Order 2013

- 8

- 21

Served: August 30 , 2013

UNITED STATES OF AMERICA

DEPARTMENT OF TRANSPORTATION

OFFICE OF THE SECRETARY WASHINGTON, D.C.

Issued by the Department of Transportation

on the 30 th day of August , 2013

Application of

VIRGIN ATLANTIC AIRWAYS, LTD.

DELTA AI R LINES, INC. SOCIÉTÉ AIR FRANCE

KONINKLIJKE LUCHTVAART MAATSCHAPPIJ N.V.

ALITALIA COMPAGNIA AEREA ITALIANA S.P.A.

under 49 U.S.C. §§ 41308 and 41309 for approval of and antitrust immunity for alliance agreements Docket DOT

- OST

- 2013

- 0068



### SH OW CAUSE ORDER

I. SUMMARY

By t his order, the Department of Tra nsportation (the “ Department ”) tentatively grants approval of and antitrust immunity (“ ATI ”) for the application of Virgin Atlantic Airways, Ltd. (“ Virgin Atlantic ”), Delta Air Lines, Inc. (“ Delta ”), Société Air France (“ Air France ”), Koninklijke Luchtvaart Maatschappij N.V. (“ KLM ”), and Alitalia Compagnia Aerea Italiana S.P.A. (“ Alitalia ”). 1

The applicants (collectively, the “ ATI Applicants ”) have requested a grant of antitrust immunity from the U.S. antitrust laws in order to allow Delta and Virgin Atlantic to operate a j oint v enture (“ Joint Venture ” or “ Delta

- Virgin Atlantic Joint Venture ” ) between North America and the United Kingdom. 2 If the application is given final approval, the ATI

A pplicants will coordinate their international operations through the Joint Venture and the close commercial relationship that will occur by virtue of Delta’s 49% stake in Virgin Atlantic. 3

1 The common names of these and other carriers are used throughout the Show Cause Order.

2 See Docket DOT

- OST

- 2013

- 006 8, “ Joint Application for Approval of and Antitrust Immunity for Alliance Agreements,” hereinafter “ Joint Application

, ” at 2. For purposes of the Joint Ap plication, North America refers to Canada, Mexico, and the United States.

3 The 49% stake was previously held by Singapore Airlines. Delta’s 49% equity investment in Virgin Atlantic

was reviewed by the U.S. Department of Justice (“ DOJ ”) under the Hart

- Scott

- Rodino Antitrust Improvements Act, 15 U.S.C. § 18a, as well as the European Commission and other relevant competition authorities. On June 20, 2013, DOJ and the European Commission cleared the transaction. Delta and Singapore Airlines closed on the 49% share acquisition on June 24, 2013. Se e htt p://news.delta.com/index.php?s=43&item=20262 Through the Joint Venture Agreement (“ Joint Venture Agreement ”)

, D elta and Virgin Atlantic

will coordinate their network planning, revenue management, pricing, sales , and other functions

in covered markets. The two carriers will jointly promote their pr oducts and services in a “metal neutral” fashion, and will also pool their re venues and share profits

. 4 With the exception of Virgin Atlantic, the parties to this application will also continue to operate the SkyTeam Joint

Venture (“ SkyTeam Joint Venture ”) , which the Department approved and immunized in 2008

. 5
The SkyTea m Joint Venture, focused on the U.S.

- Europe market and behind and beyond, and the

Delta

- Virgin Atlantic Joint Venture, focused on the North America

- United Kingdom market

, will co

- exist and be managed separately.

Based on our evaluation and analysis of the present application, we tentatively conclude that, overall, the allian ce will be pro competitive. In reaching this conclusion, we make the following tentative findings: (1) inter

- alliance competition will likely be strengthened in the U.S.

- Europe

and U.S.

- U nited K ingdom markets (“ U.S.

- UK market ”) ; (2) there are unlikely to be anti

competitive effects in any city

- pair markets because there are no city

- pair markets in which both Delta and Virgin Atlantic currently provide th e only nonstop service 6 ; and (3) c ompetition will likely be strengthened in the large New York

- London market.

We also tentatively conclude that the ATI Applicants have made a strong showing that substantial public benefits are likely to result from their proposed immunized cooperation. T hese

claimed benefits include additional service s and schedule optimization, elimination of “double marginalization” or double markups , and other improvements. We tentatively conclude that antitrust immunity is necessary to achieve most of these important benefits. The ATI Applicants have also stated that they will not implement the J oint V enture without antitrust immunity.

Because the proposed Joint Venture is part of a transaction that included Delta purchasing a 49% equity stake in Virgin Atlantic for $360 million, we tentatively determine that there is added economic incentive for the ATI Applicants to fully implement the J oint V enture, which will make it possible for the carriers to pass on the additional benefits of an immunized alliance to

consumer s.

Provided that the ATI Applicants accept the conditions that we are propos ing below , we tentatively conclude that the potential benefits of the application outweigh any potential harm. Therefore, we tentatively grant antitrust immunity, subject to cond itions, to the ATI Applicants. We direct any interested parties to state why we should not adopt these findings and conclusions

in a final order. Parties have 14 calendar days in which to file answers and 7 calendar days in which to submit replies.

4 See Joint Application

, at 12 ( “The Joint Venture is structured to ensure that each carrier is motivated to maximize the profitability of the Joint Venture as a whole.” ).

5 See DOT Order 2008

- 5

- 32 and DOT Ord er 2009

- 6

- 26

. CSA Czech Airlines is also immunized with the SkyTeam Joint Venture carriers, but is not part of the SkyTeam Joint Venture and no longer op erates transatlantic

service.

6 If there were a city

- pair market in which Delta and Virgin Atlantic w ere the only providers of transatlantic service, a grant of antitrust immunity would effectively allow a duopoly market to become a monopoly market. No such situation would occur here, as discussed in more detail throughout the Show Cause Order

.3 

### II. SUMMARY OF THE RECORD

On April 8, 2013, Virgin Atlantic, Delta, Air France, KLM, and Alitalia filed a joint application requesting approval of and antitrust immunity for alliance agreements covering foreign air transportation between North America and t he United Kingdom. They also filed a joint motion seeking confidential treatment for supporting documents and information pursuant to Rule 12 of the Department’s procedural regulations (14 C.F.R. § 302.12).

The ATI Applicants requested approval of and an titrust immunity for alliance agreements

that would allow Delta an d Virgin Atlantic to operate a joint v enture between North America and the United Kingdom. The ATI Applicants argued that a grant of antitrust immunity would not reduce competition in any r elevant market and would lead to substantial consumer benefits through new services and increased competition.

In particular, the ATI Applicants argued that a grant of antitrust immunity would allow Delta and Virgin Atlantic to be more effective competi tors against American and British Airways, particularly in the two markets in which Delta and Virgin Atlantic overlap: New York

- London

and Boston

- London. The ATI Applicants stated that a grant of antitrust immunity would lead to substantial public benefit s including optimized schedules, new service offerings such as Seattle

London, and more. The ATI Applicants noted that Delta’s ability to enter into an immunized joint venture with Virgin Atlantic was a major factor in its decision to purchase a 49% equit y stake in Virgin Atlantic and that “antitrust immunity is essential to the full realization of the consumer benefits and procompetitive effects of the Joint Venture.” 7

On April 10, 2013, we issued a Notice suspending the procedural schedule and granting interim access to confidential documents submitted with the applications, limited to interested parties who filed confidentiality affidavits. On May 3, 2013, the ATI Applicants submitted confidential and public versions of supplemental interrogatories.

