lubbock; Lake Charles; Lexington; Lafayette (LA); Little Rock; Laredo; Midland (TX); Kansas City; Orlando; Memphis; McAllen; Montgomery; Manhattan (KS); Miami; Milw aukee; Moline/Quad Cities; Monroe (LA); Mobile; Madison; Minneapolis; New Orleans; Montrose; Oklahoma City; Omaha; Ontario; Chicago (ORD); Norfolk; West Palm Beach; Portland (OR); Philadelphia; Phoenix; Peoria; Hattiesburg; Pittsburgh; Pensacola; Palm Spri ngs; Rapid City; Raleigh/Durham; Richmond; Reno; Roswell; Ft. Myers; Santa Fe; San Diego; San Antonio; Savannah; Louisville; Seattle; San Francisco; Springfield (MO); Springfield (IL); Shreveport; San Jose; San Angelo; Salt Lake City; Sacramento; Santa Ana ; Wichita Falls; St. Louis; Tallahassee; Tampa; Tulsa; Tucson; Texarkana; Tyler (TX); Knoxville; Ft. Walton Beach; Northwest Arkansas

Source : Carrier Filed Schedules. Selected parameters: Non

- stop passenger flights, Qantas operated/marketed Australia to Dallas/Fort Worth, American operated/marketed, Continental U.S. destinations from Dallas/Fort Worth, Jun. 2015. Retrieved from www.diio.net on J un. 4, 2015.Exhibit 11 , American DFW Domestic and International Connections

American Airlines service Qantas Airways service

Source : Carrier Filed Schedules. Selected parameters: Non

- stop passenger flights, Qantas operated/marketed Australia domestic network, Qantas operated/marketed Australia to Dallas/Fort Worth, American operated/marketed, All destinations from Dallas/Fort Worth excluding Asia, Europe, Hawaii, Jun. 2015. Retrieved from www.diio.net on Jun. 4, 2015.Exhibit 12 : Year

- over - Year Qantas Passenger Traffic between Mainland U.S. and Australia

Passenger Traffic % Increase

Route 2010 2011 2012 2013 2014 '11 vs '10 '12 vs '11 '13 vs '12 '14 vs '13 '14 vs '11

LAX

- SYD 439,371 456,982 457,249 480,360 475,915 4% 0% 5%

- 1% 4%

LAX

- MEL 203,645 224,998 272,458 285,772 283,752 10% 21% 5%

- 1% 26%

BNE

- LAX 188,147 187,625 183,467 185,961 210,867 0%

- 2% 1% 13% 12%

BNE

- DFW & DFW

- SYD - 67,609 166,499 186,022 199,861

- 146% 12% 7% 196%

TOTAL 831,163 937,214 1,079,673 1,138,115 1,170,395 13% 15% 5% 3% 25%

Source: U.S. Department of Transportation, Bureau of Transportation Statistics (2014). Air Carrier Statistics database (T

- 100 Segment data bank). Selected years, Jan. 2010 to Nov. 2014. Retrieved from www. diio.net

. American Airlines internally adjusted MIDT data (2015). Selected month, Dec. 2014.Exhibit 13 : Qantas Mainland U.S . to Australia ASM s and Sea ts, 2011 vs. 2014

Oct

- 11 Oct

- 14 Change % Change
Seats 95,716 129,075 33,359 35%
ASMs 730,159,474 997,991,413 267,831,939 37%

Source: U.S. Department of Transportation, Bureau of Transportation Statistics (2014). Air Carrier Statistics database (T

- 100 Segment data bank). Selected years, Jan. 2010 to Nov. 2014. Retrieved from www.diio.net

.Exhibit 14 , Qantas Mainland U.S. to Australia Scheduled Seat Capacity

Scheduled Seats from Mainland U.S. to Australia Seats % increase year

- over - year

Route 2010

Total Seats 2011

Total Seats 2012

Total Seats 2013

Total Seats 2014

Total Seats 11 vs. 10 12 vs. 11 13 vs. 12 14 vs. 13 14 vs. 11

LAX

SYD 601,748 606,014 597,750 611,232 613,482 1%

- 1% 2% 0% 1%

LAX

MEL 300,036 308,508 328,500 344,480 353,568 3% 6% 5% 3% 15%

LAX

BNE 239,552 254,524 242,704 236,615 263,858 6%

- 5%

- 3% 12% 4%

BNE

DFW & DFW

SYD - 104,016 248,220 263,636 276,656

- 139% 6% 5% 166%

TOTAL ALL ROUTES 1,141,336 1,273,062 1,417,174 1,455,963 1,507,564 12% 11% 3% 4% 18%

Source: Carrier Filed Schedules. Selected parameters: Non

- stop passenger flights, Qantas marketed, American operated, All destinations, Jan. 2011 to May 2015. Retrieved from www.diio.net on May 28, 2015

