BEFORE THE 

DEPARTMENT OF TRANSPORTATION 

WASHINGTON, D.C. 

 PUBLIC 

Joint Application of VERSION

 

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; and 

PACIFIC BLUE AIRLINES (AUST) PTY LTD 

Docket DOT-OST-2009-0155 

 

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

of and Antitrust Immunity for Alliance 

Agreements 

 

JOINT APPLICANTS’ RESPONSE TO 

SHOW CAUSE ORDER 2010-9-4

October 13, 2010 
Communications with respect to this document should be sent to: 

Merren McArthur 

 Group Executive, Corporate Advisory 

Dayna Hall 

 Senior Counsel 

The Virgin Blue Group 

P.O. Box 1034 

Spring Hill QLD 4004 

Australia 

+617 3333 6801 

merren.mcarthur@virginblue.com.au 

dayna.hall@virginblue.com.au 

Anita Mosner 

Sophy Chen 

Holland & Knight 

2099 Pennsylvania Avenue, N.W., Suite 100 

Washington DC 20006 

(202) 419-2604 

anita.mosner@hklaw.com 

sophy.chen@hklaw.com 

for: 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 (AUST) PTY LTD 

Andrea Fischer Newman 

 Senior Vice President, Government 

Affairs 

Alexander Van der Bellen, 

 Managing Director, Government Affairs 

and Associate General Counsel 

Jeff Morgan 

 Regional Director, Government Affairs 

DELTA AIR LINES, INC. 

1212 New York Avenue, N.W. 

Washington, DC 20005 

(202) 842-4184 

sascha.vanderbellen@delta.com 

 
i 

TABLE OF CONTENTS 

Page 

I. INTRODUCTION...................................................................................................1

II. THE ALLIANCE WILL DELIVER SIGNIFICANT PUBLIC BENEFITS 

AND NO COMPETITIVE HARM............................................................................8

A. The Compass/Lexecon Study estimates the joint 

venture will produce up to $54 million annually in 

improved consumer welfare with no offsetting 

competitive harm............................................................................8

B. Consumers will benefit by increased competition 

between the joint venture and the incumbent 

Qantas/American and United/Air New Zealand 

Alliances.......................................................................................10

C. The Compass/Lexecon Study and DOT’s Findings in 

the U.S.-Japan ATI Case Confirm that Consumers will 

Benefit from and Not be Harmed by Joint Venture 

Cooperation. ................................................................................12

D. Delta’s codeshare network with Alaska contributes 

additional value to the alliance.....................................................14

III. THE APPLICANTS’ REVISED JOINT VENTURE AGREEMENT AND 

ADVANCED IMPLEMENTATION CAPABILITIES WILL DELIVER 

SUBSTANTIAL AND PROXIMATE BENEFITS TO THE TRAVELING 

PUBLIC. ..............................................................................................................14

A. The Joint Applicants have agreed to a revenue sharing 

formula for beyond points which further ensures that 

the benefits and efficiencies of the joint venture will be 

realized by consumers.................................................................15

B. The Virgin Blue Group Acts as a Single Economic 

Entity with a Common Commercial Objective..............................19

C. The strategic initiatives underway at the Virgin Blue 

Group are fully compatible with the Delta Joint Venture. .............21

D. Technical systems and procedures will not hinder the 

proximate realization of Joint Venture Benefits............................24

1. Systems Background. ......................................................24
ii 

2. Codesharing Between Delta and V Australia is 

fully supported and enabled by the Amadeus 

System. ............................................................................25

3. DL* codesharing onto Virgin Blue-Operated 

Australian and South Pacific Segments is 

Supported by the Same Class Mapping And 

Revenue Management Techniques Developed 

for V Australia...................................................................26

4. Metal Neutrality Will Be Achieved Through the 

Joint Venture Systems and Procedures...........................28

5. Upgrades to the Navitaire Platform Make it 

Fully Compatible with Deltamatic.....................................29

6. Upgrades to the Navitaire Platform Make it 

Fully Compatible with Industry Standard 

Systems. ..........................................................................31

E. Delta and the Virgin Blue Group have a successful 

history of cooperation...................................................................32

F. The Joint Venture will be timely implemented in third 

countries. .....................................................................................33

IV. U.S.-AUSTRALIA MARKETPLACE HAS STABILIZED.......................................34

A. The Joint Applicants are Providing A Year’s Worth of 

Additional Data.............................................................................35

B. The U.S.-Australia market is more stable than other 

markets where ATI has recently been granted. ..........................36

V. THE GRANT OF IMMUNITY IS CONSISTENT WITH U.S. OPEN 

SKIES POLICY AND INTERNATIONAL COMITY ..............................................36

VI. THE BENEFITS AND EFFICIENCIES OF THE JOINT VENTURE 

CANNOT BE ACHIEVED WITHOUT IMMUNITY................................................40

A. Arms-Length Codesharing is prone to failure in directly 

competing markets.......................................................................41

1. Arms-Length Codeshare Failure: Delta/ El Al .................42

2. Arms-Length Codeshare Failure: Delta/Air 

Europa..............................................................................42

3. Arms-Length Codeshare Failure: Delta/Air 

Jamaica............................................................................43
iii 

4. Arms-Length Codeshare – Succeeds by Moving 

to Joint Venture – Northwest/KLM ...................................43

B. Delta and V Australia’s Experience is Consistent with 

Problems that have frustrated other arms-length 

codeshare relationships...............................................................44

VII. THE COMMERCIAL AND PUBLIC INTEREST OBJECTIVES THE 

APPLICANTS SEEK TO ACHIEVE ARE CONSISTENT WITH THE 

DEPARTMENT’S PRIOR GRANTS OF IMMUNITY. ..........................................46

VIII. THE INCLUSION OF ADDITIONAL AIRLINES OR GEOGRAPHIC 

REGIONS IS NOT NECESSARY TO REALIZE THE BENEFITS OF 

THIS ALLIANCE..................................................................................................48

IX. THE GRANT OF IMMUNITY WILL ENHANCE THE JOINT 

APPLICANTS’ ABILITY TO SERVE THE PUBLIC AND DOES NOT 

UNFAIRLY DISADVANTAGE ANY MARKET PARTICIPANT. ...........................50

X. CONCLUSION ....................................................................................................51
BEFORE THE 

DEPARTMENT OF TRANSPORTATION 

WASHINGTON, D.C. 