O n May 14, 2013, we issued a Notice that declared the record substantially complete and established a procedural schedule for public comments. Answers were due on June 4, 2013, and Replies were due on June 13, 2013.

On Jun e 4, 2013, seven parties filed a n swers in support of the ATI Applicants’ request for antitrust immunity. No party filed in opposition to the request. No r eplies were filed.

The Port of Seattle (“ Port of Seattle ”), the Massachusetts Port Authority (“ Massport ”), the Wayne County Airport Authority (“ WCAA ”), the Port Authority of New York and New Jersey (“ PANYNJ ”), and Tampa International Airport (“ Tampa ”) all noted the positive benefits that a grant of antitrust immunity would , in their view, bring to the traveling public in their

communit ies.

The Port of Seattle noted Delta and Virgin Atlantic’s plans, if granted antitrust immunity, to launch a new nonstop flight in the Seattle

- London market, which would compete with British Airways . T he Port of Seattle stated that British Airways has served the Seattle

- London market

7 See Jo int Application, at 57.4 since 1980 an d currently offers the only non stop service in the market.

Massport stated that it believes the proposed immunized Joint Venture will help Delta and Virgin Atlantic prosper in the Boston market and that Bost on consumers will benefit from more meaningful competit ive choices.

WCAA stated that it supports a grant of antitrust immunity because it would strengthen Delta’s existing Detroit

- London flight due to Virgin Atlantic’s strong presence in the United Kingdo m. WCAA also pointed out that it believes Detroit could support a second d aily flight to

London and that the Delta

- Virgin Atlantic Joint Venture increases the likelihood of Detroit obtaining that second daily flight.

PANYNJ declared that approval of th e Joint Venture would promote vigorous competition

amo ng the three alliances serving the New York

- London market, with each having five or more daily roundtrip flights.

Tampa stated that it believes a grant of the Joint Application might lead to new nons top service between Tampa and the United Kingdom.

Hartsfield

- Jackson Atlanta International Airport, the Atlanta Convention & Visitors Bureau, and the Metro Atlanta Chamber filed a joint Answer stating that a grant of antitrust immunity may lead to additio nal Atlanta

- United Kingdom flights and has the potential to increase the number of United Kingdom

- originating visitors to Atlanta.

The Delta Master Executive Council of the Air Line Pilots Association, International (“ Delta

MEC ”) , stated its strong suppor t for a grant of antitrust immunity because the Joint Venture would increase Delta’s competitive presence in London and would produce new flying opportunities f or Delta pilots. The Delta MEC has been pleased with the positive results of Delta’s existing j oint ventures, which it believes have resulted in value for the company, employees, and the traveling public alike. The Answer also noted that new flights resulting from Delta’s joint ventures have been equitably apportioned between Delta

- metal flying and Delta joint venture partner

- metal flying.



### III. DECISIONAL STANDARDS

The requests before us are for a grant of antitrust immunity covering a series of all iance agreements between Virgin Atlantic, Delta, Air France, KLM , and Alitalia (the “ ATI Alliance

A greements ”). The ATI Alliance Agreements include the Joint Venture Agreement between Delta and Virgin Atlantic, a five

- way Coordination Agreement among Virgin Atlantic, Delta, Air
France, KLM, and Alitalia , and several implementing agreements between Delt a and Virgin Atlantic, including a Codeshare Agreement, a Special Prorate Agreement, a Lounge Agreement, and a Frequent Flier Program Agreement. 8

Under 49 U.S.C. §§ 41308

- 09, the Department engages in a two

- step analysis of foreign air transportation agre ements submitted for our approval. We first examine the application under

8 See Joint Application, at 12 and 19.5 § 41309(b) to determine whether the agreements are adverse to the public interest because they would substantially reduce or eliminate competition (the “ C ompetitive E ffects A nalysi s ”)

. If we make that affirmative determination, § 41309(b)(1)(A) directs the Department to decide whether the agreements are nevertheless necessary to meet a serious transportation need or to achieve important public benefits. If we make that finding , an d conclude that those public benefits cannot be met or achieved by reasonably available and materially less anti competitive

alternatives , we must approve the agreements pursuant to § 41308(b). A party opposing approval of antitrust immunity has the burden of demonstrating that the agreements would substantially reduce or eliminate competition

, and that less anticompetiti ve alternatives are

available. T he party seeking approval of antitrust immunity has the burden of demonstratin g, however, that the agreem ents meet a serious transportation need or achieve important public

benefits.

If the Department concludes, after our initial review of the application under § 41309(b), that the agreements are not adverse to the public interest, § 41309(b) directs us to a pprove the agreements. In that circumstance, the Department next examines whether there are sufficient public benefits to grant immunity under § 41308(b) (the “ Public Benefits A nalysis ”). Congress has authorized the Department to exempt airlines from the antitrust laws to the extent necessary to allow a proposed transaction to proceed, provided the exemption is required by the public

interest.

The Department’s public interest analysis u nder both §§ 41309(b) and 41308(b) entails a balancing of any anti

- co mpetitiv e effects and public benefits. T he standard in § 41308(b) (“ required by ”) is higher than that in § 41309 (b) (“ not adverse to ”).

Integrated j oint v entures allow airlines to achiev e merger

- like efficiencies in covered

markets. Because approval of the application would have intended commercial effects similar to those resulting from a merger, the Department also examines the application under the Clayton Act test. The Clayton Act test is used to predict the competiti ve effects of a proposed merger,

and requires us to consider whether a grant of ATI is likely to substantially reduce competition and facilitate the exercise of market power. The Department applies the Clayton Act test to determine whether approval of the application would allow the ATI Applicants to profitably charge supra

- competitive prices or reduce service or product quality below competitive levels in any relevant market. In examining whether an alliance is likely to create or enhance market power, we examine : (1) whether the allia nce would significantly increase market concentration ; (2) whether the alliance would cause potential competitive harm ; and (3) whether new entry into the market would be timely, likely, and sufficient either to deter

, or to discipline

, the potential

compe titive harm.



### IV. COMPETITIVE EFFECTS ANALYSIS

Section 41309 (b) requires a determination as to whether the agreements are adverse to the public interest because they would substantially reduce or eliminate competition. The Department conducts an analysi s of the competitive effects that would resul t from approving the application on three levels of analysis of relevant competitive markets: at a broad network level,

at a country

- pair level, and at a city

- pair level. In this application, we also consider t he potential6 competitive effects of slot constraints at London Heathrow Airport (“ London Heathrow ” or

“ Heathrow ”).

A. NETWORK LEVEL

The proposed Joint Venture involves Delta, a large U.S. airline with an extensive worldwide network, and Virgin Atlantic, a B ritish airline that primarily serves long

- haul , worldwide routes
out of London. The ATI Alliance Agreements cover traffic between North America and the United Kingdom. Because the United Kingdom is the only country that Virgin Atlantic serves in Europe, our analysis will focus on traffic flows to and from the United Kingdom in Subsections B and C, below.

In North America, Virgin Atlantic operates to Boston, Cancun, Chicago, Las Vega s, Los Angeles, Miami, New York, Orlando, San Francisco, Vancouver, and Washington, D.C. 9 Virgin Atlantic’s beyond

- London flights will be excluded from the scope of the Joint Venture, however,

and the ATI Applicants state that Delta does not have plans to codeshare on Virgin Atlantic’s beyond

- London flights. 10 The SkyTeam Jo int Venture will continue to be the primary driver of

Delt a’s beyond

- Europe traffic flows. 11

As part of Delta’s proposed joint v enture with Virgin Atlantic , North America

- United Kingdom flying will be shifted from the SkyTeam Joint Venture to the new Delta

- Virgin

Atlantic Joint Venture

. The SkyTeam Joint Venture currently encompasses just 26 % of U.S.

