Order 2011

- 5

- 8 Served: May 10 , 2011

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

Issued by the Department of Transportation

on the 10 th Day of May , 201 1

Docket DOT

- OST

- 2009

- 0155

SHOW CAUSE ORDER

I. S UMMARY

By this Order, the Department tentatively approves the request of Delta Air Lines and affiliates of the Virgin Blue Group , together referred to as the “Joint Applicants” or “applicants,” to form an alliance and coordinate flights between t he United States and Australia

. Initially, the Department tentatively rejected the request because the applicants did not meet the high standard necessary to justify a grant of antitrust immunity. By Order 20 10

- 9

- 4, issued on September 8, 2010, we tentatively determined that the applicants had failed to show that the proposed alliance would produce substantial public benefits and that antitrust immunity would be required to obtain those benefits. Under those circumstances, we were not convinced that the alliance partners had the ability and incentive to pass on the potential benefits of immunized cooperation to consumers.

Order 2010

- 9

- 4 focused on two deficiencies in the applicants’ request. First, the Dep artment had identified barriers to integration between the applicants that would delay the realization of public benefits or, in the worst case, prevent any benefits from being achieved at all. The barriers to integration included a planned joint venture with unclear business processes and limited scope. Without more certainty in the cooperation plans and a stronger showing of public benefits that would be proximate to the grant of immunity , we were not willing to take the Joint Application of:

DELTA AIR LINES, INC. VIRGIN BLUE AIRLINES PTY LTD VIRGIN BLUE INTERNATIONAL AIRLINES PTY LTD D/B/A V AUSTRALIA PACIFIC BLUE AIRLINES (NZ) LTD PACIFIC BLUE AIRLINES (AUST) PTY LTD

Under 49 U.S.C. §§ 41308

- 41309 for approval of and antitrust immunity for alliance agreements2 extraordinary step of exempting the applicants from the antitrust laws and forgoing the usual benefits of competition. Second, we expressed concern that the conditions in the U.S.

- Australia market were in a state of flux that made it difficult to analyze the likely effects of the propos ed alliance. 1 Without more and better information about how the proposed alliance would function in the market , we had reason to believe that a grant of immunity would primarily benefit two very new competitors in the market

– namely, the applicants

– and not, as in past cases, enhance competition generally and enable the proposed alliance to achieve efficiencies and deliver benefits that would not otherwise be possible. 2

To address the concerns expressed in Order 2010

- 9

- 4, the applicants made substantial changes to their alliance plans and provided new information for the record. By doing so, we tentatively find that the applicants have effectively submitted a substantially different application

– one that we tentatively find to meet the high standard ne cessary to obtain antitrust immunity. To address the barriers

- to

- integration issue, the applicants clarified that the Virgin Blue Group will operate with one management structure and a unified reservations system that is compatible with Delta’s system and capable of supporting the highly technical joint venture cooperation necessary to deliver the consumer benefits associated with a highly integrated, immunized alliance

. 3 We tentatively find that t he harmonization of the systems and business processes enables the applicants to achieve their stated goal of “metal neutrality” in the joint venture

, 4 which , in turn, will offer consumers a more seamless network on which to travel.

Moreover, the applicants have expanded the scope of their joint venture to include more points beyond the gateway cities. We tentatively find that t he expansion and optimization of their joint network will make the alliance more competitive and allow it to deliver substantial benefits at inception. While the applicants may hav e always intended to expand and optimize the network, a premature grant of antitrust immunity would not have provided the same incentive to pass on the benefits of immunized cooperation to consumers, and those benefits might not have materialized. W ith th e proposed changes in the alliance arrangements, however, the applicants have made every effort to achieve efficiency

- enhancing integration at the outset. As a result, we tentatively find that they appear to show that a grant of antitrust immunity would e nhance competition in the near term by improving the overall structure and functioning of the ir market ing alliance , to the benefit of consumers. This showing lies at the heart our public benefits analysis in antitrust immunity cases.

Lastly, the appli cants have submitted market data that reflect more favorable conditions for immunized cooperation than those that existed last year. While it is too soon to draw conclusions about the structural changes that have occurred, and continue to occur, in the U. S.

- Australia market, the applicants address this issue with a remedy. The applicants have

1 Show Cause Order 2010

- 9

- 4, pp.10

- 12 (September 8, 2010).
2 Show Cause Order 2010

- 9

- 4, p.12 (September 8, 2010).
3 See Joint Applicants’ Response to Show Cause Order 2010

- 9

- 4, pp. 19

- 2 0, 24

- 32 (October 13, 2010). On May 4, 2011, Virgin Blue and its associate airlines, V Australia and Pacific Blue, were rebranded as Virgin Australia.
4 “Metal neutrality” is an industry term meaning that the partners in an alliance are indifferent as t o which of them operates the “metal,” or aircraft, when they market and sell their services on a joint network. Without a metal

neutral sales environment, the partners have an economic incentive to book passengers on their own aircraft in order to retain a larger share of the revenue for themselves, which may not be in the best interest of the consumer or the alliance as a whole.3 committed on the record to maintain their existing capacity in the market for two years, to provide consumers with the assurance of some of the benefits from the coo peration in the immediate future

. In sum, the applicants have substantially revised their application to address the concerns expressed by the Department in Order 2010

- 9

- 4. Accordingly, we are now proposing to approve the revised alliance and make a gra nt of antitrust immunity, subject to conditions. We direct interested parties to show cause why we should not make final the tentative findings and conclusions of this Order . Interested parties have 14 calendar days to submit answers, and seven business days to submit replies.

II. B ACKGROUND

The a pplicants filed a joint application on July 9, 2009

, requesting approval of, and a grant of antitrust immunity for , commercial alliance agreements related to their service in the U.S.

- Australia market and other behind and beyond points in North America and the South Pacific

. 5

Following the Department’s initial review of the proposed transaction, we issued Show Cause O rder 2010

- 9

- 4 on September 8, 2010, tentatively denying the joint applicants’ request. Our te ntative decision was based on the applicants’ failure to show that the proposed alliance would deliver sufficient public benefits to justify a grant of antitrust immunity and our contention that the application was submitted before the applicants had devel oped any significant commercial relationship. Additionally, the Department tentatively found that a recent structural shift in the U.S.

- Australia market made it difficult to ascertain whether the alliance would be in the public interest.