 

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; and 

PACIFIC BLUE AIRLINES (AUST) PTY LTD 

Docket DOT-OST-2009-0155 

 

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

of and Antitrust Immunity for Alliance Agreements

 

JOINT APPLICANTS’ RESPONSE TO 

SHOW CAUSE ORDER 2010-9-4

I. INTRODUCTION 

Delta Air Lines, Inc. (“Delta”), Virgin Blue Airlines Pty Ltd (“Virgin Blue”), Virgin 

Blue International Airlines Pty Ltd (“V Australia”), Pacific Blue Airlines (NZ) Ltd, and 

Pacific Blue Airlines (Aust) Pty Ltd1

 (the “Joint Applicants”) appreciate the opportunity to 

respond to Show Cause Order 2010-9-4. The Show Cause Order identified a number of 

concerns which the Joint Applicants needed to address in order to meet the 

Department’s high standards to qualify for immunity. 

The Joint Applicants have carefully considered the Department’s concerns, and 

undertake in this response to directly and meaningfully address each of them. It 

appears that some of the business objectives of the alliance may not have been 

adequately explained in the Joint Applicants’ prior submissions, and also that the 

technical and logistical implementation issues are not as great as the Department may 

 

1

 These carriers are referred to collectively as the “Virgin Blue Carriers.” 
Joint Response 

Page 2 

have understood. The Joint Applicants have heeded the Department’s critique of the 

importance of including beyond/behind revenue in the settlement mechanism and agree 

to modify their joint venture agreement to achieve this result. 

The Joint Applicants believe that the important additional information provided in 

this response will demonstrate the consistency of this application with the Department’s 

prior grants of immunity, and show that approval of this joint venture will result in the 

type of immediate and substantial public benefits necessary to support a positive 

decision in a final order. The principal concerns identified by the Show Cause Order 

were: (1) the public benefits were not sufficiently identified and quantified; (2) network 

benefits would not be realized because beyond points, including points in third countries, 

were not included in the joint venture settlement; (3) the Virgin Blue Group carriers are 

separate entities, presenting barriers to integration; (4) the Joint Applicants do not have 

compatible processes and systems that would enable them to efficiently flow traffic; (5) 

the U.S.-Australia market was in “flux” as a result of new capacity added under open 

skies; and (6) approval of the joint venture would only result in share shift among 

carriers, rather than improve the competitive market structure and benefit the traveling 

public. Each of these concerns is addressed in the Response and summarized below: 

 Identification and Quantification of Public Benefits. The Joint Applicants 

engaged economists Robert Willig, Jonathan Orszag, Bryan Keating and 

Mark Israel from Compass Lexecon to conduct a detailed economic and 

econometric study of the alliance, and its likely effects on consumers and 

competition. The study finds that ATI is likely to enhance consumer 

welfare by $27 million to $54 million annually, and that there would be no 

offsetting competitive harm on the only non-stop overlap route, Los 

Angeles – Sydney, which is served by United and Qantas along with 

Delta and V Australia. 
Joint Response 

Page 3 

 Network Benefits and Joint Venture Scope. The Joint Applicants believe 

that together they can generate additional traffic flows to sustain and grow 

services, including new nonstop gateways, increased frequency on 

existing routes, and optimized schedules – each of which the Department 

has previously found to be an important public benefit. This proposed 

joint venture cooperation extends far beyond a limited “trunk” route 

cooperation. The inclusion of beyond/behind points is not only part of the 

joint venture, it is fundamental to it. The Joint Applicants fully intend to 

enable access to beyond segments on each of their respective networks, 

and this is a contractual requirement in the JV Framework Agreement, 

Exhibit B. In response to the concerns raised in the show cause order, 

the Joint Applicants agree to amend the JV Framework Agreement to 

make their intentions even more express. All viable North America-South 

Pacific connecting routings are now expressly included, specifically, New 

Zealand, Canada, and Mexico, and the beyond points will also be 

included for settlement purposes, providing all necessary and proper 

incentives to pass these efficiencies through to consumers. The scope of 

this “beyond” cooperation is expansive. Australia is a continent larger 

than all of Europe and its population centers are widely dispersed. More 

than half of the U.S.-Australia market is located in interior markets beyond 

Sydney, which Delta can only fully access through integrated joint venture 

cooperation. Delta will also gain access to New Zealand, and the South 

Pacific islands. Each carrier is fully opening to its joint venture partner all 

it has to give. The U.S.-South Pacific beyond market access enabled by 

this joint venture, with 1,131,000 annual potential beyond passengers, is 

larger than other networks that have received approval: United/Air New 
Joint Response 

Page 4 

Zealand (565,000 potential annual beyond passengers); American/Lan 

Chile (85,000 potential annual beyond passengers); United/Air Canada 

(403,000 potential annual beyond passengers). 

 Integration and Financial Alignment of the Virgin Blue Carriers. The 

Virgin Blue Group functions as a single economic entity under the 

leadership of John Borghetti, CEO of the Virgin Blue Group. The Virgin 

Blue Group carriers are consolidated under a single publicly traded 

company and report their results on the basis of a consolidated financial 

statement. The combined network and revenue management of the 

Virgin Blue Group is designed to maximize overall revenue, not the 

interest of any one carrier in the group. Delta’s flights will receive the 

same highly preferred, metal neutral, access which V Australia enjoys in 

terms of connections to the domestic/regional Virgin Blue carriers. 