- Europe traffic flows

. I f granted the authority it seeks, Delta will be participating in two distinct

immunized joint v entures in the transatlantic market. N onetheless, the ATI Applicants would all be immunized and capture a combined 3 3 % share in the U .S.

- Europe market.

Our analysis indicates that there is little evidence that granting antitrust immunity in this case would result in a competitive imbalance i n the large U.S.

- Europe market. Furthermore , our broader analysis of traffic between the United States and Europe indicates that competition remains robust and healthy. Table 1 , below, presents an overview of competition in the U

. S

. - Europe market. There are approximately 36 airlines, including multiple members of the three major global immunized alliances, operating nonstop scheduled service in the market. 12 Several Star Alliance airlines are immunized and capture 3 0 % of the U.S.

- Europe market. These air lines include Air Canada, Air New Zealand, Austrian, Brussels, LOT, Lufthansa, SAS, Swiss, Tap Air Portugal, and United. Within that group of immunized carriers, Air Canada, Austrian, Brussels, Lufthansa, Swiss, and United operate a joint v enture (“ Star A ++ Joint Venture ”). 13 American, British Airways, Finnair, and Iberia also operate an immunized joint v enture i n the transatlantic

9 Some of these flights are operated on a seasonal basis. Virgin Atlantic operates several long

- haul flights beyond London to the following non

- U.S. destinations: Accra (ends September 23, 2 013) , Cape Town, Delhi, Dubai, Hong Kong, Johannesburg, Lagos, Mumbai, Shanghai, Sydney, Tokyo, and various po ints in the Caribbean.

10 See Joint Application, at 53

- 55.

11 We understand Delta’s approach to the Joint Venture as one that would allow, but not actively promote, connections to Virgin Atlantic’s limited long

- haul network beyond London ( e.g. , Mumbai). In contrast, the SkyTeam Joint Venture will continue to develop services across the entire U.S.

- Europe market, while also actively promoting connec tions behind and beyond the United States and Europe.

12 Based on June 2013 published schedules.

13 See DOT Order 2009

- 7

- 10 and DOT Order 2011

- 11

- 16.7 market that captures 2 4 % of the market. 14

Table 1: Onboard Passenger Share in the U

. S

. - Europe Market

Pre

- transaction Passenge rs Share Post

- transaction Passengers Share

Immunized Star Alliance 15,875,686 30% Immunized SkyTeam + Virgin Atlantic
Immunized SkyTeam

+ Virgin Atlantic 17,045,599

13,820,762

+ 3,224,837 ~32

- 3 3 %

~ 26%

+

~ 6 %

Immunized SkyTeam 13,820,762

~ 26% Immunized Sta r Alliance 15,875,686 30%

Immunized oneworld 12,315,759 2 4 % Immunized oneworld 12,315,759 2 4 %

Other 4,552,578 9 % Other 4,552,578 9 % Virgin Atlantic 3,224,837

~ 6% US Airways 2,536,231 5 %

US Airways 2,536,231 5 %

Grand Total 52,325,853

~ 100% Grand Tot al 52,325,853 ~100 %

Source: T

- 100 traffic data for the 12 months ended December 2012.

In view of the Delta

- Virgin Atlantic Joint Venture’s limited impact on market share , we tentatively find that approving the application would not substantially reduce o r eliminate competition in the U.S.

- Europe market.

B. COUNTRY

- PAIR LEVEL

M ultiple carriers provide service in the U.S.

- UK market

. T here is a potential for reduction in competition if we approve the application because there will be one fewer carrier operat ing in the

U.S.

- UK market.

We primarily used T

- 100 traffic data to evaluate the potential competitive effects of the application in the U.S.

- UK market. 15 T

- 100 traffic data provides a snapshot of passenger gate

to

- gate shares in the market. B ooking dat a from Marketing Information Data Tapes (“ MIDT ”) offers a more comprehensive view of the market , however, and can be a useful too l in analyzing possible competitive effects. The ATI Applicants provided MIDT data as part of their application, which we also analyzed. In addition to T

- 100 traffic data and MIDT, other data

sources were utilized to gain a more complete view, including origin and destination ticket dat a and published airline schedules.

As shown in Table 2 , below, approval of the application wo uld result in three immunized alliance competitors and several small, non

- immunized, independent competitors in the U

. S

. - UK

market. The oneworld Joint Venture currently carries 5 4 % of the traffic in the market

. The next largest competitors

— Virgin Atlanti c with 1 9 % of the traffic, the immunized Star Alliance grouping of carriers with 15 % of the traffic, and the SkyTeam Joint Venture with 8 % of the

traffic

— all trail the oneworld Joint Venture by a substantial margin. 16 By implementing the

14 See DOT Order 2010

- 7

- 8. The oneworld parties refer to their j oint v enture as a “Joint Business Agreeme nt.” For consistency, we refer to it as the “ oneworld Joint Venture .” Royal Jordanian is also immunized with the oneworld Joint Venture carriers, but is not part of the oneworld Joint Venture and does not operate transatlantic

service between the United States and Europe.

15 T

- 100 traffic data consists of monthly oper ational data for each reporting carrier by aircraft type for each city

pair segment that the carrier operated

. 16 Although Delta and United’s joint venture partners do not se rve the U.S.

- UK m arket on a non stop basis with

their own aircraft ( metal ) , the SkyTeam Joint Venture and Star A++ Joint Venture effectively assures that all of the8 Joint Venture , Del ta and Virgin Atlantic would combine their shares and become a stronger unified competitor versus the oneworld Joint Venture . Based upon historical traffic data, immunizing the ATI Applicants would give them a combined 27 % share of the U.S.

- UK market.

Ta ble 2: Onboard Passenger Share in the U.S.

- UK Market

Pre

- transaction Passengers Share Post

- transaction Passengers Share

Immunized oneworld 9,100,562 5 4 % Immunized oneworld 9,100,562 5 4 %

Virgin Atlantic 3,224,090 19% Immunized SkyTeam + Virgin Atlantic

I mmunized SkyTeam

+ Virgin Atlantic 4,516,301

1,292,211

+ 3,224,090 2 7 %

8 %

+

19 %

Immunized Star Alliance 2, 604,903 1 5 % Immunized Star Alliance 2, 604,903 1 5 %

Imm unized SkyTeam 1,292,211 8 % US Airways 505,812 3% US Airways 505,812 3% Other 177,204 1 % Other 177,204 1 %

Grand Total 16,904,782 100% Grand Total 16,904,782 100%

Source: T

- 100 traffic data for the 12 months ended December 2012.

Theoret ically, the proposed alliance and Joint V enture would effectively eliminate an independent competitor from the market. The ATI Applicants point out, however, that Virgin Atlantic faces significant cha llenges to its business model. It lacks scale at London Heathrow

a nd the scarcity of slots there makes it difficult to grow its network organically. As stated in the

Joint A pplication, “With IAG’s purchase of bmi, Virgin Atlantic’s access to feed traffic is under threat. Without an alliance partner, Virgin Atlantic fac es serious challenges to it s ability to grow and compete .” 17 The Joint Venture will help ensure the continuation of Virgin Atlantic’s capacity in the U.S.

- UK market

, which is important to maintaining competition in that market

.

We therefore tentatively fi nd that approving the application would lead to an improved competitive balance in the U.S.

- UK market and would result in increased competition among the

three immunized alliances. We tentatively conclude that there will be no substantial reduction or

eli mination of competition in the U.S.