After requestin g a three

- week extension to the original comment period, 6 the applican ts submitted their Response to Order 2010

- 9

- 4 on October 13, 2010. 7 They focused on the Department’s concerns about the applicants’ ability to deliver public benefits, and proposed addi tional changes to their agreements to that effect. On November 19, 2010, the Department issued an Interim Order finding that further documentation was necessary to enable to Department to evaluate the proposed changes fully and fairly

. 8

On January 31, 2011, the applicants responded to the Interim Order with additional information, as well as a confidential submission of executed copies of a Mutual Capacity Coordination Agreement and an amendment to their Joint Venture Framework Agreement

. 9

5 Joint Application at 5 (July 9, 2009). In their July 9, 2009 filing, the applicants sought approval of, and antitrust immunit y for, the following agreements: (i) Bilateral alliance cooperation agreements between Delta, on the one hand, and Virgin Blue, V Australia, Pacific Blue Airlines (NZ), and Pacific Blue Airlines (Aust), on the other hand; (ii) A multilateral alliance coor dination agreement among the Joint Applicants; (iii) A multilateral joint venture agreement among the Joint Applicants; and (iv) Any existing and future implementing agreements in furtherance of the foregoing agreements and any transaction undertaken pursu ant to any of the foregoing agreements. T he applican ts subsequently placed public versions of these documents in the record on April 15,

6 Motion for an Extension of Time (September 8, 2010).
7 Joint Applicants’ Response to Show Cause Order 2010

- 9

- 4 (October 13, 2010).
8 Interim Order 2010

- 11

- 22 at 2 (November 19, 2010).
9 Joint Applicants’ Response to Interim Order 2010

- 11

- 22 (January 31, 2011).4 2011

. 10 On April 18 , the parties submitted a letter to the record indicating that the Virgin Blue Group had updated its reservation system to allow for full y automated codesharing across the Delta and Virgin Blue Group networks. 11

Through their response to both Order 2010

- 9

- 4 and the Department’s Interim Order, the applicants presented new information as well as material changes to their joint venture plans. Specifically, the applicants’ submissions have attempted to address three fundamental concerns of the Department : that conditions in the U.S.

- Australia market were not ripe for a grant of immunity ; that the applicants did not sufficiently lay out plans to cr eate a robust codesharing network; and that barriers to integration among the Virgin Blue carriers would hinder the delivery of public benefits. Taken together, these amendments essentially amount to a new application for immunity.

To address the Depar tment’ s concerns about uncertainty arising from flux in the U.S.

- Australia market , the applicants offered to hold transpacific capacity at current levels for two years to address concerns that the market is unstable and not ripe for a grant of antitrust im munity

. According to the applicants’ Mutual Capacity Commitment Agreemen t, Delta would maintain seven weekly peak

- season and six weekly off

- peak Boeing 777 departures between the contiguous United States and Australia, and V Australia would maintain 14 we ekly peak

- season and 11 weekly off

- peak Boeing 777 departures between the two countries. The peak and off

peak schedule s will each be run for six months out of the year and Delta and V Australia are permitted ten and twenty annual ad hoc cancellations, re spectively.

As another attempt to address current market uncertainty , the applicants provided, in their response to our Order 2010

- 9

- 4 , an additional year of updated passenger and fare data, which they claim indicate s market stability. In t heir follow

- up response to the Interim O rder, the applicants submitted confidential internal traffic and fare data, along with confidential Market Information Data Tapes (MIDT), through the end of 2010. 12 The parties contend that seat capacity has been largely constant for the past year and a half and that the market is no longer in flux. Additionally, the applicants pointed to stable booking shares since July 2009, following a period of shifting shares immediately after Delta and V Australia introduced service

. 13 They argue that these steady booking shares further show a market where participants would respond competitively to the joint venture.

To address the Department’s concerns about the potential lack of a robust codesharing network , the applicants modifi ed their Joint Venture Framework Agreement by including revenue from third

- country points in Canada, Mexico, and New Zealand in their revenue

- sharing agreement. 14

10 Letter from Alexander Van der Bellen, Managing Director and Associate General Counsel for Delta, to Dorothy Beard, Chief of DOT Dockets (April 15, 2011). In their response to our Interim Order, the applicants provided an executed copy of the amend ment to their Joint Venture Framework Agreement. Additionally, the applicants have

11 Letter from Alexander Van der Bellen, Managing Director and Associate General Counsel for Delta, to Dorothy Beard, Chief of DOT Dockets (April 18, 2011).
12 Joint Applicants’ Response to Interim Order 2010

- 11

- 22 at 13 (January 31, 2011).
13 Joint Applicants’ Response to Interim O rder 2010

- 11

- 22 at 15 (January 31, 2011).
14 Letter from Alexander Van der Bellen, Managing Director and Associate General Counsel for Delta, to Dorothy Beard, Chief of DOT Dockets (April 15, 2011).5 secured the foreign regulatory approvals necessary to ensure that the entire scope of the immunized joint venture can be implemented promptly. 15

The applicants also provide d additional information on the management of the Virgin Blue Group to address our concerns about potential barriers to integration that would prevent full cooperation between the parties. Specifically, the applicants provided clarification on the operat ional structure of the Virgin Blue Group and added that the Delta flights would receive “highly preferred, metal neutral access” to Virgin Blue’s domestic Australian and regional Tasman Sea markets. 16 Furthermore, in response to our concerns that the dispa rate reservations systems of carriers within the Virgin Blue Group would hinder the delivery of consumer benefits, the applicants provided the Department with updates on their efforts to move to a harmonized system. On April 20, 2011, the applicants notif ied the Department that the Virgin Blue Group had successfully upgraded its reservation system on April 17, 2011

, creating compatible systems and procedures to support automated codesharing between Delta and all carriers of the Virgin Blue Group. 17

Numerou s individuals and organizations have submitted comments on this matter. The Delta Master Executive Council (Delta MEC) of the Air Line Pilots Association (ALPA) submitted comments on March 25, 2010 urging the Department to promptly approve the application

. 18 Following our tentative decision and the parties’ response, the Delta MEC submitted additional comments on October 22, 2010, arguing that the applicants had sufficiently addressed the Department’s concerns in their response. 19 Additionally, the Delta M EC contends that the joint venture would help to bolster competition in the U.S.

- Australia market by allowing Delta to compete more effectively with Star and oneworld partners in the market and would not pose any harmful effects on competition.

Alaska Air lines and Horizon Air submitted comments on October 22, 2010

, arguing in support of a grant of immunity for the joint venture on the grounds that their codesharing and marketing alliance with Delta would help bolster the public benefits and flow traffic ge nerated by the joint venture.

Two airport authorities

– the Port of Seattle and Los Angeles World Airports

– submitted comments on October 26, 2010 in support of the alliance, arguing that antitrust immunity would make the applicants more viable competi tors in the U.S.