 Compatible Systems and Procedures. Delta and the Virgin Blue Group 

have addressed their systems technology issues and will be ready to 

implement the alliance and ensure the timely realization of benefits by 

consumers. The Joint Applicants are providing a further detailed 

explanation of the Navitaire systems issue, together with a written 

confirmation from Navitaire on their development of the functionality to 

support broad Delta/V Australia joint venture codeshare implementation 

early next year. To remove any question about this issue in the 

Department’s final determination, the Joint Applicants propose as a 

precondition to the effectiveness of their immunity that all Navitaire 

programming and testing be completed and certified to the Department. 

This guarantees that the compatible systems and procedures are in place 
Joint Response 

Page 5 

and that substantial and immediate benefits will be realized by 

consumers. 

 Experience as Partners. Delta and V Australia have gained substantial 

experience as partners, having implemented their arms-length codeshare 

in early 2010, and have been working together since late 2008. As 

described in greater detail herein, there are material commercial barriers 

to further cooperation which cannot be overcome without immunity. This 

is fundamental to the nature of this particular relationship where the two 

parties have directly conflicting interests on the Los Angeles-Sydney 

route, and is supported by Delta’s experience in nearly two decades of 

administering both code-sharing and immunized joint venture alliances. 

 Market Flux. In the 16 months since the ATI application was filed, the 

U.S.-Australia market has stabilized. The Joint Applicants are providing 

an updated MIDT data set covering 12 months of additional data (YE Aug 

2010), as well as 9 additional months of internal Delta and Virgin Blue 

Group fare and traffic information (December 2009-August 2010). This is 

information which was unavailable to the Department when it formulated 

the Show Cause Order. The U.S.-Australia market is now as stable, or 

more stable, than other international markets where the Department has 

granted immunity. The Joint Applicants believe that the new information 

supplied will provide the Department with the additional data it needs to 

make an informed decision that approval of this alliance will also result in 

public benefits. The Joint Applicants intend to grow their services and 

will not withdraw capacity as a result of their immunity. To remove any 

doubt, the Joint Applicants offer a 24 month commitment that neither 
Joint Response 

Page 6 

carrier will reduce U.S.-Australia frequencies following the grant of ATI. 

The Joint Applicants fully expect immunity to generate increased flying 

and other public benefits as outlined in their previous submissions. 

 Benefits to the Competitive Market Structure. The proposed joint venture 

will create a third U.S.-South Pacific network alliance to compete with 

Qantas/American and United/Air New Zealand. This will improve 

competitive choice for consumers, and not merely improve the standing of 

individual carriers. 

Approval of this Joint Venture Alliance is of the utmost importance to the Joint 

Applicants and their efforts to deliver convenient, high quality, and competitive service to 

the traveling public. In this response, the Joint Applicants have endeavored to do 

everything within their ability to address and inform the Department’s concerns identified 

in the show cause order. It should also be noted, however, that approval of this 

application will facilitate the important public benefit and foreign policy interest of the 

United States in achieving and maintaining Open Skies agreements with its important 

trading partners. The Government of Australia entered into the Open Skies agreement 

with the United States motivated in large part by its desire to secure market access and 

market opportunity for its new international flag carrier, V Australia. The Government of 

Australia believes it is in their national interest to have two strong Australian flag carriers, 

and the ability of V Australia to form an integrated alliance with Delta is critical to its 

ability to be an effective challenger to Qantas. One of the most important benefits 

available under open skies is the potential for forming an immunized joint venture with a 

U.S. carrier. This benefit is so important that some governments have made the 

effectiveness of open skies contingent on the grant of immunity. While Australia 

embraced open skies unconditionally, that does not make the grant of immunity any less 

important to V Australia or lessen the Government’s of Australia’s expectations that this 
Joint Response 

Page 7 

benefit would be available to its carriers in the future. The Department recently 

confirmed that those foreign policy goals and expectations do not end at the signing of 

the agreement: 

DOJ suggests that, because the U.S. now has an Open Skies agreement 

with the EU, U.S. foreign policy goals would no longer be furthered by 

immunity in this case. An Open Skies relationship with the participants’ 

homelands is a necessary predicate for seeking antitrust immunity, but 

the linkage does not end with the establishment of Open Skies. Rather, 

the liberalized operational environment established and maintained by an 

ongoing Open Skies relationship and the integrated operations enabled 

by antitrust immunity together promote competition, both among alliances 

and among individual carriers. Increased competition in turn translates to 

consumer benefits. The value of Open Skies agreements in our foreign 

air transportation policy has been enhanced by prudent grants of antitrust 

immunity. Moreover, we strive not only to reach Open Skies agreements, 

but also to maintain them. Were we to suddenly change our antitrust 

immunity and public interest approach, as DOJ suggests, the credibility of 

the U.S. Government with its international aviation partners would be 

significantly compromised and our ability not only to reach new OpenSkies agreements but also to maintain those agreements that we have 

already achieved would be undermined. Continental/Star ATI (DOT 

Order 2009-7-10) 

The Joint Applicants recognize that the important benefit of immunity is not 

automatic and must be earned. However, with the substantial additional information 

provided in this response on the substantial and proximate benefits this joint venture will 

produce and how the Joint Applicants will attain them, the Joint Applicants are hopeful 

that the Department will be able to reach a positive determination to allow V Australia 

and its Government to enjoy this important benefit enabled by the U.S.-Australia Open 

Skies agreement. 
Joint Response 

Page 8 

II. THE ALLIANCE WILL DELIVER SIGNIFICANT PUBLIC BENEFITS AND NO 

COMPETITIVE HARM 

A. The Compass/Lexecon Study estimates the joint venture will 

produce up to $54 million annually in improved consumer welfare 

with no offsetting competitive harm. 