.Exhibit 15 , LAX

- SYD Seat Capacity Share by Carrier

LAX

- SYD Seat Capacity Share by Carrier

Carrier YE 2010 YE 2011 YE 2012 YE 2013 YE 2014

Q antas 46% 45% 45% 46% 47%

UA 21% 20% 21% 20% 17%

VA 18% 20% 20% 19% 20%

DL 15% 15% 15% 15% 16%

Total LAXSYD 100% 100% 100% 100% 100%

Source : Carrier Filed Schedules. Selected parameters: Non

- stop passenger flights, Qantas marketed, American operated, All destinations, Jan. 2011 to May 2015. Retrieved from www.diio.net on May 28, 2015

.Exhibit 16 : Passenger Traffic on US to AU/NZ by Alliance

Passenger Traffic on all routes from Australia & New Zealand to US by Alliance % Increase

2010 2011 2012 2013 2014 '11 vs '10 '12 vs '11 '13 vs '12 14 vs '13 CAGR

one world 1,127,092 1,156,144 1,192,554 1,206,907 1,243,218 3% 3% 1% 3% 2%

Delta (SkyTeam)

- Virgin Australia 526,039 601,726 568,066 582,664 607,199 14%

- 6% 3% 4% 4%

Star 1,027,674 1,034,135 1,046,244 1,116,763 1,103,262 1% 1% 7%

- 1% 2%

Unaligned 178,161 250,062 335,872 510,345 536,102 40% 34% 52% 5% 33%

TOTAL 2,858,966 3,042,067 3,142,736 3,416,679 3,489,781 6% 3% 9% 2% 5%

Source: U.S. Department of Transportation, Bureau of Transportation Statistics (2014). Air Carrier Statistics database (T

- 100 Segment data bank). Selected years, Jan. 2010 to Nov. 2014. Retrieved from www.diio.net

. American Airlines internally adjusted MIDT data (2015). Selected month, Dec. 2014.ADDITIONAL DOCUMENTS AND INFORMATION

To expedite the Department‘s consideration of this Joint Application, the Joint Applicants are providing the Department with additional information and documents typically requested by the Department for purposes of evaluating applications for antitrust immunity.

A. Document Production

Ameri can and Qantas are producing their Joint Business Management and Steering Committee presentations prepared in the ordinary course of business during the existence of the Original Joint Business, which was approved by the Department in 2011.

American is also providing studies, surveys, a nalyses and reports which were prepared by or for any officer(s) or director(s) for the purpose of evaluating or analyzing the American/Qantas Restated Joint Business and the impact of the Restated Joint Business with respect to market shares, competition, competitors, markets, potential for sales growth or expansion into product or geographic markets. Qantas is conducting a search of its document s and intends to make an additional production.

American and Qantas are producing these materials in order to assist the Department in its review and approval of the antitrust immunity application.

These documents contain confidential proprietary information, and are being furnished pursuant to the Department‘s Rule 12 procedures. T he Joint Motion for Confiden tial Treatment contain s complete indexes of the confidential document production.

B. Routes and Services between North America and Australia/New Zealand

The proposed scope of North America to/from Australia/New Zealand services under the Restated JBA are summarized in Exhibit 3

. The existing T rans

- Pacific Routes currently flown between Mainland U.S. and Australia/New Zealand are shown at Exhibit 14

.
As described in the Application, the Parties intend to launch a new American

- operated service on LAX

- SYD and a new Qantas

- operated service SFO

- SYD. The Parties also intend to launch additional new T rans

- Pacific services within the next f ew seasons and are exploring the services which provide the best opportunities for the Parties‘ combined network. The Department‘s approval of this Application will allow the j oint b usiness to grow, continue to deliver these services in the future

, and introdu ce additional future services.

American and Qantas will continue to adjust their schedules depending on mark et conditions and competitive opportunities. Similarly, the Parties will continue to optimize their use of equipment type depending on competitive conditions.C. Codeshare Partners

American is a codeshare partner with one world member airlines and pla ces its code on flights operated by the following one world member airlines :

airberlin British Airways Cathay Pacific Finnair Iberia Japan Airlines LAN Airlines Malaysia Airlines Qantas Airways Qatar Airways Royal Jordanian Airlines S7 Airlines TAM Airlines US Airways

American also codeshares on the following additional airlines:

Air Tahiti Nui Alaska Airlines / Horizon Air Cape Air Airlines Eithad Airways Fiji Airways Gulf Air Hanian Airlines Hawaiian Airlines Interjet Jetstar Airways Jetstar Japa n Open Skies Seaborne Airlines WestJet

Qantas is a codeshare partner with the following one world member airlines:

American Airlines British Airways Finnair Iberia Japan Airlines LAN Airlines SriLankan AirlinesQantas also codeshares on the following additional airlines:

Aircalin Air China Air Niugini Airnorth Air Tahiti Nui Air Vanuatu Alaska Airlines Alliance Airlines Asiana Airlines Bangkok Airways China Airlines China Eastern Airlines China Southern Airlines Emirates Fiji Airways Jet Airways Jetstar Asia Jetstar Japan Vietnam Airlines WestJet

D . Alliances

Both American and Qantas have been members of the one world alliance since its inception in 1999.