- Australia market, to the benefit of consumers in their respective metropolitan areas. 20

Hubert Horan submitted comments on Order 2010

- 9

- 4 on October 12, 2010

, arguing that the Department’s findings should be rejected because it failed to a ccept the applicants’ benefit claims at face value and therefore imposed a benefits standard that was different from those used

15 Joint Applicants’ Response to Interim Order 2010

- 11

- 22 a t 10

- 11 (January 31, 2011).
16 Joint Applicants’ Response to Show Cause Order 2010

- 9

- 4 at 4 (October 13, 2010).
17 Letter from Alexander Van der Bellen, Managing Director and Associate General Counsel for Delta, to Dorothy Beard, Chief of DOT Dockets (April 18, 2011) (updating the successful upgrade to Navitaire New Skies version 3.3.1).
18 Answer of Delta Master Executive Council (posted March 29, 2010).
19 Answer of Delta Master Executive Council (posted October 26, 2010).
20 DOT

- OST

- 2009

- 0155

- 0040 and 0042 (O ctober 26, 2010).6 in other immunity cases. 21 In supplemental comments addressing the applicants’ response to the Show Cause Order, Mr. Horan quest ioned the methodological accuracy of an economic study submitted on behalf of the applicants

, as well as the Department ’s and other parties’ ability to accurately evaluat e the study within the timeframe set forth by Order 2010

- 9

- 4

.

III. D ECISIONAL S TANDARDS

Under 49 U.S.C §§ 41308

- 41309, we engage in a two

- step analysis of foreign air transportation agreements submitted for our approval . We first determine under § 41309 whether the agreements are adverse to the public interest because they would substantiall y reduce or eliminate competition (the “competitive analysis”). If so, we determine whether they are necessary to meet a serious transportation need or to achieve important public benefits . If we make that finding, we approve the agreements, provided tha t those public benefits cannot be met or achieved by reasonably available and materially less anticompetitive alternatives. U.S. foreign policy goals may be a key element of these benefits . A party opposing approval has the burden of showing that the agr eement or request would substantially reduce or eliminate competition and that less anticompetitive alternatives are available. On the other hand, the party seeking approval of the agreement or request must establish the transportation need or public bene fits.

If we approve the agreements under the analysis outlined above

, we next decide whether there are sufficient public benefits to grant immunity under 49 U.S.C. § 41308 (the “public benefits analysis”)

. Under § 41308(b), Congress has given the Departm ent the authority to exempt airlines from the antitrust laws to the extent necessary to allow a proposed transaction to proceed, provided that the exemption is required by the public interest. While the public interest determination under both sections 41 309(b) and 41308(b) entails a comparison of anti

competitive effects and public benefits , the standard in section 41308(b) (“required by” rather than “not adverse to”) is higher. 22 If we determine that the transaction would substantially reduce or eliminate competition, yet meets the test for approval under section 41309(b)(1), then

we must exempt the parties to the transaction, pursuant to 49 U.S.C. § 41308(c).

The intended commercial effects of the applicants’ cooperation are similar to those resulting from a merger. As part of our overall analysis , we apply the Clayton Act test, which is used to predict the competitive effects of a proposed merger. 23

21 Comments on the Show Cause Order, Hubert Horan, October 12, 2010. The Clayton Act test requires us to consider whether a grant of antitr ust immunity is likely to substantially reduce competition and facilitate the exercise of market po wer

– that is, to allow the applicants to profitably charge
supra

- competitive prices or reduce service or quality below competitive levels in any relevant

ma rket. To determine whether an alliance is likely to create or enhance market power, we primarily consider whether the alliance would significantly increase market concentration, whether the alliance causes potential competitive harm, and whether new entry into the market

22 See , e.g., Star Alliance, Docket OST

- 2008

- 0234, Show Cause Order 2009

- 4

- 5 at 18 (April 7, 2009), quoting Northwest/KLM, Order 93

- 1

- 1, at 11 (January 11, 1993)

. 23 See Acquisition of Northwest/Wings Holdings, Inc., Show Cause Order 92

- 11

- 27, at 13 (November 16, 1992); SkyTeam II, Show Cause Order 2008

- 4

- 17, at 5 (April 9, 2008).7 would be timely, likely, and sufficient either to deter or to counteract the potential competitive harm.

IV. T ENTATIVE D ECISION

We are tentatively deciding to approve the application and make a grant of im munity, subject to conditions. O ur tentative decision is based on two reasons: that the applicants have made substantial changes to their alliance plans in recent months and can now meet the high standard
set out in and explained by Order 2010

- 9

- 4 , and that new data submitted by the app licants and

ana lyzed by the Department suggest that conditions in the U.S.

- Australia market are now suitable for immunized cooperation

.
First, we are reaching this tentative decision because the applicants have made substantial changes to their alliance plans and agreements in response to the tentative decision in Order 2010

- 9

- 4. They have effectively submitted a new application. In addition to the capacity commitments, they have expanded th e scope of their joint venture, made their business processes more compatible and efficient, and clarified how the Virgin Blue Group will be managed. These changes allow for a thorough competitive and public benef its analysis, which is summarized and
pres ented below.

Second, i n Order 2010

- 9

- 4, we had expressed concerns that the market was in a state of flux, which could prevent the public benefits of the alliance from being realized

. As the global recession unfolded in 2008, fares and passenger revenue i n many intercontinental markets declined as passenger demand plummeted. While most intercontinental markets experienced reduced capacity to some degr ee, the U.S.

- Australia market encountered a nearly 20 percent boost in capacity and two new carriers enter ed this ultra

- long haul market

, which had long been a nonstop duopoly between United Airlines and Qantas.

The combination of the global recession and the substantial increase in capacity resulted in exceptionally lower fares and passenger revenue in the U.S.

- Australia market. Average fares between the U.S. and Australia, according to Bureau of Transportation Statistics Origin and Destination (O&D) data, plummeted by nearly 50 percent from mid 2008 to mid 2009. Total O&D revenue in the U.S.

- Australia mar ket dropped over 38 percent from second quarter 2008 to second quarter 2009. 24 In the shifting structure of the U.S.

- Australia market

, combined with the global recession , the Department was uncertain that the market, over the long term, could sustain the a dded capacity. Therefore, a grant of antitrust immunity could have provide d the applicants with extra incentive and ability to reduce capacity in the market to put upward pressure on fares.

In response to Order 2010

- 9

- 4 and 2010

- 11

- 22 , the applicants pointed to new evidence that the increased capacity, due largely to their entry, had remained st eady for nearly 18 months. F ares and passenger revenue in the market had stab ilized and had begun to increase. The new data on the record show that, b y the s econd quarter 2010, total O&D revenue in the U.S.

- Australia market had rebounded to levels less than five percent below total revenue during the second quarter 2008. Additionally, MIDT and O&D data provided by the applicants through the end of 2010 show t hat passenger and fare levels are continuing to recover and that the long

- time

24 DOT O&D Survey, 2008, 2009, 1H2010.8 incumbent carriers

– United, Qantas, and Air New Zealand

– still command a significant premium in the market. 25

The fact that there are concrete signs of robust recovery with the additional capacity suggests that this market was ripe for additional competition. In light of the traffic, fare, and capacity trends between the U.S. and Australia over the past several quarters, the Department is tentatively satisfied that the vola tility in the market has diminished. To further address this issue, the applicants have offered to maintain capacity in the market for at least two years. The applicants’ Mutual Capacity Commitment Agreement is intended to eliminate any concern that Delt a or Virgin Blue Group would reduce their nonstop U.S.