- UK market. Furthermore, we tentatively find that the

three competitive j oint v entures , along with other non

- aligned carriers, operating in this market will continue to have sufficient size and scope to ensure robust com petition in the market.

C. CITY

- PAIR LEVEL

Our analysis must examine whether the proposed alliance would give the ATI Applicants the ability to sustainably increase prices or decrease output in any relevant market, and whether the proposed alliance raises competitive concerns in light of factors such as market structure, the likelihood that competing carriers will enter the affected markets if the proposed alliance is approved, and any infrastructure constraints such as slot restrictions. The Department a nalyzed multiple data sources to gain a more complete view of these city

- pair markets and to verify the claims made by the applicants in their public filings.

There are two city

- pair markets of potential concern that warrant further analysis. The two

carriers are represented in the market. Multiple immunized and non

- immunized carriers also place their code on United’s U.S.

- UK flights.

17 See Joint Application, at 37.9 mar kets are New York

- London and Boston

- London, which both Delta and Virgin Atlantic currently operate with overlapping non stop service. 18 These two city

- pairs present the greatest potential for competitive harm because a grant of antitrust immunity would effe ctively eliminate an independent competitor from these markets. In theory, the increased concent ration that would

result could give the new entity an increased ability to exercise market power to increase fare s to

supra

- competitive levels

. As we have not ed in past orders, there are several factors that have a significant impact on competition in these markets. 19 T he geographical location s of the two
cities limit the ability of other airlines to discipline competition with connecting services.

Boston and New York are located in the far n ortheastern United States with a direct routing over

the Atlant ic Ocean to London. There are few intervening hub airports that could facilitate attractive connecting service, particularly for time sensitive travelers.

Th ere are also severe infrastructure constraints at Heathr ow for transatlantic services. T here are no firm plans to increase capacity at London Heathrow in the near future. Thus, airlines wishing to add service to Heathrow in the future will most likely co ntinue to have to obtain slots on the very limited secondary market. Our analysis, however, indicates that this slot restriction at Heathrow is balanced out by several factors in this case that lead us to conclude that there is no competitive harm by a gr ant of antitrust immunity. First, the fact that London Heathrow is open to any carrier wishing to serve the U.S.

- London market is an important consideration, as it was in 2010 when we granted antitrust immunity to the oneworld Joint Venture. Second,

a lth ough Heathrow is the preferred airport for business travelers, there are few barriers to entry preventing potential competitors, including low

- cost carriers that have expressed interest in launching transatlantic service, from launching service at another London airport. In short, there are some opportunities for new entrants and existing carriers to increase the level of service and competition between the United States and London, including at London Heathrow.

For these reasons, we tentatively conclud e that a grant of anti trust immunity will not lead to a competitive imbalance at London Heathrow and will not affect the possibility of new entrants serving the market.

I. City

- Pair Level: New York

- London

The New York

- London market is the largest internat ional market for travelers to and from

the United States. According to published schedules, there are approximately 31 daily roundtrip flights between the two cities. 20 There are strong busines s and cultural ties between the two

cities

. H istorical servic e patterns indicate that demand is strongest between Kennedy and

Heathrow airports

. The New York

- London market is , in many ways, representative of the

overall U.S.

- UK market in that it has undergone recent and dynamic change. For many years,

the U.S.

- UK Air Services Agreement placed heavy restrictions on air services

. The result was that only two carriers from each country had the right to fly between the U.S. and London

Heathrow. From the early 1990s until 2008, the four designated carriers were Americ an, British

18 The vast majority of international passenger traffic in the New York m etropolitan area flows to and from John F. Kennedy International Airport (“ Kennedy ”) and Newark Liberty International Air port (“ Newark ”). In London

, traffic flows to and from Heathrow, London Gatwick Airport, London Stansted Airport, London Luton Airport, and London City Airport.

19 Se e, e.g. , DOT Order 2010

- 7

- 8.

20 Based on June 2013 published schedules.10 Airwa ys, United, and Virgin Atlantic. 21

The 2007 U

. S

. - EU Open Skies Agreement, which entered into force on March 30, 2008,

ended the access r estriction at London Heathrow. Continental, Delta, Northwest, and US Airways all launch ed service at Heathrow. 22 In addition to the U

. S

. - EU Open Skies Agreement, several other factors contributed to an evolution in the nature of service between

N ew York and London since 2008. Air India ended its long

- standing New York

- London

Heathrow

- India service in 200 9

. In 2010, the Department granted antitrust immunity to permit American, British Airways, and Iberia to launch an integrated, metal neutral joint v enture. 23
Finally, domestic airline consolidation in the United States has led to fewer legacy airlines in the market. The 2008 merger between Delta and Northwest and the 2010 merger between United

and Continental has led to the loss of independent competitors in the U.S.

- London market.

The proposed alliance and Delta

- Virgin Atlantic Joint Venture w ould unite two competitors and ultimately create a strong, competitive counterweight to the oneworld Joint Venture , which currently commands a 55 % share of the New York

- London market with approximately twelve daily roundtrip flights between Kennedy and Heathrow

, app roximately three daily roundtrip flights between Newark and Heathrow , and approximately two daily roundtrip flights between Kennedy and London City Airport

. 24 Delta currently operates three daily roundtrip flights between Kennedy and Heathrow, and Virgin A tlantic currently operates four daily roundtrip flights between Kennedy and Heathrow and two daily roundtrip flights between Newark and

Heathrow. All nine of Delta and Virgin Atlantic ’s flights would continue to operate following a grant of antitrust immu nity. The following two tables, Tables 3 and 4 , show the share shift that would occur as a result of a grant of antitrust immunity in the New York

- London market and specifically in the Kennedy

- London market.

Table 3: Onboard Passenger Share in the New Yo rk

- London Market

Pre

- transaction Passengers Share Post

- transaction Passengers Share

Immunized oneworld 2,239,290 55% Immunized oneworld 2,239,290 55%

Virgin Atlantic 896,288

~ 22 % Immunized SkyTeam + Virgin Atlantic
Immunized SkyTeam

+ Virgin Atlantic 1,286,610

390,322

+ 896,288 ~ 3 2 %

~10 %

+

~2 2 %

Immunized Star Alliance 460,053 11% Immunized Star Alliance 460,053 11%

Immunized SkyTea m 390,322

~ 10 %

Other 59,533 2 % Other 59,533 2 %

Grand Total 4,045,486

~ 100% Grand Total 4,045,486 100%

Source: T

- 100 traffic data for the 12 months ended December 2012.

21 Several other c arriers have historically operated between their respective homelands and London Heathrow with local traffic rights to carry passengers between London and the United States including, among others, Air India, Air New Zealand, El Al Israel Airlines, Japan A irlines, Kuwait Airways, and Qantas. Air New Zealand and Kuwait Airways continue to operate from London Heathrow to Los Angeles and New York, respectively.

22 This may have led to several of those carriers ending service at London Gatwick Airport. Delta ended service to London Gatwick in 2012, and US Airways ended service to London Gatwick in 2013.

23 See DOT Order 2010

- 7

- 8. Finnair later joined the oneworld Joint Venture.

24 Based on June 2013 published schedules.11 Table 4: Onboard Passenger Share in the Kennedy

- London Market

Pre

- transaction P assengers Share Post

- transaction Passengers Share

Immunized oneworld 1,903,925 65% Immunized oneworld 1,903,925 65%

Virgin Atlantic 557,113

~ 19% Immunized SkyTeam + Virgin Atlantic
Immunized SkyTeam

+ Vir gin Atlantic 947,435

390,322

+ 557,113 ~32

- 3 3 %

~ 13 %

+

~1 9 % Immunized SkyTeam 390,322

~ 13% Other 59,716 2% Other 59,716 2%

Grand Total 2,911,076

~ 100% Grand Total 2,911,076

~ 100%

Source: T

- 100 traffic data for the 12 months ended December 2012.

