BEFORE THE U.S. DEPARTMENT OF TRANSPORTATION WASHINGTON, D.C.

__________________________________________ ) Joint Application of ) ) AMERICAN AIRLINES, INC. ) BRITISH AIRWAYS PLC ) FINNAIR OYJ ) IBERIA LÍNEAS AÉREAS DE ESPAÑA, S.A. ) Docket No. OST-2008-0252 ROYAL JORDANIAN AIRLINES ) ) under 49 U.S.C. §§ 41308 and 41309 for approval ) of and antitrust immunity for alliance agreements ) __________________________________________ ) SUPPLEMENTAL COMMENTS OF THE AMERICAN SOCIETY OF TRAVEL AGENTS AND THE IN TERACTIVE TRAVEL SE RVICES ASSOCIATION Communications with respect to this document should be directed to:

Paul Ruden Senior Vice President, Legal and Industry Affairs. American Society of Travel Agents 1101 King Street Alexandria, VA 22314

Arthur Sackler Executive Director Interactive Travel Se rvices Association 1156 15th St., NW Ste. 900 Washington, DC 20005 Kenneth P. Quinn Jennifer E. Trock Timothy C. Gerheim PILLSBURY WINTHROP SHAW PITTMAN LLP 2300 N Street NW Washington, DC 20037 Phone: (202) 663-8000 Fax: (202) 663-8007 Email: kquinn@pillsburylaw.com jennifer.trock@pillsburylaw.com timothy.gerheim@pillsburylaw.com

January 11, 20101 BEFORE THE U.S. DEPARTMENT OF TRANSPORTATION WASHINGTON, D.C.

__________________________________________ ) Joint Application of ) ) AMERICAN AIRLINES, INC. ) BRITISH AIRWAYS PLC ) FINNAIR OYJ ) IBERIA LÍNEAS AÉREAS DE ESPAÑA, S.A. ) Docket No. OST-2008-0252 ROYAL JORDANIAN AIRLINES ) ) under 49 U.S.C. §§ 41308 and 41309 for approval ) of and antitrust immunity for alliance agreements ) __________________________________________ ) SUPPLEMENTAL COMMENTS OF THE AMERICAN SOCIETY OF TRAVEL AGENTS AND THE IN TERACTIVE TRAVEL SE RVICES ASSOCIATION In response to the Department of Transportation’s (“Depa rtment”) Order establishing a Supplemental Comment Period, 1 the American Society of Trav el Agents (“ASTA”) and the

Interactive Travel Services A ssociation (“ITSA”) hereby provide further comments to the application of the oneworl d carriers (the “Joint Applicants ”) for antitrust immunity (“ATI”). 2 In its comments, the Department of Justice (“DOJ”) 3 indicated that an unrestricted grant of immunity “is likely to result in significant competitive harm in six transatlantic markets,” 4 where nonstop fares on these “highly concentrated” rout es already are “28% higher on average than connecting fares,” 5 with the likely result of a further “increase up to 15% under the proposed

1 Order, Order 2009-12-16, Docket OST-2008-0252 (Dec. 22, 2009). 2 Joint Application of American Airlines, Britis h Airways, Finnair, Iberia, Royal Jordanian , OST-2008-0252 (Aug. 14, 2008) (“ Joint Application ”). The Joint Applicants are seeking au thority to operate a three-way immunized joint venture among American, British Airways, and Iberia. 3 Comments of the Department of Justice , OST-2008-0252 (Dec. 21, 2008) (“ DOJ Comments ”). 4 DOJ Comments at 7. 5 Id. at 9, 11.2 agreements.” 6 A grant of ATI that include s dealings with travel distributors is likely to cause significant consumer harm in two important ways: first, by ultima tely reducing travel distributors’ bargaining power and marginalizin g independent distribution through commission reductions and withholding inventory, and second by increasing fares paid by consumers as the number and effectiveness of independent travel distributors are reduced and consumers’ ability to find and compare competing airline serv ice offerings becomes increasingly limited. ASTA and ITSA agree that given this risk of significant competitive harm, any grant of immunity to the oneworld applicants should be limited to protect competition. Without taking any position on DOJ’s recommended slot dive stitures and carve out s, ASTA and ITSA respectfully suggest that, partic ularly in light of DOJ’s extens ive empirical analyses concluding that broad ATI is likely to pres erve and enhance the joint applicants’ market power, that the Department carve out from any ATI grant any fo rm of cooperation by the Joint Applicants in their dealings with indepe ndent travel distributors. 7