- Australia service level as a result of antitrust immunity. 26

Given the degree of flux that occurred in the market in a relatively short period of time, we tentatively believe that these capacity commitments are important to justify a grant of antitrust immunity at this time. Therefore, we tentatively determine that the applicants should abide by the commitments they have voluntarily made and fly at least the proposed m inimum service levels. T o be clear, we propose to make the capacity commitments a condition of obtaining antitrust immunity.

A. C OMPETITIVE A NALYSIS

Under § 41309(b), we must determine whether the alliance agreements submitted by the applicants are adverse to the public interest because they would substantially reduce or eliminate competition. I n this section, we conduct an analysis of the changes in competition that would result from approving the application . We conduct three levels of analysis f or relevant competitive markets: a broad network level, a country

- pair level, and a city

- pair level. This is the first time that we have conducted a market analysis of this transaction. In Order 2010

- 9

- 4, we assumed arguendo that the alliance would not s ubstantially reduce competition in order to focus on the public benefits issues in the case. 27

So, proceeding de novo , it should be noted that this transaction differs from recent alliance transactions that we have evaluated. While recent alliances in tra nsatlantic and transpacific markets involved long

- haul markets connecting two major regions with considerable traffic flows between them (North America

- Europe and North America

- Asia ), the applicants in this case compete in the relatively thin, ultra

- long h aul U.S.

- Australia market, which has relatively less traffic and can only be served on a nonstop basis by certain aircraft models, primarily from the U.S. West Coast. Additionally, unlike the transatlantic and transpacific markets that have long been serv ed by numerous airlines and alliances, the nonstop U.S.

- Australia market had been, for many years, a duopoly . It is only recently that Delta and V Australia entered the market and thereby materially increased the number of competitors and changed the mark et dynamics.

25 DOT O&D Survey, 2008, 2009, 1H2010; Applicants’ MIDT confidential data, Motion for Confidential Treatment (posted February 1, 2011).
26 Joint Applicants’ Response to Interim Order 2010

- 11

- 22 at 2 (January 31, 2011).
27 See Show Cause Order 2010

- 9

- 4, pp.10

- 12 (September 8, 2010).9 Moreover, this case involves only one overlapping route

– Los Angeles

- Sydney, which will go from four to three competitors. As a result, the application does not raise the same complex issues at the city

- pair level that we have addressed i n recent transatlantic and transpacific cases

, in which there were a greater number of nonstop overlap routes affecting
more passengers.

1. N ETWORK L EVEL

The proposed transaction involve s a la rge global airline, Delta, whose network reach es hundreds of points around the world , and an Australian airline group that primarily serves the domestic Australian market and selected international destinations

. The core focus of the joint
venture will be traffic over the Pacific Ocean between the cont iguous U nited States and the Australia region

. 28 Accordingly, our analysis will focus on evaluating the competitive effects of the proposed transactions in th is part of the transpacific market

. As a general matter, historical onboard data suggest that g ranting antitrust immunity would result in relative competitive balance in the contiguous U.S.

- Australia/New Zealand market. Onboard passenger share data for the calendar year 2010 for nonstop service between the contiguous U.S. and Australia/New Zealand indicate that an immunized Delta/V Australia would have only a marginally larger market share than United’s standalone share (see Chart 1). The two major competitors in the market

– the Star Alliance, composed of an immunized United and Air New Zealand, 29 and oneworld’s Qantas

– will still each possess about twice the market share, in terms of passengers carried, of Delta and V Australia combined. 30

28 We exclude Hawaii and other U.S. territories in the Pacific from the analysis because: (1) Delta, United and V Australia do not serve the Hawaii

- Australia market; (2) Most passengers traveling between Australia/New Zealand and North America do not transit through Hawaii, as Hawaii i s primarily a destination point; and (3) The substantial capacity between Hawaii and North America would inaccurately skew the relevant aspects of the analysis by including traffic that does not have a competitive impact on mainland U.S.

- Australia flights.
29 See United/Air New Zealand Case, Docket DOT

- OST

- 1999

- 6680

, Final Order 2001

- 4

- 2 (April 3, 2001).
30 The Department’s evaluation of the MIDT data submitted by the applicants on a confidential basis supports our findings drawn from the T

- 100 traffic data c oncerning network

- level competition and the prospects for more balanced shares vis

- à

- vis United/Air New Zealand and Qantas. Passengers flying solely on Air Canada from Vancouver are not included in the analysis because the DOT does not have access to that onboard data. In addition, while there are many passengers traveling between the U.S. and other South Pacific destinations such as Indonesia, Fiji, and Tahiti, the vast majority of those passengers do not connect through Australia or New Zealand to reach these destinations. However, passengers traveling between North America and Australia/New Zealand often visit both destinations in either direction and can utilize multiple itinerary options.10 Chart 1: Share of Passengers in Contiguous U.S.

- Australia/New Zealand Nonstop Market 31

As shown in Chart 1, above, after the transaction there would still be three major competitive entities on the network level with a significant share of passengers. This indicates a generally competitive market. The combination of Delta and V Australia w ould create a new competitive entity carrying about one

- fifth of the total passengers. Additionally, United

, Air New Zealand

, and Qantas would each have a significant passenger share in the market.

2. C OUNTRY
- P AIR L EVEL

In this particular case , a country

- pair evaluation is warranted because the number of passengers traveling between the contiguous U.S. and Australia is several times larger than the number traveling between the U.S. and New Zealand, or any other South Pacific market. In additio n, the proposed alliance primarily affects competition in the U.S.

- Australia market. While neither V Australia nor any other U.S. carrier currently serves the U.S.

- New Zealand market , Air New Zealand and Qantas service between the U.S. and New Zealand may provide competitive discipline in the U.S.

- Australia market. Although United and Air New Zealand do have antitrust immunity, 32 t hey have not formed a joint venture and are only cooperating in the region as Star Alliance codeshare partners. Because of the se circumstances, the Department believes it is also necessary to examine the contiguous U.S.

- Australia market in isolation to determine if there are any competitive concerns, as Star’s capacity in this market differs significantly from its capacity
at the network level when U.S.

- New Zealand services are also considered

. Through an examination of historical onboard traffic in the U.S.