The members and members

- elect of the one world alliance serve nearly 1,000 destinations with 14,250 daily flights to 150 countries. The American/Qantas j oint b usiness primarily affect s South Pacific routes

. Although the Proposed Alliance will be an integral part of one world, it will not significantly influen ce operations of other one world members, none of which operate competing U.S.

- Australia /New Zealand service. o ne world will therefore continue to be well positioned to coordinate and optimize U.S.

- Australia/New Zealand service to the benefit of its member carriers and their passengers.

In addition to American, one world has the following members that fly across the Pacific Ocean: Qantas (which operates a hub in Sydney); Japan Airlines (which has hubs in Tokyo at Narita and Haneda and separately operates an immunized alliance with American); and Cathay Pacific (which ope rates a hub in Hong Kong).

Star has the following members that fly across the Pacific Ocean: Air New Zealand (which operates a hub at Auckland, and participates in an immunized alliance with United); United (has hubs at Narita and in Guam); ANA (which ope rates hubs in Tokyo at Narita and Haneda and separately operates an immunized alliance with United); Asiana (which operates hubs at Incheonand Gimpo (Seoul) and separately operates an immunized alliance with United); Air China

(which operates hubs at Beij ing, Chengdu, and Shanghai); Singapore Airlines (which operates a hub at Singapore Changi); EVA Air (which operates a hub at Taoyuan); Air Canada (which operates hubs at Toronto, Montreal, and Vancouver); and Thai Airlines (which operates hubs at Bangkok, Chiang Mai, Phuket, and Hat Yai).

SkyTeam has the following members that fly across the Pacific Ocean: Delta (which operates a hub at Narita); Korean Airlines (which operates a hub in Seoul and participates in an immunized alliance with Delta); China Ai rlines (which operates a hub at Taoyuan); and China Eastern ( which operates hubs at Shanghai, Kunming Wujiaba, and Xi‘ an Xianyang).

E . Other Antitrust

- Immunized Relationships

American maintains antitrust immunity with British Airways, Iberia, Finnair and Royal Jordanian (Order 2010

- 7

- 8, July 20, 2010), with LAN/LAN Peru (Order 2005

- 10

- 8, October 13, 2005), and with Japan Airlines (Order 2010

- 11

- 10, November 10, 2010). The Department also previously approved the existing American/Qantas j oint b usiness wi thout a grant of antitrust immunity (Order 2011

- 11

- 12, November 9, 2011).

Qantas is currently a party to an alliance with Emirates in respect of their services between Australia and New Zealand, Europe, including the United Kingdom, the Middle East and N orthern Africa. Its alliance with Emirates was authorized by the ACCC on March 27, 2013.

Jetstar is a vital part of the Qantas domestic and international operations. It operates low

- cost, value based services in domestic Australia and to the following international destinations from a number of cities in Australia. Since its establishment in 2004, the Jetstar Group has evolved into a mature and successful low cost carrier with an expanded brand presence as follows:

 D omestic Australia and New Zealand services (operated by Jetstar Airways);

 I nternational services from Australia to destinations in Asia, the Pacific and New Zealand (operated by Jetstar Airways); and

 S ervices within and between various countries in Asia under the Jetstar business model, operated by the following joint ventures:

o Jetstar Asia Airways Private Limited (Jetstar Asia) of which the Qantas Group has a 49% shareholding through its shareholding of Jetstar Asia‘s parent company, Newstar Investment Holdings Pte Ltd (a Singapore comp any) (Newstar), which is incorporated in Singapore and operates flights from Singapore to various destinations in Asia;

o Jetstar Pacific Airlines Joint Stock Aviation Company (Jetstar Pacific) of which the Qantas Group has a 30% shareholding. Jetstar Paci fic is incorporated in Vietnam and operates flights within Vietnam and to Singapore and Bangkok;o Jetstar Japan Co Ltd (Jetstar Japan) in which the Qantas Group has a 33% shareholding. Jetstar Japan is incorporated in Japan and began operating flights wit hin Japan from July 2012 and internationally in early 2015; and

o Jetstar Hong Kong Limited (Jetstar Hong Kong) in which the Qantas Group and China Eastern each have a 331⁄3% shareholding. Jetstar Hong Kong proposes to operate flights from Hong Kong to China and various destinations in Asia, subject to regulatory approvals.