The ATI Applicants argue that a stronger second alliance competitor in the New York

London market will significantly enhance competition due to the unique structure of this market

. T he ATI Applicants claim that

, as standalone carriers, their schedule offerings are significantly

less desirable for business travelers , who require the flexibility of the oneworld Joint Venture’s

“s huttle

- like ” product. 25 The ATI Applicants contend that granting antitrust immunity would

allow Delta and Virgin Atlantic to optimize their schedule offerings between Kennedy and

Heathrow to better compete with the oneworld Joint V enture in this unique market

. 26 We find this argument to be persuasive because

, in a fully integrated, metal neutral joint venture, the carriers have natural incentives to maximize schedule offerings in order to attract corporate

contracts and incre ase options for all travelers. Time

- of

- day coverage is a major factor in allowing airl ines to gain corporate contracts , especially in large business markets

. In the New

York

- London market, the proposed Delta

- Virgin Atlantic Joint Venture would offer nine daily roundtrip flights between the two cities , compared to the approximately seventee n daily roundtrip flights of the oneworld Joint Venture. 27 In addition, the existing immunized SkyTeam

Joint Venture carriers would continue to offer service to both London and regional UK cities

from their mainland

- Europe hubs.

The Department is aware th at the proposed alliance will reduce the number of competitors ; h owever, the market’s unique position as a trunk route for multiple airlines and alliances, as well as its size, creates incentives for all competitors to maintain or expand capacity

. This sh ould, in turn, preserve the quality of services at competitive prices.

Several other arguments further support our tentative conclusion that there is unlikely to be competitive harm in the New York

- London market. Fir st, the ATI Applicants made a

convinci ng argument about the unique pricing attributes in the New York

- London market. The

ATI Applicants point out that carriers schedule frequencies on routes with heavy business traffic with the goal of “capturing the largest possible share of prem ium time

- sen sitive passengers.” 28

The y also ar gue that this “need to compete on frequency ensures a ready supply of non

- premium

25 See Joint Application, at 43

- 45.

26 See Joint Application, at 24

- 25

. 27 Based on June 2013 published schedules

. I n conjunction with the SkyTeam Joint Venture, Delta also flies from Newark to Amsterdam and Paris. The SkyTeam Joint Venture’s ability to offer multiple daily transatlantic flig hts from both Newark and Kennedy is a testament to the size and importance of the New York market and the advantages of the schedule flexibility that is crucial for business travelers in the New York market.

28 See Joint Application, at 42.12 seats, which in turn generates strong competition for non

- time

- sensitive passengers.” 29 I f granted antitrust immunity, Delta and Virgin Atla ntic will compete more effectively with the oneworld Joint Venture for premium passengers, and this will likely result in “creating increased capacity and downward pricing pressure for non

- premium sales.” 30 Second, the European

Commission’s oneworld J oint Venture slot remedy acts as a safeguard against possible reduction in capacity in the market that could cause price increases

. 31 Third

, Kennedy is the only airport that Virgin Atlantic flies to in the United States where Delta operates a hub. Unlike Ameri can and British Airways, which operate out of separate terminals at Kennedy and have not announced plans to co

- locate their facilities, Delta and Virgin Atlantic both operate out of the recently expanded Terminal 4 at Kennedy

. 32 Thus, of all of Virgin Atla ntic’s destinations in the United States, Kennedy will have the most connecting opportunities for Virgin Atlantic passengers. This suggests that Delta and Virgin Atlantic will maintain or expand capacity in the

New York

- London market.

II. City

- Pair Le vel: Boston

- London

The Boston

- London market, unlike the New York

- London market, would shift from a three

competitor market to a duopoly market should ATI be granted

. The market warrants additional scrutiny given the potential levels of concentration tha t would follow such a decision . According to published schedules, American ceased flying Boston

- London on March 31, 2013. It had previously operated a peak schedule of three daily roundtrip flights with Boeing 757

- 200 aircraft. British Airways, part of the oneworld Joint Venture, added a fourth daily Boston

- London roundtrip flight following American’s withdrawal from the market. Virgin Atlantic operates one daily roundtrip flight in the Boston

- London market. Following the joint Department

- European

Comm ission remedy that resulted in a grant of antitrust immunity for the oneworld Joint Venture in 2010, Delta applied for

, and was awarded

, remedy slots at London Heathrow in order to

launc h two daily roundtrip flights to Boston. T he competitive dynamic in t he market , however,

led Delta to cease operation of one of the two daily roundtrip flights in October 2011. 33

Our analysis indicates that

, although this market would become a duopoly non stop route, the ATI Applicants would face limited incentives to raise fares above competitive levels or to cut service levels because the market will remain competitive

. Virgin Atlantic has served the

29 Id.

30 Id.

31 T he Department and the European Commission examined competitive impacts in the New York

- London market when reviewing the oneworld Joint Venture. In that proceeding, the Department, in conjunction with the European Commission, decided that “slot transfer s would best address the potential competitive harm in this case.” The European Commission articulated specific concerns in the New York

- London market that, were they to occur, would automatically make slots available at Kennedy and Heathrow for competitor s of the oneworld Joint Venture. The condition would trigger if the number of competitive frequencies, excluding those of the oneworld Joint Venture, were to fall below a certain threshold . Because this threshold has not been crossed since the remedy

pac kage was adopted, it has not yet been used in the New York market. Nonetheless, the availability of an automatically

- triggered slot remedy ensures a level of competitive capacity if the market were to change between

now and 202 1 , when the slot remedy peri od expires.

32 The Department is cognizant of the fact that many Delta domestic flights continue to operate out of Terminal 2 at Kennedy

, which is connected to Terminal 4 via an airside bus, and that there are no firm plans for Delta to fully

consolidate i n Terminal 4.

33 See Joint Application, at 46.13 Boston

- London market since 1991, and Delta has demonstrated an ability to serve the market since receiving remedy slots in 2 011. Delta also has a considerable presence in Boston, with

service to several key business cities in the United States, products such as the Delta Shuttle, and, in conjunction with the SkyTeam Joint Venture, service to Amsterdam, Paris, and Rome. The pr oposed Delta

- Virgin Atlantic Joint Venture would enable the two carriers to offer a pattern of service more competitive with that of the oneworld Joint Venture for travelers in Boston and

London and thus strengthen inter

- alliance competition. Table 5 , bel ow, shows the share shift that would occur as a result of a grant of antitrust immunity in the Boston

- London market.

Table 5: Onboard Passenger Share in the Boston

- London Market

Pre

- transaction Passengers Share Post

- transaction Passengers Share

Immunize d oneworld 713,332 73% Immunized oneworld 713,332 73%

Virgin Atlantic 154,995 1 6 % Immunized SkyTeam + Virgin Atlantic
Immunized SkyTeam

+ Virgin Atlantic 261,556

106,561

+ 154,995 2 7 %

11 %

+

16 % Immunized SkyTeam 106,561 1 1 %

Grand Total 97 4

, 888 100% Grand Total 97 4

, 888 100%

Source: T

- 100 traffic data for the 12 months ended December 2012.

A lthough geographic reali ties limit the number of hubs between Boston and London, there are some connecting options for passengers flying between the two cities, particularly given AerLingus’ presence in the Boston

- Ireland market

, which can connect passengers to and from

London

. The presence of such competition is likely to provide some competitive d iscipline in

the market

. The local Boston

- London market is also significantly smaller than the New York

London market.