- Australia market, we find that there is little, if any, reason for competitive concern. Qantas is a relatively stronger

c ompetitor compared to its position at the network level

, as its historical onboard share is nearly

31 DOT T100 data for YE4Q2010.
32 See United/Air New Zealand Case , Docket DOT

- OST

- 1999

- 6680, Final Order 2001

- 4

- 2 (April 3, 2001). The United/Air New Zealand antitrust immunity is subject to carve

- outs for time

- sensitive travelers in the Los Angeles

Sydney and Los Angeles

- Auckland markets, as both carriers served both markets at the time immunity was granted. However, on a nonstop basis, United no longer serves Los Angeles

- Auckland and Air New Zealand no longer serves Los Angeles

- Sydney. A i r l i n e / G r o u p

D e l t a V A u s t r a l i a

4 0

. 2 % A i r N e w Z e a l a n d

Q a n t a s C o n t i n g u o u s U

. S

. - A u s t r a l i a / N e w Z e a l a n d

6

. 7 % 2 0

. 8 % 1 4

. 1 %

1 8

. 1 % 3 9

. 0 % 2 0

. 8 %

4 0

. 2 % U n i t e d11 half of all U.S.

- Australia passengers in 2010. United carries nearly a quarter of the traffic, while Delta and V Australia combined carry just over a quarte r of the onboard passengers (See Chart 2).

Chart 2: Share of Passengers in Contiguous U.S.

- Australia Nonstop Market 33

As shown in Chart 2, after the transaction, the immunized Delta/V Australia joint venture would carry approximately 28 percent of onboard passengers in this market. While it would surpass United in terms of onboard passengers carried, it would still have a relatively equitable share wi th the Star carrier. The market would ultimately have three competitors, with United and Delta/V Australia each separately carrying about a quarter of the contiguous U.S.

- Australia passengers, and Qantas carrying about half of the onboard passengers

. We tentatively find that
t he three competitive entities will have sufficient size and scope to ensure robust competition in the market.

3. C ITY
- P AIR L EVEL

Overlapping city

- pair markets provide the greatest potential for competitive harm because a grant o f immunity effectively eliminate s a competitor from the market, potentially giving one airline or alliance the ability to raise fares to supra

- competitive levels

. The Department must determine, in this case, whether immunity would give the applicants the ability to sustainably increase prices or decrease capacity in the overlap market

. In addition to T

- 100 traffic data, the Department analyzed other data sources to gain a more complete view of this city

- pair market and verified the claims made by the appl icants in their public filings. 34

The proposed joint venture would affect competition in one nonstop city

- pair market, Los Angeles

- Sydney. After the transaction, the number of competitors in the market would be reduced from four to three carriers

, which i s a shift we tentatively find would not substantially reduce competition under the circumstances. Even though Delta/V Australia combined would

33 DOT T100 data for YE4Q2010.
34 In addition to T

- 100 traffic data, the Department analyzed internal fare data and MIDT data submitted by the carriers, on a confidential basis, in response to our Interim Order. These data corroborate our findings from our review of publicly available dat a outlined in this section. A i r l i n e / G r o u p

D e l t a V A u s t r a l i a

U n i t e d
A i r N e w Z e a l a n d C o n t i g u o u s U

. S

. - A u s t r a l i a

9

. 0 % 2 8

. 3 % 1 9

. 2 %

2 4

. 6 % 2 4

. 6 %

-

4 7

. 2 % 4 7

. 2 % Q a n t a s12 have just over one

- third of the onboard market and surpass United’s share, Qantas would still have the largest p resence in the market (see Chart 3). Additionally, by carrying more than 20 percent of passengers in the market, each of the competitive entities would have a sufficient stake in the market to impart competitive discipline on the others.

Chart 3:
Share o f Passengers in Los Angeles

- Sydney Nonstop Market 35

An immunized Delta/V Australia would therefore face significant competition from the Star and oneworld incumbents

, and would likewise impart increased competitive discipline on its rivals. Each of the carriers in this market has proven, through its high quality of service and commitment to the market, that it has the ability and incentive to provide robust competition over the long term. The Department tentatively finds that approving the application would not lead to a significant loss in competition.

4. S UMMARY OF C OMPETITIVE A NALYSIS

As explained above, w e tentatively find that the proposed transaction is unlikely to have any significant deleterious effect on com petition in the U.S.

- Australia market. Three carrier groups, each with its own alliance, in a long

- haul market, are likely to continue to operate in a competitive environment that benefits the traveling and shipping public. Where it does occur, the loss of competition f rom four to three carriers will not cause a substantial reduction in competition.

Additionally, we tentatively believe that a grant of antitrust immunity would likely improve the quality of competition, providing further benefit s to passengers in the mark et. Approving the application would create a stronger competitive force that would put additional competitive pressure on incumbents to deliver new and improved consumer benefits. In summary, we tentatively see no basis upon which the applicants could, a s a result of this transaction, impose and sustain supra

- competitive fares or reduce service levels below competitive levels. These factors support the tentative conclusion that the proposed alliance is not adverse to the public interest and sho uld theref ore be approved under § 41309.

35 DOT T100 data for YE4Q2010. A i r l i n e / G r o u p L o s A n g e l e s - S y d n e y

D e l t a 1 6

. 5 % 3 6

. 9 % V A u s t r a l i a 2 0

. 4 %

Q a n t a s 3 9

. 9 % 3 9

. 9 % U n i t e d 2 3

. 3 % 2 3

. 3 % A i r N e w Z e a l a n d

-13 B. P UBLIC B ENEFITS A NALYSIS

Having tentatively approved the alliance under § 41309, we must now determine whether it is appropriate to make a grant of antitrust immunity under § 41308. As we have stated in past
cases, we ar e only willing to grant immunity if the parties to agreements would not otherwise go forward without it, and if we find that the public interest requires that we grant antitrust immunity. Our public interest examination focuses on the public benefits that will be created by the proposed alliance and the extent to which a grant of antitrust immunity is required to realize those benefits.

Generally speaking, a grant of antitrust immunity may enable airlines to achieve merger

- like synergies, boost capacity , and deliver lower prices for some itineraries. These benefits are possible because immunity may align economic incentives affecting separate carriers and allow for the cooperating carriers to increase economies of density. The extent to which consumers obtain these benefits depends on the competitive nature of the market s affected by immunity

, as well as other specific facts and circumstances, including the carriers’ individual abilities to deliver the benefits to passengers.

In the competitive analysi s above, we tentatively determine d that a grant of immunity would not significantly diminish competition on the network, country

- pair, or city

- pair level. These tentative findings indicate that market dynamics would give the joint venture ample incentive to pass benefits from their cooperation along to passengers. We must, therefore, determine here the nature and extent of the benefits to be provided to consumers, as well as the individual ability and economic incentive of the applicants to deliver those benefits under their revised agreements.