The ACCC authorized coordination between the Qantas Group and the various Jetstar branded joint ventures in December 2012.

In November 2014, Qantas and China Eastern sought authorization from the ACCC with respect to a proposed Joint Cooperation Agreement. That application is currently under review by the ACCC.

F . Exchange of Equity or Ownership Interests

The Proposed Alliance does not involve any exchange of equity or ownership inte rests.

G . Hub Airports for American and Qantas

American Airlines and US Airways maintain hubs in Charlotte, Chicago, Dallas/Fort Worth (DFW), Los Angeles, Miami, New York, Philadelphia, Phoenix and Washington, D.C

.
Qantas operates a hub at Sydney.

The Joint Applicants request that the Department take official notice of published schedules for these hubs, pursuant to Rule 24 of the Department‘s Rules of Practice.

H . Competitive Access to Airport Facilities

While SYD is slot

- controlled, slots are av ailable and do not pose a material impediment to entry or expansion by other carriers. The U

. S

. gateways at DFW and LAX are not slot controlled.

I . Labor Issues

American believes that the Proposed Alliance raises no significant labor issues. Indeed, th e Joint Applicants believe that the long

- term impact of the transaction will be positive for all existing employees, and no significant impact on unionized employees is anticipated under the Proposed Alliance

.

J . Civil Reserve Air Fleet Commitments

Gra nting this Joint Application for antitrust immunity will have no impact on American‘s CRAF commitments.K . Global Distribution Systems

The grant of antitrust immunity here should also cover the coordination of (1) the presentation and sale of the Joint Ap plicants‘ airline services in GDSs and (2) the operations of their respective reservations systems. The Department has previously determined to extend antitrust immunity to GDS activities.

L . Duration of Approval and Immunity

The Joint Applicants requ est that the Department approve, and grant antitrust immunity for the Proposed Alliance for a period of at least five years, subject to resubmission of the agreements constituting the Proposed Alliance in five years.

M . Conditions

In addition to the CR S

- related condition above, the Joint Applicants will accept the standard conditions that the Department has attached to previous grants of antitrust immunity relating to: (a) non

- participation in certain IATA

- related tariff coordination activities; (b) O&D survey data reporting requirements; (c) operation under a common brand or common name; and (d) the submission for prior review of subsequent subsidiary agreements implementing the Alliance Agreements.CERTIFICATE OF SERVICE

I certify that, on June 9, 2015, I caused to be served a copy of the foregoing Joint Application for Approval and Antitrust Immunity for Proposed Alliance of American Airlines, Inc. and Qantas Airways Limited, by email upon those addressees listed below:

brian.hedberg@dot.gov (D epartmentof Transportation) todd.homan@dot.gov (D epartmentof Transportation) peter.irvine@dot.gov (D epartmentof Transportation) laura.remo@dot.gov (D epartmentof Transportation) brett.kruger@dot.gov (D epartmentof Transportation) john.s.duncan@faa.gov (FederalA viation A dministration) william.stallings@usdoj.gov (D epartmentof Ju stice) dan.weiss@united.com (United) steve.morrissey@united.com (United) gmurphy@crowell.com (C ou nselforUnited) sascha.vanderbellen@delta.com (D elta) robert.land@jetblue.com (JetB lu e) esahr@eckertseamans.com (C ou nselforJetB lu e) dderco@eckertseamans.com (C ou nselforJetB lu e) jhill@cooley.com (C ou nselforH awaiian) perkmann@cooley.com (C ou nselforH awaiian) jeremy.ross@alaskaair.com (A laska) dheffernan@cozen.com (C ou nselforA laska) jyoung@yklaw.com (C ou nselforSpirit) dkirstein@yklaw.com (C ou nselforSpirit) bob.kneisley@wnco.com (Sou thwest) leslie.abbott@wnco.com (Sou thwest) john.fredericksen@suncountry.com (Su n C ou ntry) thomas.ting@suncountry.com (Su n C ou ntry) matwood@cozen.com (C ou nselforFrontier) slachter@cozen.com (C ou nselforFrontier) rpommer@atlasair.com (A tlas) anita.mosner@hklaw.com (C ou nselforUP S) jennifer.nowak@hklaw.com (C ou nselforUP S) cefelts@fedex.com (FedEx) nssparks@fedex.com (FedEx) kevin.montgomery@polaraircargo.com (P olar) info@airlineinfo.com

_________________________ Abigail Donovan