Moreover, there are several other long

- term competitive facto rs that merit consideration.

Boston

- London is a relatively short flight by transatlantic standards

, and can potentially be served by narrowbody aircraft if another entrant wished to serve the market. The likelihood of this occurring may be increased by t he fact that Delta no longer uses the second remedy slot pair that is made available by the European Commission on a bi annual basis. In short, there remains

some possibility of new e ntry in the Boston

- London market. Any airline other than a oneworld

Join t Venture carrier , including both Delta and Virgin Atlantic, could seek the slots to launch

additional Boston

- London service at any time using the available slot remedy.

III

. City

- Pair Level : Conclusion

In conclusion, the Department tentatively finds t hat approving the application would not result in a substantial reduction or elimination of competition on the city

- pair level, including in

th e two nonstop overlap markets

. We also tentatively find that granting antitrust immunity to Delta and Virgin Atl antic is likely to be pro

- competitive by enhancing inter

- alliance competition

in the New York

- London and Boston

- London market s

. As discussed in more detail in Section V, below, we tentatively conclude that a prime benefit of a grant of antitrust immunity would be to allow Delta and Virgin Atlantic to jointly offer a combined frequency level that would allow the two airlines to more effectively compete against the oneworld Joint Venture in both the New

York

- London and Boston

- London markets

.14 

### V. PUBLIC BENE FITS ANALYSIS

Having completed our analysis under § 41309(b) and having tentatively found no substantial reduction or elimination of competition, we turn to our analysis under § 41308(b) to determine whether ATI is required by the public interest. Our an alysis under § 41308(b) requires an examination of the extent of the potential public benefits, as well as a determination on the need for immunity to achieve those benefits.

The application before us presents some novel issues in that it involves a new joint venture that would operate in parallel to an existing immunized joint venture. This fact alone does not necessarily raise competitive concerns or dilute the claimed public benefits because we tentatively find that the U.S.

- London market is somewhat distinct from the U.S.

- Continental Europe market; that is, relatively few passengers fly between the U.S. and London via continental European hubs

. Because North America

- United Kingdom flying will be carved out of the existing SkyTeam Joint Venture, howe ver, the parties in the SkyTeam Joint Venture will

have to file a modified Transatlantic Joint Venture Agreement as required by DOT Order 2008

- 5

- 32.

Nonetheless, the Department’s policy on immunized alliances encourages carriers to take a

holistic view of the alliance network in order to foster metal neutrality that leads to public

benefits otherwise unobtainable

. We note press reports that Virgin Atlantic may eventually seek

to be fully integrated into the existing SkyTeam Joint Venture at a future poi nt. 34 The Department will continue to monitor how the two j oint v entures operate in tandem. T he Department will, as requested by the ATI Applicants and as is our past practice, extend the grant of antitrust immunity to each of the ATI Applicants’ majority

- owned corporate affiliates.

The parties claim that their application

— including the Joint Venture Agreement and five

way Coordination Agreement

— will result in substantial benefits to consumers in the North

America

- United Kingdom market. No party has ch allenged any aspect of the ATI Applicants’ claims, including their claimed public benefits. Several parties, as described previously in

S ection II, expressed support for the application and asserted that granting antitrust immunity

would result in increas ed inter

- alliance competition and would expand consumer service options.

The ATI Applicants make several arguments regarding public benefits to be realized from a grant of antitrust immunity, including: (1) the creation of a meaningful competitive alterna tive to the oneworld Joint Venture; (2) optimized schedules to improve service offerings, including connections; (3) new flights

, such as Seattle

- London Heathrow 35 ; (4) a full metal neutral codeshare network; (5) elimination of “double marginalization” or d ouble markups on flights involving two or more carriers ; and (6) efficiencies resulting from joint sales forces and airport

co

- location. The ATI Applicants state that D elta’s Quality of Service Index predicts that consumers will enjoy at least $187 millio n in annual efficiencies from synergies that result from

34 See, e.g. , http://www.telegraph.co.uk/finance/ newsbysector/transport/9968125/Virgin

- planning

- talks

- with

- Air

France

- KLM

- and

- Alitalia

- over

- joint

- venture.html

35 On July 23, 2013, Delta announced that it would begin Seattle

- London Heathrow service on March 29, 2014.

Delta announced that its service was in “ anticipation of receiving antitrust immunity later this year for its joint venture with Virgin Atlantic Airways

. ” See http://news.delta.com/index.php?s=43&item=205515 the Joint Venture. 36

We tentatively find that these and other benefits are likely to accrue to consumers from a grant of antitrust immunity. The likelihood that these proposed benefits will be reali zed is supported by the Department’s historical experience in revi ewing antitrust immunity cases and annual reports submitted by certain immunized carriers, which have allowed the Department to

monitor the extent to which consum er benefits have materialize d.

In this case , Delta and Virgin Atlantic have strong financial and fiduciary incentives to maximize cooperation and to prompt ly implement the Joint Venture due to Delta’s $360 million

investment for a 49% equity stake in Virgin Atlantic. The ATI Applic ants state that this is the first time a major U.S. carrier has taken such a sizable equity stake in a European carrier, and that Delta’s ability to enter in to an immunized joint venture with Virgin Atlantic was a major factor in its decision to purchase t he 49% equity stake. 37 A s the ATI Applicants also note, Delta and Virgin Atlantic have already agreed to a fully

- de tailed Joint Venture Agreement. The parties represent that they will move expeditiously to implement the Joint Venture b ecause of the strong financial incentives that exist for Delta, including a contractual obligation to implement the Joint Venture within six months after receipt of antitrust immunity, and that the associated public benefits will begin to materialize from it soon thereafter. 38 In addition, Delta and Virgin Atlantic have negotiated agreements that will allow their passengers reciprocal access to each other’s

airline lounges, as well as recognition of each other’s frequent flyer program.

A prime benefit of a grant of antitrust immunity would be to allow Delta and Virgin Atlantic to jointly offer a combined frequency level that would allow the m to compete more effectively against the oneworld Joint Venture in both the New York

- London and Boston

- London

markets. 39 The ATI Applican ts indicate that corporate sales account managers have repeatedly turned down Delta due to its inadequate frequency level and time

- of

- day coverage in the New

York

- London market. The ATI Applicants state that Delta captures only 7% of premium traffic

on th e route, despite having 10% of overall capacity in the market. 40 Delta has made growth in the New York market a priority, and the increased frequency offerings to Lo ndon will improve Delta’s strategic position in the New York market and thereby increase op tions for consumers. The ATI Applicants have included a table that shows how Delta and Virgin Atlantic’s time

- of

day coverage could be optimized in the New York

- London and Boston

- London markets. 41 The ATI Applicants also contend that the Joint Venture cou ld lead to additional U.S.

- London flights

as a result of Delta’s expanded competitive presence and improved point of sale marketing in the United Kingdom. 42

36 See Joint Applicati on, at 5.

37 See Joint Application, at 3.

38 See Joint Application, at 13.

39 Should ATI be granted, the Delta

- Virgin Atla ntic Joint Venture would offer nine daily roundtrip flights in the

New York

- London market and two daily roundtrip flights in the Bosto n

- London market. The oneworld Joint

Venture would offer approximately seventeen daily roundtrip flights in the New York

- London market and four daily roundtrip flights in the Boston

- London market. Based on June 2013 published schedules.

40 See Joint Appli cation, at 23 and 43

- 44.