Our September 8, 2010 Show Cause Order identified barriers to integration

– specifically the separate management of V Australia (relative to the ot her Virgin Blue carriers) and incompatibilities between the two reservation systems

– that would prevent the joint venture from delivering optimal schedules and pricing on a seamless network. Since the issuance of the initial Show Cause Order, the parties have clarified that all the Virgin Blue Group carriers are taking steps to operate under one management structure, which will better facilitate the seamless connections and network benefits that were described in the initial application. 36 In addition, th ey have made the technical changes necessary to harmonize their reservations systems to ensure that they can market and operate a joint network. 37 While we were originally concerned with potential barriers within the Virgin Blue Group that could prevent a seamless network, we

are tentatively convinced by the new evidence in the record that V Australia has the incentive and ability to provide complete access to the Virgin Blue network for Delta customers. 38

Additionally, the applicants have expanded the sco pe of their revenue cooperation, including connecting markets in Canada, Mexico, and New Zealand, under their revenue

- sharing arrangement. We tentatively find that this change will encourage each of the applicants to boost

36 Joint Applicants’ Response to Show Cause Order 2010

- 9

- 4 at 19

- 20 (October 13, 2010).
37 Joint Applicants’ Response to Show Cause Order 2010

- 9

- 4 at 30

- 32 (October 13, 2010); Joint Applicants’ Respon se to Interim Order 2010

- 11

- 22 at 2 (January 31, 2011).
38 Joint Applicants’ Response to Show Cause Order 2010

- 9

- 4 at 4 (October 13, 2010).14 capacity and improve service, pr oviding consumers with a broader seamless network that will make the alliance more competitive for traffic flows betwe en North America and the Australia region

.

In the initial Show Cause Order, we expressed concerns that the applicants’ new and limited commercial relationship would jeopardize their ability to deliver consumer benefits within a reasonable period of time. 39 As stated in the initial Show Cause Order, it is our policy to ensure that applicants for antitrust immunity are in a position to deli ver substantial consumer benefits at the time the immunity is requested. 40 The policy is necessary to maximize the incentives of the carriers to develop and realize the efficiencies of close cooperation and to pass along those efficiencies to consumers in the form of increased capacity, lower prices, or improved quality of service.

Since our tentative decision, the parties have developed the systems and capabilities to better facilitate the joint network that they propose in their application. These effo rts, undertaken over many months, are likely to produce substantial public benefits in terms of new online connections and a broader network, and these benefits will now be available in close proximity to the grant of antitrust immunity. We tentatively be lieve it is likely that passengers in the b roader North America

- Australia regional markets will benefit from seamless travel between more points and a greater portfolio of destinations on a single carrier group.

The same factors that allow the parties to deliver a more seamless network also position them to provide many consumers with better access to lower fares by allowing customers to build itineraries using the lowest fares available. The carriers’ revenue

- sharing model encourages them to set prices more accurately based on customer demand, rather than each imposing their own markups on different route segments. 41 Additionally, the carriers may achieve cost synergies

– arising from joint purchasing and other economies of scale

– that could be passed

a long to consumers in a competitive marketplace.

Better access to lower fares is a consumer benefit that would not have been achieved under the applicants’ original alliance proposal. Incompatibilities in booking systems, at least initially, would have ma de it more difficult for customers to access more preferred pricing, and less and weaker cooperation on behind/beyond routes would have limited the incentive to remove multiple markups and to establish more seamless pricing. With the applicants’ more deve loped commercial relationship and changes to their agreements, however, we tentatively find that these fare benefits are likely to accrue to consumers with a grant of immunity.

In their original application, the applicants also stated that a key benefit o f their joint venture would be stronger inter

- alliance competition with Star and oneworld in the U.S.

- Australia market. 42

39 Show Cause Order 2010

- 9

- 4 at 5

- 6 (September 8, 2010). While we do consider stronger inter

- alliance competition as a potential public benefit,

40 Show Cause Order 2010

- 9

- 4 at 2 (September 8, 2010); Show Ca use Order 2005

- 12

- 12 at 34 (December 22, 2005).
41 This refers to the elimination of double marginalization, which occurs when two producers in a supply chain each charge a separate markup and thus impose a negative externality on the other entity’s demand. A joint revenue model that is disciplined by ade quate competition incentivizes the firms to eliminate these double markups, potentially lowering prices for the consumer.
42 Joint Application for Approval of and Antitrust Immunity for Alliance Agreements, at 15

- 16 (July 9, 2009).15 this notion is predicated on the idea that a n ewly immunized competitor would provide viable competition with its rivals. Under the original scope and structure of the alliance , there were insufficient commercial links to ensure that the joint venture would be a more effective competitor than the exi sting sum of its parts. Thus, a grant of antitrust immunity under those circumstances would likely not have bolstered inter

- alliance competition as much as it will with the revised joint venture agreement.

With additional evidence and substantial changes in the commercial arrangements, we are

now tentatively satisfied that an immunized Delta and Virgin Blue Group would represent a stronger competitive force that would increase competition in the U.S.

- Australia market, with fare benefits for the consumer. Additionally, stronger inter

- alliance competition may give rise to quality of service improvements. As Delta and V Australia jointly compete against the members of Star and oneworld in the market, they will have the incentive to harmonize their products to the extent possible and provide a better customer experience

. Based on our review of the applicants’ amendments to their agreements as well as additional evidence, we tentatively find that the proposed joint venture would lead to substantial public benefits

– and that those potential benefits are sufficient to justify a grant of immunity. We also tentatively find that a grant of antitrust immunity is required by the public interest and that the benefits from the proposed alliance could not be realized absent a grant of immunity.

In their original application filed July 9, 2009, the applicants stated that they would “not proceed with the joint activities contemplated by the Alliance Agreemen ts without a grant of immunity from the threat of costly and burdensome private antitrust litigation.” 43 While we were not convinced by this argument under the original application , we are now tentatively convinced, in light of the significantly deeper in tegration proposed by the applicant s , that the y would not proceed absent a grant of antitrust immunity. We tentatively conclude that a grant of immunity is, therefore, required to realize the full public benefits from the proposed alliance agreements.

V. T E NTATIVE C ONCLUSION

The factors analyzed above outline the rationale for our tentative approval of Delta and Virgin Blue’s modified application to form an immunized alliance. As mentioned in the introduction, the Department is charged with ensuring that a proposed immunized alliance is able to generate substantial public benefits not otherwise obtainable

. That has been made possible by the applicants’ decision to submit a substantially revised application, with changes to their alliance agreements as well as new evidence and commitments specifically designed to address the concerns expressed in the September 10, 2010 show

- cause order.

Based upon the revisions to the application, we are able to sufficiently evaluate the competitive impact of the joint venture and the likely public benefits. We tentatively find that the applicants meet the high standard necessary to obtain antitrust immu nity. Therefore, we tentatively conclude that the alliance should be approved and that immunity should be granted.