The Joint Applicants engaged economists Robert Willig, Jonathan Orszag, 

Bryan Keating and Mark Israel from Compass Lexecon to conduct a detailed economic 

and econometric study of the alliance to quantify the benefits of the proposed alliance to 

consumers and any potential competitive harm. A copy of the Compass Lexicon study is 

attached as an appendix to this response.2

 The key findings of the study, which was 

based on a rigorous review of both the output from Delta’s internal planning models and 

actual marketplace data on prices and consumer choices associated with the operations 

of other international airline alliances, were as follows: 

 The grant of antitrust immunity to Delta and the Virgin Blue carriers and 

the associated “metal-neutral” joint venture will result in lower prices and 

improved service quality. The result would be an estimated increase in 

overall consumer welfare for trans-Pacific passengers of between $27 

million and $54 million annually. (Page 1) 

 There is no offsetting competitive harm on the only non-stop overlap 

route, Los Angeles – Sydney, which is served by United and Qantas 

along with Delta and V Australia. (Page 1) 

 This projected net increase [of 67,000 passengers] in Delta’s and V 

Australia’s network provides direct evidence that, as a result of the 

antitrust-immune joint venture, the carriers will offer a combination of 

 

2

 The Joint Applicants are also furnishing to the Office of Aviation Analysis a confidential DVD 

including all of the data and backup materials for the Compass Lexecon Study for the 

Department’s independent review and evaluation and request that it be made part of the 

confidential record. 
Joint Response 

Page 9 

lower prices and improved service that together increase the demand for 

their products. Even without further analysis, these projected passenger 

increases indicate that the establishment of an antitrust-immune joint 

venture improves the overall quality of air travel options available for U.S. 

– Australia travel, thus increasing consumer welfare. That is, the 

passenger increases demonstrate that, as a result of the antitrust-immune 

joint venture, Delta and V Australia will, on net, attract passengers away 

from competing airlines, indicating that the overall quality of their service 

is enhanced by the joint venture. (page 6) Using established methods to 

convert the net increase in passengers into monetary terms, total 

consumer benefits from creation of an antitrust-immune joint venture—

due to the stimulation of demand through a combination of lower prices 

and higher service quality—of just over $54 million per year. (page 8) 

 The econometric analysis of the non-stop fares and carrier counts shows 

that each additional carrier on these large, trans-oceanic, routes reduces 

prices by an amount ranging from four to eight percent. Of primary 

importance to this proceeding is the fact that the analysis also 

demonstrates that it is the number of carriers on the route that determines 

the effect on fares. The fact that two of those carriers are party to an 

immune alliance does not change the impact those two carriers have on 

fares. Put differently, the evidence demonstrates that granting antitrust 

immunity to two or more non-stop carriers on a route does not lead to 

higher fares. (Page 17). 
Joint Response 

Page 10 

The study provides the new detailed evidence and quantification of consumer 

benefits the Department requested and should alleviate any doubt that the proposed 

alliance will produce substantial benefits and will not lead to supracompetitive fares. 

B. Consumers will benefit by increased competition between the joint 

venture and the incumbent Qantas/American and United/Air New 

Zealand Alliances. 

In its tentative decision, the Department expressed concern about granting 

immunity to carriers which is predicated upon shifting market shares among competitors, 

as opposed to improving overall consumer benefits and enhancing competition. 

The Compass Lexecon Study confirms that the alliance will improve overall 

consumer benefits and enhance competition. This is because the service and 

competitive benefits to consumers created by the new JV are significant. Together, the 

Joint Applicants will offer a broader, more seamless and fully integrated product that will 

be more attractive and competitively priced for consumers. The joint venture will 

compete with the incumbents not only in the local LAX-SYD market, but also in the 

numerous beyond/behind markets that are important to North America-South Pacific 

traffic flows. Together they will seek to grow and expand their presence in the market. 

As noted above, the market has stabilized but the incumbents continue to 

command a significant fare premium over the Joint Applicants.3

 Approval of the alliance 

will result in more competitive fares for all U.S.-Australia passengers, including the 

majority of passengers that are traveling on the incumbents. This is because 

Qantas/American and United/Air New Zealand enjoy significant advantages over the 

new entrants by virtue of their larger and more established networks and decades-long 

incumbency on protected routes. Each is able to offer their customers greater choice of 

 

3

 These differences cannot be explained on the basis of onboard quality of service, as both Delta 

and V Australia offer a very high quality international product. 
Joint Response 

Page 11 

frequency, routing options, and destinations. This is especially important for corporate 

customers and time-sensitive passengers, which tend to book higher value tickets. A 

New York originating customer might, for instance, want to combine a U.S.-South Pacific 

business trip involving stops in Sydney and Auckland. Qantas and United/Air New 

Zealand can offer that product today either on their own metal or on an immunized 

alliance basis. 

A third competitive alliance for U.S.-South Pacific passengers is an important 

benefit, and is consistent with the Department’s recent findings and rationale for 

approving the AA/BA transatlantic alliance: “We also tentatively found that the alliance 

would enhance competition by creating a viable third immunized alliance that is 

comparable to and competitive with the product and service offerings of oneworld’s 

competitors, Star Alliance and SkyTeam, which have already received grants of antitrust 

immunity and are proceeding with their own alliance plans and integrated joint 

ventures." AA/BA Final Order 2010-7-8 at 3. 

With immunity, Delta and V Australia would also be able to develop a fully 

integrated network that will make them more competitive for this business. If Delta and 

V Australia succeed in wresting market share from Qantas and United, it is only because 

they are providing a superior or more competitively priced service. This is the essence 

of competition, and the Joint Applicants believe an appropriate and consistent use of 

antitrust immunity. 