41 See Joint Application, at 25.

42 See Joint Application, at 29.16 The ATI Applicants note that Virgin Atlantic has recently added domestic, intra

- UK flights

out of L ondon Heathrow, and that these flights will provide important feeder service for Delta and Virgin Atlantic flights at Heathrow. Our analysis has raised some doubts about whether

these intra

- UK flights will great ly increase consumer choice and benefits . F irst, the flights operate out of Terminal 1 at London Heathrow, meaning that any passenger arriving from the United States on Delta or Virgin Atlantic flights will have to transfer terminals. Second, the

three intra

- UK destinations that Virgin Atlantic se rves from London are all currently served through more efficient routings by the SkyTeam Joint Venture via KLM’s hub at Amsterdam and

Air France’s h ub at Paris. Despite these reservations , the Department tentatively concludes that

there are benefits from providing consumers with additional paths between origin and destination points

, and experience shows that consumers use these opportunities and benefit from the additional capacity in the city

- pair markets served

.

The ATI Applicants state that they will strive to co

- locate facilities at airports whenever possible, including at London Heathrow, and note that they are already co

- located i n Terminal 4 at Kennedy, which will likely be the station with the largest amount of connecting Virgin Atlantic passenger s , due to Delta’s hub there

. Airport co

- location is important to realizing the

consumer benefits of metal neutral joint ventures.

With the Delta

- Virgin Atlantic Joint Venture in place, the ATI Applicants expect to deliver substantial benefits from compre hensive integration of their operations, alignment of products and services, and improved service options for consumers

. 43 Delta and Virgin Atlantic have already begun to place their codes on each other’s trans a tlantic flights. As the Department has

noted 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 a n immunized j oint v enture , b oth carriers become indifferent as to wh ich carrier operates the flight

, focusing instead on maximizing traffic flows across combined networks. 44 This dynamic may

eliminate double marginalization pricing and other inefficiencies that burden consumers. The ATI Applicants point to Virgin Atlantic’s own experience as an example of the economics of arm’s length codesharing. Although Virgin Atlantic codeshared with US Airways on certain flights beyond Virgin Atlantic’s U.S. gateways, the parties ’ data show that less than 3% of traffic on Virgin Atlanti c’s flights travel beyond its U

. S

. gateways, while 10% of traffic on British Airways’ flights travel beyond its U.S. gat eways as part of its immunized j oint v enture with

American. 45 While this might be due to the limited presence of US Airways at Virgin At lantic’s U.S. gateways, especially in New York, it is also likely true that the benefits of a j oint v enture, including metal neutral scheduling, pricing, and revenue management , contribute to more options

for connections and greater traffic flows. In the present case, Delta w ill place its code

, and the traveling publ ic will have online connections, on Virgin Atlantic flights between North America

43 See Joint Application, at 32.

44 Delta recently announced a new policy regarding minimum spending requirements for frequent fliers to attain

elite status that wil l take effect in 2014. It is our understanding that the minimum spending requirements can only be satisfied with tickets either issued by Delta directly or booked with the Delta (DL) code, and not through tickets issued by Delta’s j oint v enture partner ai rlines on those airlines’ codes, even if the flights at issue are part of a j oint

v enture and subject to revenue sharing. The Department will monitor the implementation of this new policy to determine whether it may erode metal neutrality, which is a prer equisite for many of the consumer benefits resulting

from immunized alliances.

45 See Joint Application, at 33

. Virgin Atlantic and US Airways officially ended their codeshare on June 12, 2013.17 and the United Kingdom. This will strengthen the position of Delta, as well as the already immunized SkyTeam J oint Venture, in key business markets in the United States tha t Virgin Atlantic, but not Delta, currently serves from London

, such as Chicago, Los Angeles, Miami, San Francisco, and Washington, D.C. Virgin Atlantic, for its part, will gain access to dozen s of new markets in the United States where it currently lacks a codeshare partne r.

After examining the record before us, we tentatively conclude that the ATI Applicants have presented a persuasive case regarding the claimed public benefits.



### VI. TENTATI VE DECISION

In this section, we discuss the tentative decision reached by the Department regarding the ATI Applicants’ request for antitrust immunity.

A. TENTATIVE APPROVAL OF ALLIANCE AGREEMENTS

Based on our analysis of the potential competi tive effects a nd public benefits of the proposed

alliance , we tentatively approve the ATI Alliance A greements.

B. TENTATIVE GRANT OF ANTITRUST IMMUNITY

We have tentatively determined that the proposed alliance will deliver public benefits. Thus,

we must now decide whet her a grant of antitrust immunity is justified. The Department’s policy has been to grant immunity only if the parties to the transaction will not otherwise proceed without it and if we conclude that the public interest requires that we grant it.

The ATI Applicants argue that an absence of immunity would expose the parties to “unacceptable antitrust risk,” and we tentatively find their position to be credible. 46 We tentatively conclude that antitrust immunity is necessary to facilitate this particular tra nsaction and allow the partners to engage in the kind of revenue and benefit sharing that is necessary to alleviate the commercial risks and create substantial public benefits.



### VII. T ENTATIVE CONDITIONS

In this section, we summarize and explain the prop osed conditions to be applied to our tentative grant of antitrust immunity to the ATI Applicants.

A. IMPLEMENTATION OF THE JOINT VENTURE

Because many of the anticipated public benefits will not be realized unless the Joint Venture is implemented in a timely manner , we propose to require the ATI Applicants to submit evidence that their Joint Venture Agreement has been implemented in order to retain the antitrust immunity. If, within twelve months of the issuance of a final order, an applicant has not

submitt ed: (1) verified statements attesting to the full implementation of the Joint Venture Agreement and five

- way Coordination Agreement

, and (2) a copy of the executed agreements,

46 See Joint Application, at 21.18 the antitrust immunity granted to those applicants’ proposed all iance will autom atically expire.

Our precedent has been to allow ATI applicants eighteen months to satisfy this condition ; however, the ATI Applicants have indicated that they have a contractual obligation to implement the Joint Venture Agreement within six months follow ing a grant of ATI. Thus, we are shortening the period according to the facts of this case, while still allowing enough time for the ATI Applicants to conclude the arrangement in the event of unforeseen developments. Because the ATI Applicants in this ca se have negotiated and signed a Joint Venture Agreement and state that they are contractually obligated to implement the agreement within six months following a grant of antitrust immunity, we are not anticipating delays in this regard.

B. ANNUAL REPORTING

The competitive issues associated with any proposed alliance and antitrust immun ity application are complex. R elief from the antitrust laws is a major regulatory action . We tentatively find that it is necessary for the ATI Applicants to report to the Dep artment concerning commercial developments in their alliance and the degree to which the public benefits envisioned in the application are being realized. As we have in recent decisions, we are proposing annual reports. The reports should focus on progre ss made toward achieving the alliance’s stated goals, specific actions taken to implement each of the ATI A lliance A greements (including, especially, the Joint Venture Agreement), a description of present or future planned cooperation among the alliance pa rtners in all core airline functions, and a discussion of the public benefits that are being realized. The reports are also an opportunity for the parties to address any developments or concerns that the Department highlights in its regular, ongoing

overs ight of international alliances.

C. O&D SURVEY DATA REPORTING

For many years, we have required foreign carriers to submit traffic data as a condition of obtaining immunity from U.S. antitrust laws. We require those carriers to participate in the Department ’s Origin

- Destination Survey of Airline Passenger Traffic (“ O&D Survey ”), which requires U.S. carriers to submit traffic data in markets they serve singularly or jointly with foreign airlines. Without foreign carrier participation in this effort, we would receive no detailed market information for passengers traveling to or from the United States when their entire trip is on foreign airlines, except for T

- 100 data for nonstop and single

- plane markets. The absence of such foreign carrier data severely hand icaps our ability to evaluate the competitive effects of

alliances.