43 See Joint Application a t p. 29 (July 9, 2009).16 VI. T ENTATIVE C ONDITIONS

In this section, we summarize and explain the tentative conditions and remedies to be applied to our grant of immunity to the applicants

.

A. I MPLEMENTATION OF THE J OINT V ENTURE

We tentatively f ind that it is in the public interest to require the applicants to implement their joint venture within 18 months or lose the antitrust immun ity. The purpose of this condition is to ensure that the public benefits of the alliance are realized in a prompt fashion. We therefore tentatively require that the applicants submit evidence that their joint venture has been implemented in order to reta in the antitrust immunity. If, within 18 months of the issuance of a final order, a n applicant has not submitted (1) verified statements attesting to the full implementation of its joint venture and (2) a copy of its executed agreement, the antitrust immu nity granted to an applicants ’ proposed alliance will automatically expire.

B. C APACITY C OMMITMENTS

We tentatively find that a two

- year capacity commitment, as detailed in this Show Cause Order, is necessary to ensure robust public benefits in a market that has recently experienced severe flux in fares and capacity. These commitments are memorialized in the Amended and Restated Capacity Commitments Agreements submitted April 15, 2011. 44 Delta’s annual capacity commitment will be met if the airline operates at least 656 annual transpacific segments (U.S. mainland to points in Australia) and Virgin Blue’s capacity commitment will be met if the carrier operates at least 1260 annual transpacific segments (Australia to points in the U.S. mainland). The applicant s will certify their annual compliance, and provide adequate data and explanation to the Department, within 30 days of the 12

- month and 24

- month anniversary dates of the Department ’s Final Order.

C. A NNUAL R EPORTING

The competitive issues associated with the proposed alliance are novel

. We tentatively find that it is necessary for the applicants to report to the Department 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. 45 The reports should focus on progress made toward achieving the alliance’s stated goals, specific actions taken to implement each of the alliance agreements (including especially joint venture agreements), present or future planned cooperation among the alliance partne rs in all core airline functions, and a discussion of the public benefits that are being realized.

44 Letter from Alexander Van der Bellen, Managing Director and Associate General Counsel for Delta, to Dorothy Beard, Chief of DOT Dockets (April 15, 2011).
45 See Star Final Order 2009

- 7

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

- 7

- 8, at 15 (July 20, 2010)17 D. O&D S URVEY D ATA R EPORTING

For many years, we have required foreign carriers to submit traffic data as a condition of obtaining immunity from U.S. antitru st laws. T hose carriers 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. 46 The absence of such foreign carrier data severely handicaps our ability to evaluate the competitive effects of alliances.

As in previous cases, 47 we have tentatively decided to require the Virgin Blue Group to report full

- itinerary O&D Survey informatio n for all passenger itineraries that include 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 the Virgin Blue Group

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

- Destination data. We will provide confidential treatment for these data because of the potentially damaging competitive impact on U.S. airlines and the potential adverse effect upon the public interest that would result from unilateral disclosure of these data. 48

Our regulation, 14 C.F.R. Part 241

, section 19

- 7(d)(1), 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. The regulation, 14 C.F.R. Part 241, Section 03, defines an air carrier a s “[a]ny citizen of the United States who undertakes, whether directly or indirectly or by a lease or any other arrangement, to engage in air transportation.” The Virgin Blue Group would have no access to the data filed by U.S. air carriers. Therefore, w e w ill keep submissions confidential while maintaining the current restriction on access to U.S. air carrier O&D Survey data by foreign air carriers.

E. W ITHDRAWAL F ROM IATA T ARIFF C OORDINATION

46 Data covering the operations of foreign airlines that are similar to the information collected in the O&D Survey are generally not available to the Department, to U.S. airlines, or to other U.S. interests.
47 See Star Fi nal Order 2009

- 7

- 10, at 29

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

- 7

- 8, at 24 (July 20, 2010).
48 We treat the foreign airlines’ O&D data as confidential, do not allow U.S. airlines any access to the data, and do not allow foreign airlines any access to U.S. airline O&D Survey data. We use these data only for internal analytical
purposes.18 As we have found in earlier decisions, it is contrary to the public interest to permit immunized alliances to participate in certain price

- related coordination that is already immunized within IATA tariff coordin ation. We therefore tentatively decide to condition our grant of antitrust immunity by requiring the app licants 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) have been or are subse quently granted antitrust immunity by the Department for participation in similar alliances. Such countries include the homelands of the applicants

. 49 We tentatively find that this condition is in the public interest for the same reasons stated in previou s orders. 50 We note, however, that the Department has specifically revoked antitrust immunity for tariff coordination in the U.S.

- Australia market. 51

F. CRS I SSUES

Consistent with recent decisions , we are tentatively deciding not to propose any conditions

re garding the management of Computer Reservations Systems ( “ CRSs ” ). 52 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 or ders in this proceeding. While the applicants , individually or collectively, may maintain an interest in a CRS, the grant of immunity in this Order thus does not extend to their management of those interests. 53 On the other hand, the 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 antitr ust immunity.

G. O PERATION UNDER A C OMMON N AME

Because implementation of the applicants’ respective joint business agreements could raise important consumer issues and “holding out” questions , if Delta and the Virgin Blue Group choose to operate under a common name or use “common brands,” they must seek separate

49 This condition currently applies to prices in markets that are subject to our prior antitrust immunity orders. Those markets are U.S.

- Netherlands, U.S.

- Germany (Order 96

- 5

- 27 at 17), U.S.

- Denmark/ Norway/ Sweden (Order 96

- 11

- 1 at 23), U.S.

- Austria (Order 2001

- 1

- 19 at 16), U.S.

- Chile (Order 99

- 9

- 9 at 21), U.S.

- Iceland (Order 2000

- 10

- 13 at 16), U.S.

- Panama (Order 2001

- 5

- 1 at 11), U.S.

- New Zealand (Order 2001

- 4

- 2 a t 3), U.S.

- Czech Republic/ France/ Italy (Order 2002

- 1

- 6 at 7), U.S.

- Republic of Korea (Order 2002

- 6

- 18 at 14; Order 2003

- 5

- 18 at 12), U.S.

- Finland (Order 2002

- 7

- 39 at 10), U.S.

- Belgium (Order 2004

- 4

- 10 at 12), U.S.

- Jordan (Order 2005

- 1

- 23 at 13), U.S.

- Pe ru (Order 2005

- 10

- 8), U.S.

- Poland/ Portugal/ Switzerland/ Canada (Order 2007

- 2

- 6), U.S.

- United Kingdom (Order 2007

- 9

- 12), U.S.

- Finland/Jordan/Spain (Order 2010

- 7

- 8), and U.S.