 [Confidential] 
Joint Response 

Page 12 

[End Confidential] The Delta/V Australia joint venture will help to enhance competition 

and result in significant, structural improvements to the market which will directly benefit 

important segments of consumers who would pay lower prices on the highly competitive 

joint venture service than they are paying today. 

C. The Compass/Lexecon Study and DOT’s Findings in the U.S.-Japan 

ATI Case Confirm that Consumers will Benefit from and Not be 

Harmed by Joint Venture Cooperation. 

The Department has expressed concern that “While the applicants state that they 

expect capacity to continue to increase and prices to remain competitive if their joint 
Joint Response 

Page 13 

venture were to be approved, they do not provide any detailed information in the way of 

analysis or evidence to support their claims." Order 2010-9-4 at 12. The Joint 

Applicants have sought to meaningfully address this concern by engaging Compass 

Lexecon to examine the impact on prices and capacity as well as any potential 

competitive harm arising from the alliance. The Compass Lexecon study found (1) ATI 

has not historically led to increased fares in nonstop overlap city-pairs, (2) ATI provides 

incentives to increase capacity on trunk routes as feed traffic increases, and (3) 

substantial benefits -- $27 million to $54 million annually -- will accrue to consumers on 

connecting services, in the form of both lower prices and improved service quality. 

The conclusion of no competitive harm in the Los Angeles-Sydney market is 

also consistent with the Department's tentative findings with respect to nonstop overlap 

routes in the U.S.-Japan Alliance case. In the U.S.-Japan case, the Department 

examined six nonstop overlap routes and found that the reduction in nonstop 

competitors "would not significantly affect competition on the city-pair level, including 

nonstop overlap markets." Order 2010-10-4 at 12. In that case, 2 of the 6 overlaps 

involved a reduction in nonstop competitor count equivalent to Delta/Virgin Blue's Los 

Angeles-Sydney overlap -- San Francisco-Tokyo and Honolulu-Tokyo were each 4 to 3s 

-- and 3 of the 6 overlaps involved a reduction in nonstop competitor count more severe 

than Delta/Virgin Blue -- Washington-Tokyo (2 to 1), Chicago-Tokyo (4 to 2), and New 

York-Tokyo (5 to 3). Id at 9. In finding no competitive harm on Washington-Tokyo and 

Chicago-Tokyo, the Department noted that "because these markets serve as trunk 

routes for connecting traffic for one or both ATI Applicants, the carriers face strong 

disincentives to cut capacity and raise prices." Id at 12. This finding is equally true of 

Delta and Virgin Blue, where each carrier's Los Angeles-Sydney operation will serve as 

the key conduit facilitating connecting traffic between the Joint Applicants' networks. 
Joint Response 

Page 14 

D. Delta’s codeshare network with Alaska contributes additional value 

to the alliance. 

Delta and Alaska have a preferred partnership arrangement, which augments 

Delta’s own Los Angeles and West Coast network to support long-haul international 

flights. [Confidential] 

[End Confidential] To provide an estimate of these additional benefits, 

Compass Lexecon reclassified itineraries with segments operated by both Alaska and 

Virgin Blue as online after implementation of the joint venture. This approach indicates 

that accounting for Alaska itineraries could yield incremental benefits as large as $13.8 

million annually. Compass Lexecon Study at 16. 

III. THE APPLICANTS’ REVISED JOINT VENTURE AGREEMENT AND 

ADVANCED IMPLEMENTATION CAPABILITIES WILL DELIVER 

SUBSTANTIAL AND PROXIMATE BENEFITS TO THE TRAVELING PUBLIC. 

The strategic vision for the Delta/Virgin Blue Group alliance is to form a 

comprehensive Joint Venture for North America - South Pacific service linking the endto-end networks of the respective carriers. The proposed joint venture agreement, as 

amended, is patterned after the highly successful Northwest/KLM and Delta/Air 

France/KLM agreements and contemplates full reciprocal network access with revenue 

sharing on all of the beyond/behind points, as well as all of the transpacific services 

operated by the two carriers between North America and the South Pacific region. 

The scope and significance of the behind networks is large. Without a joint 

venture partner, Delta will not have effective access to more than half of the U.S.-
Joint Response 

Page 15 

Australia market, and would have no access to New Zealand or the Pacific Islands. 

This represents a base of over 1.1 million additional annual passengers to support and 

expand Delta’s transpacific service. Likewise, without a joint venture partner, V Australia 

lacks effective access over 60 percent of the U.S. market to Australia, which is located in 

interior cities beyond Los Angeles, as well as Canada and Mexico. This represents a 

base of nearly 1 million additional annual passengers to support the Joint Venture’s 

transpacific service. Together, Delta and V Australia would form a highly effective and 

robust network linking over 6,500 U.S.-Australia airport pairs. It is this important end-toend combination that empowers the benefits and effectiveness of the Joint Venture. 

Delta comes to this alliance with unparalleled experience in developing and 

implementing fully integrated airline joint ventures. Prior to American and British 

Airways’ recent announcement, Delta was the only U.S. carrier to have successfully 

implemented such an alliance – a distinction Delta (and its predecessor Northwest) held 

for fifteen years. Delta implemented its complex, multi-party transatlantic joint venture 

more than six months ahead of schedule, exceeding the Department’s requirements and 

expectations. With the experience gained through many years of deeply integrated 

alliance cooperation, Delta understands how to use immunity to create benefits and what 

is necessary to put alliance plans into action. As detailed below, Delta and V Australia 

have enhanced their joint venture framework agreement to address the Department’s 

concerns and are ready, willing and able to implement their agreement to achieve 

immediate and substantial public benefits. 

A. The Joint Applicants have agreed to a revenue sharing formula for 

beyond points which further ensures that the benefits and 

efficiencies of the joint venture will be realized by consumers. 