As in previous cases, we have tentatively decided to require the foreign carrier applicants

— Air France, Alitalia, KLM, and Virgin Atlantic

— to report full

- itinerary O&D Survey

informatio n for all passenger itineraries that contain a United States point. This duty encompasses all traffic to third countries in which the itinerary includes a U.S. point and is a new requirement for one of these applicants.

To prevent this reporting require ment from unfairly harming the foreign applicants’ competitive positions, we tentatively decide to grant confidentiality to their O&D Survey reports19 and special reports on codeshare passengers. Currently, we grant confidential treatment to all

internation al Origin

- Destination data. We propose to provide confidential treatment for this data because of the potentially damaging competitive impact on airlines and the potential adverse effect upon the public interest that would result from unil ateral disclosur e of these data. 47

Section 19

- 7(d)(1) of 14 C.F.R. Part 241 provides for disclosure of international O&D Survey data to air carriers directly participating in and contributing to the O&D Survey. While we have tentatively found it appropriate to direct the foreign carrier applicants in this proceeding to provide certain limited O&D Survey data, they are not air carriers within the meaning of

Part 241. 14 C.F.R. Part 241, § 03, defines an air carrier as “[a]ny citizen of the United States who undertakes, wh ether directly or indirectly or by a lease or any other arrangement, to engage in air transportation.” Air France, Alitalia, KLM, and Virgin Atlantic would have no access to the data filed by U.S. air carriers. Therefore, we would keep submissions confid ential while maintaining the current restriction on access to U.S. air carrier O&D Survey data by foreign air

carriers.

D. WITHDRAWAL FROM IATA TARIFF COORDINATION

As we have found in earlier decisions, it is contrary to the public interest to permit immu nized alliances to participate in certain price

- related coordination that is already immunized within International Air Transport Association (“ IATA ”) tariff coordination. We therefore tentatively decide to condition our grant of antitrust immunity by req uiring the ATI Applicants to withdraw, or to remain withdrawn, from participation in any IATA tariff activities that affect or discuss any proposed through fares, rates, or charges applicable between the United States and any countries whose airline(s) hav e been or are subsequently granted antitrust immunity by the Department for participation in similar alliances. Such countries include the homelands of the applicants. We tentatively find that this condition is in the public interest for the same reasons stated in DOT

Order 2010

- 7

- 8.

E. CRS ISSUES

Consistent with recent cases, we are not proposing any conditions regarding the management of Computer Reservations Systems (“ CRSs ”). Any coordination between the applicants concerning the operation of separate businesses, such as CRSs, would not be transactions specifically approved or necessarily contemplated by our orders in this proceeding. While the ATI Applicants, individually or collectively, may acquire an interest in a CRS, the grant of

antitrust immun ity in this Show Cause Order thus does not extend to their management of those

interests. On the other hand, the ATI Applicants’ alliance relationships will likely require the coordination of the presentation and sale of the airlines’ own services in the CRSs and each airline’s operation of its internal reservations systems. Those activities will necessarily be

covered by a grant of antitrust immunity.

47 We treat the foreign airl ines’ O&D data as confidential, do not allow U.S. airlines any access to the data, and do not allow foreign airlines any access to U.S. airline O&D Survey data. We use these data only for internal analytical

purposes.20 F. OPERATION UNDER A COMMON NAME

Because implementation of the ATI Alliance Agreements could raise impo rtant consumer issues and “holding out” questions, if Delta or Virgin Atlantic choose to operate under a common name or use “common brands,” they must seek separate approval from the Department prior to such operations. For example, it is Department polic y to consider the use of a single air carrier designator 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.



### ACCORDINGLY:

1. We direct a ll interested persons to show cause why we should not issue an order making final our tentative findings and conclusions discussed herein. Objections or comments to our tentative findings and conclusions shall be due no later than 14 calendar days from th e service date of this Order, and answers to objections shall be due no later than 7 calendar days thereafter. In the event that no objections are filed, all further procedural steps shall be deemed waived, and we will enter an order making final our tent ative findings and conclusions;

2. We tentatively approve and grant antitrust immunity to the ATI Alliance Agreements between Virgin Atlantic Airways, Ltd., Delta Air Lines, Inc., Société Air France, Koninklijke Luchtvaart Maatschappij N.V., and Alitalia Compagnia Aerea Italiana S.P.A., in so far as such agreements relate to foreign air transportation. Subject to the terms and conditions described in the ordering paragraphs below, the approval and grant of antitrust immunity shall remain in

effect indefin itely, p rovided that the ATI Applicants:

a. Submit for prior approval subsequent subsidiary agreements implementing their most recent ATI Alliance Agreements 48 ;

b. Resubmit the ATI Alliance Agreements, including the Joint Venture Agreement

and the five

- w ay Coordination Agreement, before five years from the date of issuance of the final order in this case; and

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

48 Regarding this requirement, we do not expect the ATI Applicants to provide the Department with minor technical understandings that are necessary to implement fully their day

- to

- day operations but that have no additional substantive significance. We do, however, expect and direct them to p rovide the Department with all unredacted contractual instruments that implement or materially alter, modify, or amend the cooperation agreements, joint ventures, or confiden tiality/antitrust guidelines.21 3

. We tentatively direct the ATI Applicant s to file with the Director, Office of Aviation Analysis, the following as evidence of implementation of the Joint Venture:

a. Verified statements by Virgin Atlantic Airways, Ltd. and Delta Air Lines, Inc. attesting that the Joint Venture Agreement has b een implemented pursuant to the terms described in the Joint Application, and a complete and unredacted copy of the most recent Joint Venture Agreement and any appendices;

We tentatively determine that, unless the ATI Applicants make the filings d escribe d in this ordering p aragraph within twelve months of the issuance of a final order in this case, the authority herein shall expire and the grant of antitrust immunity shall be automatically

withdrawn from the non

- compliant ATI Applicants;

4

. We tentativel y direct the ATI Applicants to submit annual progress reports to the Office of Aviation Analysis, beginning one year from the date of issuance of a final order in this case, and continuing each year thereafter while their respective ATI Al liance Agreements are effective 49 ;

5

. We tentatively direct Virgin Atlantic Airways, Ltd., Delta Air Lines, Inc., Société Air France, Koninklijke Luchtvaart Maatschappij N.V., and Alitalia Compagnia Aerea Italiana S.P.A. to withdraw, or to remain withdrawn, from participat ion in any International Air Transport Association tariff coordination activities that discuss any proposed through fares, rates, or charges applicable between the United States and any countries whose airlines have been or are subsequently granted antitru st immunity, or renewal thereof, to participate in similar alliance activities with a U.S. airline(s);

6

. We tentatively delegate to the Director, Office of International Aviation, the authority to determine the applicability of the directive set forth in Ordering Paragraph 5 as to specific prices, markets, and tariff coordination activities, consistent with the scope and purpose of the condition, as previously described;

7

. We tentatively direct Virgin Atlantic Airways, Ltd., Delta Air Lines, Inc., Socié té Air France, Koninklijke Luchtvaart Maatschappij N.V., and Alitalia Compagnia Aerea Italiana S.P.A. to begin or to continue to report full

- itinerary Origin

- Destination Survey of Airline Passenger Traffic for all passenger itineraries that include a U.S. point;

49 We expect the ATI Applicants to deliver the progr ess report by the close of business on the anniversary date. If that date falls on a weekend or federal holiday, the ATI Applicants may deliver the report by the close of business on the following business day.22 8

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

9

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

By:

SUSAN L. KURLAND Assistant Secretary for A viation

and International Affairs

(SEAL)

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