- Japan (Order 2010

- 10

- 4 ). Also, by letter dated May 8, 1996, Northwest and KLM in dicated their willingness to limit voluntarily their participation in IATA (Dockets DOT

- OST

- 96

- 1116 and DOT

- OST

- 95

- 618).
50 See oneworld, Docket DOT

- OST

- 2008

- 0252, Final Order 2010

- 7

- 8 (July 20, 2010)

. 51 See IATA Proceeding, Docket DOT

- OST

- 2006

- 25307, Order 2007

- 3

- 23 (March 30, 2007).
52 See oneworld, Docket DOT

- OST

- 2008

- 0252, Final Order 2010

- 7

- 8, at 15 (July 20, 2010).
53 While any antitrust immunity granted in this proceeding would not cover the activities of an y system in which one of the a pplicants has an interest, we do, of course, have the authority under 49 U.S.C. § 41712 to prohibit any system operating in the United States from engaging in unfair or deceptive practices or unfair methods of competition. 429 F.3d 1113 (D.C. Cir. 2005). We also have th e authority to take action against conduct by a foreign system or a foreign airline that unreasonably discriminates against a U.S. system. 49 U.S.C. § 41310(g).19 approval from the Department prior to such operations. For example, it is Department policy to consider the use of a single air carrier designator code by two or more a irlines to be unfair and deceptive

, unless the airlines give reasonable and timely notice to passengers of the actual operator of the aircraft. 54

A CCORDINGLY :

1. We direct all interested persons to show cause why we should not issue an order making final the 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 the service date of this Order, and answers to objections or comments shall be due n o later than 7 calendar days thereafter.

2. We tentatively approve and grant antitrust immunity to the Alliance Agreements 55 between and among Delta Air Lines, Inc. (including its direct and indirect wholly owned subsidiaries)

, Virgin Blue Airlines Pty Ltd, V irgin Blue International Airlines Pty Ltd d/b/a V Australia, Pacific Blue Airlines (NZ) Ltd, and Pacific Blue Airlines (Aust) Pty Ltd (all parties together referred to as the “Joint Applicants”), insofar as such agreements relate to foreign air transportat ion. Subject to the other terms and conditions described in the ordering paragraphs below, the approval and grant of antitrust immunity shall remain in effect indefinitely, subject to Ordering Paragraph 10

, provided that the Joint Applicants:

a. S ubmit for prior approval subsequent subsidiary agreements implementing their Alliance A greements ; 56

b. R esubmit the Alliance Agreements before five years from the date of issuance of this Order ; and

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

common name or use common brands.

3. We tentatively determine that, as a condition of obtaining the authority proposed to be granted by a final order, that the Joint Applicants must operate at least their existing capacity in the U.S.

- Australia market, as defined and measured by paragraph 4 of the

54 See 14 C.F.R. § 399.82.
55 The Alliance A greements shall mean those agreements referred to on page 2, footnote 3 of the Joint Application, submitted on July 9, 2009, and identified by name in the Index of Joint Agreements submitted along with the confidential version of the application. See also Letter from Alexander van der Bellen, Counsel for D elta, to Dorothy Beard, Chief of DOT Dockets (April 15, 2011) (placing certain agreements on the public record).
56 Regarding this requirement, we do not expect the applicants to provide the Department with minor technical understandings that are necessary to implement fully their day

- to

- day operations but that have no additional substantive significance. We do, however, expect and direct them to provide the Department with unredacted copies of all contractual instruments that implement or materially alter, modify, or amend the cooperation agreements, joint ventures, or confidentiality/antitrust guidelines. All documents shall be submitted to the Director of the Office of Aviation Analysis.20 Amended a nd Restated Mutual Capacity Commitment Agreement dated April 15, 2011 , for a period of at least two years from the date of issuance of a final order in this case. 57

4. We tentatively direct the Joint Applicants to file the following evidence within 10 days of the date on which they execute and implement their Joint Venture Agreement:

a. Verified statement(s) attesting that the Joint Venture Agreement has been executed and implemented , submitted in Docket DOT

- OST

- 2009

- 0155 ; and

b. A copy of the complete executed Joint Venture Agreement with appendices, submitted to the Director of the Office of Aviation Analysis.

We tentatively determine that, unless the Joint Applicants make the filings described in this Ordering P aragraph within eighteen months of the issuance of a final o rder , the authority granted will expire and the grant of antitrust immunity will no longer be effective

.

5. We tentatively direct the Joint Applicants to submit annual progress reports beginning one year from the date of issuance of this O rder, a nd continuing each year thereafter while their respective Alliance Agreements are effective

. 58

6. We tentatively direct the Joint Applicants to withdraw, or to remain withdrawn, from participation in any International Air Transport Association tariff coordin ation activities that discuss any proposed through fares, rates, or charges applicable between the United States and any countries whose airlines have been or are subsequently granted antitrust immunity, or renewal thereof, to participate in similar allian ce act ivities with a U.S. airline(s).

7. We tentatively delegate to the Director of the Office of International Aviation the authority to determine the applicability of the directive set forth in Ordering Paragraph 6 as to specific prices, markets, and tariff coordination activities, consistent with the scope and purpose of the con dition, as previously described.

8. We tentatively direct Virgin Blue Airlines Pty Ltd, Virgin Blue International Airlines Pty Ltd d/b/a V Australia, Pacific Blue Airlines (NZ) Ltd, and Pacific Blue Airlines

57 During the term of the Amended and Restated Mutual Capacity Commitment Agreement, we expect the Joint Applicants to provide a full accounting of their compliance with the capacity commitments as part of the annual progress reports described in Ordering Pa ragraph 5 . As explained in Section VI of this Order, we further request that the Joint Applicants provide the Office of Aviation Analysis with an informal update on status of compliance within 30 days of the sixth and eighteen month anniversary date of i ssuance of a final order in this case.
58 We expect the Joint Applicants to deliver the progress report to the Director of the Office of Aviation Analysis by the close of business on the anniversary date of this order . If that date falls on a weekend or fe deral holiday, the Joint Applicants may deliver the report by the close of business on the following business day.21 (Aust) Pty Ltd to report full

- itinerary Origin

- Destination Survey of Airline Passenger Traffic on a quarterly basis for all passenger itiner aries that include a U.S. point. 59

9. We defer action on all motions for confidential tr eatment submitted in this docket to date.

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

.

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

By:

SUSAN L. KURLAND Assistant Secretary for Aviation and International Affairs

(SEAL)

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

59 We expect applicants to report the O&D data beginning with the first full quarter following the date of the issuance of a final order. Det ailed instructions are available from the Department’s Office of Airline Information at the Bureau of Transportation Statistics. We treat the foreign airlines’ O&D data as confidential, do not allow U.S. airlines any access to the data, and do not allow f oreign airlines any access to U.S. airline O&D Survey data. We use these data only for internal analytical purposes.