As previously mentioned, beyond passengers are key to the success of the 

Delta-V Australia joint venture. It had always been the intent of the Joint Applicants to 

include beyond points for revenue management purposes (though initially not for 
Joint Response 

Page 16 

settlement purposes) which the Joint Applicants believed would allow consumers to 

enjoy fully integrated joint venture network benefits across both systems. In response 

to the Department’s concerns, and to eliminate any doubt, the Joint Applicants have 

agreed to amend the Joint Venture agreement to include beyond revenue sharing, 

following the more traditional Northwest/KLM settlement model. A revised form of 

Exhibit B, with the new beyond settlement mechanism is provided at Attachment 1. In 

addition, Delta and V Australia continue to contractually guarantee “metal neutral” 

access to the other’s behind points. 

With this clarification and amendment, the Joint Applicants believe that their 

application meets the high standard the Department has set for ATI applications and is 

consistent with other alliances to which the Department has granted immunity. Australia 

is one of the most distant countries from the United States, and so, by virtue of 

geography, there are not large numbers of third country beyond points that can be 

served by the alliance. However, Australia itself is very large, covering an expanse 

larger than all of Europe. It takes over four hours to fly from Sydney to Perth, and each 

of the domestic beyond points in Australia and international beyond points in New 

Zealand and Oceania are additive to Delta’s network. 

The following table provides a comparison of three comparable ATI cases, where 

third-country beyond points were limited either by virtue of geography or express 

bilateral prohibition: 
Joint Response 

Page 17 

In each of these cases, the Department found that significant public benefits 

would result. (1) United/Air New Zealand is the most directly analogous alliance that 

was approved for U.S.-South Pacific service. DOT found that “the proposed alliance 

would allow the partners to improve the efficiency of their operations and to otherwise 

work together to improve service not only in the U.S.-New Zealand market, but also the 

U.S.-South Pacific market generally.” Order 2001-3-4 at 9. (2) The limitations 

American/Lan Chile faced in terms of beyond connectivity were severe. The domestic 

market in Chile outside Santiago is very small, and American already served every 

significant regional point in South America directly. The Department found that approval 

of the alliance would promote additional network traffic flows and was consistent with the 

public interest and the new open skies agreement with Chile.4

 Order 99-4-17. (3) At 

 

4

 The Joint Applicants acknowledge that some of the network traffic flows recognized in the 

AA/Lan Chile decision involved network traffic flows beyond the United States to Canada and 

other third countries. The Joint Applicants here will also serve Canada and Mexico beyond the 
Joint Response 

Page 18 

the time the United/Air Canada alliance initially received immunity, service via Canada to 

third country beyond markets was expressly prohibited under the limited transborder 

open skies agreement. Although the alliance scope was applicable to only bilateral 

service between the two countries, the Department found that “the procompetitive effects 

of global alliances can be particularly evident in the case of behind- and beyondgateway markets where many passengers now lack convenient online service . . . the 

proposed alliance will significantly increase competition in the behind- and beyondgateway U.S.-Canada markets. “ Order 97-6-30 at 27. 

 The Joint Applicants respectfully submit that approval of their comprehensive 

North America-South Pacific joint venture, linking the respective behind- and beyondgateway services of Delta and V Australia, will create new online service and competitive 

benefits that compare favorably to other previously approved alliances. In addition, 

because Delta and V Australia are each small players in a highly competitive market, the 

benefits of this alliance can be achieved with less concern about any potential harmful 

competitive effects. The following table illustrates the resulting market shares that 

resulted, or would result, from approval of the each of the previously-discussed immunity 

applications: 

 

United States. However, given the plentiful direct services between Australia and points in 

Europe, Asia and South America, highly circuitous routings via the United States do not make 

commercial sense for this joint venture. Moreover, third-country beyond routings between, for 

example, Chile and Japan are of little value to U.S. consumers; but, U.S. consumer will directly 

benefits from the new online U.S.-South Pacific beyond-behind markets enabled by this joint 

venture. 
Joint Response 

Page 19 

B. The Virgin Blue Group Acts as a Single Economic Entity with a 

Common Commercial Objective. 

The Virgin Blue Group of airlines is made up of four airlines, Virgin Blue 

(domestic Australia), Pacific Blue (short haul international), V Australia (long haul 

international) and Polynesian Blue (a joint venture with the Samoan government). With 

the exception of Polynesian Blue, all of the airlines are wholly owned by Virgin Blue 

Holdings Ltd, the entity listed on the Australian Stock Exchange (ASX). In accordance 

with Australian Securities and Investment Commission Class Order 98/1418, each of the 

airlines are relieved from the reporting requirements of the Corporations Act and only 

one set of consolidated financial statements is prepared each year on behalf of the 

Group. This arrangement is on the basis that the parent company Virgin Blue Holdings 

and each of the listed subsidiaries enter into a Deed of Cross Guarantee. 
Joint Response 

Page 20 

The Virgin Blue Group has always functioned as a single economic entity under 

the one Chief Executive Officer. While some of the operational functions for V Australia 

are arranged in separate teams (primarily because V Australia has a different fleet) there 

have never been separate reporting lines for each airline’s commercial teams. The 

Revenue and Network Management functions have always reported through to a 

common head. Recent amendments to the organizational structure have served to 

further ensure the integration of the four airlines across the Group and the current 

organizational structure for the Virgin Blue Group’s Commercial team is attached. It 

shows that the commercial functions for each airline continue to report through to a 

single GM for Revenue and a single GM for Network Management, who in turn report 

through to the Group Executive – Commercial. In addition, the Group will be 

consolidating its four airline brands into two brands in the short term and ultimately will 

operate under a single brand. 