I. Permitting Competitor Collaboration Over Trav el Distribution Is Not Necessary to Achieve the Applicants’ Ostensible Consumer Benefits The Joint Applicants bear the heavy burde n of proving that ATI will bring sufficient benefits to outweigh the competiti ve harm that it would cause. 8 The DOJ comments and economic analyses seriously call into question whether any grant of AT I is necessary for the Joint Applicants to achieve the benefits they claim. 9

A. The oneworld Alliance Competes Effectiv ely with Other Alliances Without ATI The Joint Applicants can and do compete eff ectively against Star and SkyTeam without

6 Id. at 14 7 Answer of the American Society of Travel Agents and the Interac tive Travel Services Association , OST-2008- 0252 (May 18, 2009) (“ ITSA/ASTA Answer ”). 8 Joint Application to Amend Order 2007-2-16 , Show Cause Order, Order 2009-4-5, at 6 (Apr. 7, 2009). 9 DOJ Comments at 22.3 immunity. 10 As DOJ found, corporate tr avel managers are far mo re concerned about “wellexecuted service to specific cities at convenient times and competitive prices,” not “level playing fields,” “metal neutrality,” or “double marginalization.” 11 Consumers and travel professionals want lower fares and more service to trigger mo re travel. Simply put, antitrust immunity and alliance status largely are not factors in consum er choice—lower fares and more frequencies on nonstop flights matter the most. 12 Stated alternatively, immunized alliances compete with both immunized and nonimmunized alliances in a single market; ATI fo r the Joint Applicants would not increase interalliance competition in any real market. 13 Because the Joint Applicants’ transatlantic service via London is complementary to the other al liances’ and vital to travel agents and their customers, its members should be able to provi de effective competition without immunized joint dealings with travel agents. 14

B. In a Competitive Market Without ATI, Travel Agents Already Provide the Applicants’ Claimed Efficiency Benefits Immunizing the Joint Applicants is not n ecessary to provide consumers efficient coordination between carriers. As DOJ argues, American and British Airways continue to

increase their coor dination without ATI, 15 and as ITSA and ASTA previously stated, “even without joint dealings w ith corporate customers, [American a nd British Airways] should be able to provide effective competition to Star and Skyteam.” 16 The Joint Applicants utterly fail to

10 Id. at 27. 11 Id. at 28. 12 See id. at 27-28 nn. 81 and 83. 13 See ITSA/ASTA Answer at 23 (refuting the Joint Applicants’ argument that ATI would improve “transatlantic immunized alliance competition”). 14 Id at 32. 15 DOJ Comments at 28-29. 16 ITSA/ASTA Answer at 32.4 show how efficiency requires immu nized joint dealing with travel agents. Travel agents already improve efficiency in interline travel by “maki ng the disparate parts of the air transportation system work together.” 17 Replacing that service with th e supposed efficiency improvements brought by ATI would not be a net benefit for consumers. 18 In addition, the Joint Applicants do not make it clear that immunizing joint dealing with travel agen ts would benefit anyone other than the Joint Applicants. 19 By contrast, travel distributor s “present the public with service opportunities that are competitive with any coordinated service that immunized alliances can

deliver.” 20 ATI with travel distributors is not n eeded to achieve a product competitive with SkyTeam and Star. 21 In sum, granting the oneworld carriers ATI allowing them to deal collectively with independent travel distributo rs would not provide sufficie nt benefits to outweigh the anticompetitive harm it would cause to both th e travel distributors and consumers.

II. Increasing Joint Applicants’ Market Power Would Increase Transatlantic Fares and Competitive Harm DOJ’s data 22 echo ASTA and ITSA’s, 23 showing that increasing the Joint Applicants’ market power by immunizing the oneworld alliance would increase transatlantic fares, and that reducing the number of competitors in a market increases market power. Allowing the Joint