The Virgin Blue Group of carriers is “under one roof” both literally and figuratively: 

While there may be separate brands listed on the headquarters door, the 

commercial managers work together for the common objectives of the Group. 
Joint Response 

Page 21 

C. The strategic initiatives underway at the Virgin Blue Group are fully 

compatible with the Delta Joint Venture. 

A broader international network and expanded partnerships with international 

carriers, including Delta, is essential to the strategy being implemented by Virgin Blue 

Group’s new CEO. Virgin Blue is working to improve its network and product in order to 

expand its passenger base and challenge Qantas across more market segments, 

providing enhanced choice and competition for all Australian passengers, both domestic 

and international. The Delta alliance will deliver feed onto the Virgin Blue Group 

international and domestic network and enhance its competitive offering to the corporate 

and government sectors. 

Figure 1: Virgin Blue’s strategy 

Corporate

Leisure

Yield

Tiger

Jetstar

Qantas

Virgin Blue wants to maintain its appeal to Australian leisure customers while 

expanding its reach into the business and international segments of the marketplace. 
Joint Response 

Page 22 

Qantas currently dominates the Australian corporate sector and has the largest share of 

international travel to and from Australia.5

 

In order to achieve this strategy Virgin Blue is tailoring its product with the aim of 

being both cost efficient and delivering a great service that is valued by all passengers.6

 

However, changes to Virgin Blue’s product is only part of this strategy. In addition to 

product enhancements, to compete with Qantas for Australian corporate accounts and 

international passengers the Virgin Blue Group needs to be able to offer: 

 a broad network of destinations both in Australia and internationally 

(including North America); 

 a higher level of frequencies on routes which are considered important for 

corporate accounts (such as Los Angeles-Sydney); and 

 a broad reaching loyalty program with partners on which points can be 

earned and burned on a deep and wide domestic and international 

network of routes. 

V Australia’s proposed alliance with Delta is a critical part of this strategy and will 

dramatically expand Virgin Blue Group’s international offering, enabling it to genuinely 

compete with Qantas’s international network. It will allow Virgin Blue Group to present 

a credible network offer which is so important to attracting the corporate/government 

market, in which tenders are negotiated on a network-wide basis. 

The US market is one of Australia’s top three outbound and inbound markets 

(behind only New Zealand and the UK). It is particularly important for Australian carriers 

to have access to a strong United States domestic network that enables travel 

 

5

 For the year ended January 2010, the Qantas Group had a 28.6% share of international 

passengers into and out of Australia, followed by Singapore Airlines with a 9.8% share. Pacific 

Blue had the fifth largest share of traffic at 6%. See also Figure 3 below. 

6

 Virgin Blue has already begun introducing new product enhancements to its services, including 

enhanced in-flight entertainment and web check-in services. 
Joint Response 

Page 23 

connections beyond existing gateway ports because Los Angeles and San Francisco’s 

catchments are only approximately 8% of the population of the United States contiguous 

states (with the whole of California representing only slightly more than 10% of the 

United States population). In this respect, the Joint Applicants estimate that 60% of 

Sydney – Los Angeles traffic travels beyond Los Angeles. As such, a carrier flying to the 

United States with an Australian network behind it but no United States domestic 

network can only service a small proportion of the United States market without being 

able to reach beyond the United States gateway port. Qantas already has access to the 

U.S. market through American. American is willing to offer Qantas access to its full U.S. 

network because these carriers do not compete directly between the United States and 

Australia. At the present time, Delta is not willing to open its full network to V Australia 

on a codeshare basis, because Delta is protecting its own flight. 

V Australia’s experience on the Johannesburg route demonstrates the difficulty of 

operating point-to-point international services without a partner and against a strong 

rival. On August 26th, the Virgin Blue Group announced that it would withdraw its V 

Australia services to Johannesburg because they were loss making and not expected to 

turn a profit in the foreseeable future. The Johannesburg services were not viable 

because of a lack of behind and beyond connections and limited distribution capability 

ex South Africa. Qantas has a long standing codeshare relationship with South African 

Airways, but V Australia did not. This illustrates the importance of network connections 

and distribution strength to offer multiple destinations and to ensure traffic feed onto 

trunk services. 

To better compete with Qantas, which enjoys an enormous head-start advantage 

as a formerly protected and government-owned carrier, Virgin Blue Group’s strategy is to 

create an integrated international network through alliances. V Australia will fly its 5 

aircraft fleet on routes which best support 777-300ER operations and will enter into 
Joint Response 

Page 24 

strategic alliances to accelerate its international growth. The alliance with Delta is a 

particularly attractive and beneficial opportunity, which puts the individual resources of 

each carrier together to form a greater whole. 

D. Technical systems and procedures will not hinder the proximate 

realization of Joint Venture Benefits. 

Delta and the Virgin Blue Group carriers state unequivocally that they will have 

compatible systems and processes in place to support the timely realization of the joint 

venture’s public benefits. The V Australia and Delta systems are already fully 

compatible. The only compatibility issue is with Virgin Blue’s short haul network 

reservation system, which is hosted by Navitaire. Consistent with the strong commercial 

imperatives for an early implementation of the alliance, major investment has already 

been made to support this functionality. As detailed in this section, the Joint Applicants 

have a firm timeline with set milestones that have been and will be accomplished to 

support the timely introduction of broad spectrum joint venture codesharing on the Virgin 

Blue beyond network. The Joint Applicants respectfully submit that this information 

addresses a key concern identified in the show cause order for “a detailed explanation of 

how [technology and compatibility issues] will be addressed or how the separate 

processes would be reconciled if we were to grant antitrust immunity.” Order 2010-9-4, 

at 8. This demonstrates that the Joint Applicants will be able to timely implement their 

alliance. However, to remove any doubt concerning technology and compatibility issues, 

the Joint Applicants are willing to accept as a condition to the effectiveness of their 

immunity a certification to the Department that the technology and compatibility issues 

have been resolved. 