17 ITSA/ASTA Answer at 32. 18 See id. (“Independent travel agents present the public w ith service opportunities that are competitive with any coordinated service that immunized alliances can deliver.”). 19 Id. at 33 (citing Joint Applicants’ Answer to ITSA/ASTA’s Motio n to Require Additional Documents and Data, OST-2008-0252, at 4 (Dec. 3, 2008) (the supposed benef it of ATI for corporate deals is “enabling the alliance to identify opportunities to increase revenue by offering deep er discounts in exchange for more of a customer’s business”)). 20 Id at 32. 21 Id. 22 DOJ Comments at 14-15. Increasing concentration in an alread y concentrated market is especially harmful. Reducing the number of market participants from four to three increases fares by 6.6% , and reducing them further from three to two further increases fares by 15%. See also ITSA/ASTA Answer at 18-19 (transatlantic air travel is a concentrated market). 23 ITSA/ASTA Answer at 19. Increasing market concentration as a result of DOT’s granting ATI has resulted in market power and higher fares.5 Applicants to deal with travel agents as an immunized bloc wielding ma rket power would harm travel distributors, and ultimately consumers, by reducing travel distributors’ bargaining power, giving the alliance the ability to marginalize independent distribution through commission reductions and withholding inventory. 24 ITSA and ASTA agree with DOJ that the Jo int Applicants would enjoy particularly strong market power in transatlantic tr avel to London and especially Heathrow, 25 a particularly important market for business travelers, who are major travel agent customers. 26 This increased market power would allow the alliance to demand mo re favorable terms, delivery of more traffic to its system, and lower commissions. 27 In addition to the anticompetitive harm to independent travel distributors, reducing the number and effectiveness of trav el agents would also increase fares for consumers by reducing their ability to find and compare competing airline service offerings. 28 The Department should carve distributors out from any grant of immunity to limit

the demonstrated fare increases that would result.

III. ATI Would Not Provide Reduced Double Marg inalization Benefits Claimed by Joint Applicants ITSA and ASTA support DOJ’s conclusion that the requested ATI w ould not provide the benefit of reduced double marginalization that the Joint Appl icants rely upon. 29 The DOJ’s new independent study concludes that double marginal ization is no longer a problem in airline alliances, regardless of ATI. 30 That study improves upon olde r studies cited by the Joint

24 Id. at 5. 25 DOJ Comments at 18-22. DOJ also provides additional evidence that the difficulty of slot acquisition at Heathrow limits entry which could otherwis e discipline oneworld’s market power. 26 See id. at 18-19 (relative to other London airports, many trav el managers prefer to contract with a carrier that serves Heathrow). 27 ITSA/ASTA Answer at 17. 28 Id. at 29-30. 29 DOJ Comments at 26-27. 30 Id. (citing DOJ’s Appendix A. “Our evidence, which show s that immunized alliance fares are higher than non-6 Applicants by using more recent data. 31 DOJ concludes from more recent alliance conduct that “airlines participating in allian ces – whether immunized or not – have learned to manage their inventories and pricing activities to provide mo re competitive fares when forming a connection

with another airline.” 32 Sophisticated alliance coordina tion, regardless of ATI, elimin ates double marginalization. In particular, immunizing the Joint Applicants in their dealings with travel agents would provide no benefit. In the absence of ATI travel agen ts “can produce for consumers the same or higher quality of service as immunized join t venturers” at competitive prices. 33 Immunized alliances cannot offer the promised fare reduction over what travel agents provide in a competitive market; the supposed benefit related to double marginalization does not exist. WHEREFORE, given their failure to meet the burden of showing benefits outweigh harm, ASTA and ITSA respectfully request that the Department exclude any form of cooperation or coordination among the Joint Applicants rega rding the distribution of air travel through any independent travel distributor , in any grant of ATI to the Joint Applicants.

immunized ones, does not support the parties’ claims on immunity grants and double marginalization.” DOJ Comments, Appendix A at 4.) 31 Id. at 26. (DOJ cites and refutes previous studies, includi ng one cited by the Joint Applicants to suggest that ATI allows fare reductions that are impossible without coordination allowed by immunity. Joint Application at 32 n. 15.) 32 Id. 33 ITSA/ASTA Answer at 9 n. 18 (citing several studies finding that tr avel agents reduce transaction costs and thereby reduce fares, as well as giving consumers more flexibility and control in selecting travel).7 Respectfully submitted,

Kenneth P. Quinn Jennifer E. Trock Timothy C. Gerheim PILLSBURY WINTHROP SHAW PITTMAN LLP 2300 N Street, N.W. Washington, D.C. 20037 Tel: (202) 663-8000 Fax: (202) 663-8007 E-mail: kquinn@pillsburylaw.com jennifer.trock@pillsburylaw.com timothy.gerheim@pillsburylaw.com

Counsel for ITSA and ASTA January 11, 2010