1. Systems Background. 

Carrier reservations systems and GDS expenses are high cost items, which 

carriers strive to manage efficiently. The different operations and requirements of the 
Joint Response 

Page 25 

Virgin Group carriers have resulted in the airlines running on two separate computer 

platforms in order to optimize their cost and revenue performance within the business 

models and market segments in which they operate. V Australia is hosted in the 

Amadeus System, and Virgin Blue, Pacific Blue, and Polynesian Blue are hosted in the 

Navitaire system. This provides each carrier all the functionality it needs, and, as 

discussed below the Joint Applicants have developed the compatible systems and 

procedures necessary to fully realize the benefits of the Joint Venture. 

The Joint Applicants observe that this is a strategy that has been followed by 

other highly successful integrated carrier groups. In fact, these are the same systems 

that the Qantas - Jetstar Group use, with Qantas being on Amadeus and Jetstar on 

Navitaire. Given that the carriers can and have devised the systems and procedures 

necessary to realize the benefits of their joint venture, the Joint Applicants respectfully 

summit that participation in a high cost GDS system should not be a prerequisite to 

antitrust immunity. 

2. Codesharing Between Delta and V Australia is fully supported and 

enabled by the Amadeus System. 

The Joint Applicants would like to emphasize that the primary system-to-system 

relationship for the joint venture will be between Delta’s Deltamatic and V Australia’s 

Amadeus systems. Deltamatic and Amadeus currently have the global aviation 

industry’s most advanced set of inter-airline system functionality, which is the platform 

for Delta’s transatlantic joint venture with Air France/KLM. The Delta/Air France/KLM 

transatlantic joint venture employs highly integrated revenue management functions 
Joint Response 

Page 26 

between two carriers, and Delta will utilize its experience to replicate the same platform 

with V Australia.7

 

Specifically, these proven and highly compatible systems and procedures will be 

used to manage the flow of traffic and revenue involving V Australia (VA*) coding onto 

Delta-operated transpacific and North American connecting flights; it will also be used for 

Delta (DL*) from the Delta-operated North American network onto V Australia-operated 

transpacific flights. This leaves only one system/technical permutation, discussed 

below, which must be implemented to achieve full joint venture network efficiencies: DL* 

coding on to Virgin Blue (DJ), Pacific Blue (DJ) and Polynesian Blue (DJ) –operated 

beyond gateway services in Australia and the South Pacific regions.8

 

3. DL* codesharing onto Virgin Blue-Operated Australian and South 

Pacific Segments is Supported by the Same Class Mapping And 

Revenue Management Techniques Developed for V Australia. 

As explained above, the Virgin Blue Group companies are a group of airlines with 

common ownership, commercial management and motivation (i.e. P&L). All four carriers 

are managed as a single network with a unified Commercial team including Revenue 

Management. The Show Cause Order’s understanding of V Australia as a long haul 

“point-to-point” operation is incorrect. V Australia is part of the highly integrated Virgin 

Blue Group which relies on network feed to support the long-haul flight. More than a 

third of V Australia’s U.S.-Australia onboard passengers (36%) are behind/beyond 

connecting passengers from Australia and the South Pacific region. (MIDT YE August 

2010). The Virgin Blue short haul network is marketed as part of the V Australia 

 

7

 The Joint Applicants do not believe there are any material issues relating to DL-VA codesharing 

and revenue management capabilities through Amadeus, but would be pleased to respond to any 

further questions the Department may have. 

8

 Pacific Blue (DJ) and Polynesian Blue (DJ) are handled identically to DJ, and so for simplicity of 

explanation we confine our discussion to DJ. 
Joint Response 

Page 27 

network under the single designator of “VA” through a codeshare agreement between 

the Virgin Blue Group short haul carriers and V Australia. 

The revenue management philosophy of the Virgin Blue Group is that short haul 

capacity should never be a limiting factor in accepting a long haul connecting booking, 

and the same philosophy will extend to the Delta partnership. Thus, while the Virgin 

Blue Group short haul carriers generally optimize their own inventory availability to 

maximize revenue streams, they have a special provision for V Australia’s needs. V 

Australia has access to over 95% of the Virgin Blue Group short haul carrier’s inventory. 

This is achieved by mapping the “VA” marketing code into “P” selling class (highest 

access) on the Virgin Blue Group short haul carriers’ network. Through this class 

mapping structure, the codeshare arrangement ensures Virgin Blue Group short haul 

carriers recognize and accept V Australia’s long haul sector business, thereby 

maximizing overall revenue for the Virgin Blue Group carriers’ entire network. 

Even though this arrangement does not enable direct control of traffic at the O&D 

level, it effectively approximates network value by giving the highest fares the best 

access and allows the group to extend the V Australia network to all of the Virgin Blue 

Group network. These are reasonable assumptions because, given the length of 

transpacific haul, it is almost always more beneficial to accept the long haul passengers, 

even if it means turning away a local passenger who would have paid a relatively high 

local fare the segment. If anything, the class mapping system employed by V Australia 

on its sister short haul carriers over-weights revenue management techniques in favor of 

the international behind/beyond traffic flows the Joint Venture is designed to enable. 

The class mapping arrangement is an effective way to generate the majority of 

the benefits of an O&D revenue management system without requiring the individual 

carriers to give-up their efficient computer platforms, make burdensome system 
Joint Response 

Page 28 

investments and endure the significant leadtime normally required for full O&D 

coordination. 

4. Metal Neutrality Will Be Achieved Through the Joint Venture 

Systems and Procedures. 

For the Joint Venture to work it is essential that Virgin Blue Group short haul 

carriers be indifferent between traffic that they receive from either V Australia or Delta. 

For this to be true, the partners must create a business arrangement where they share 

the results of the business with a single, common bottom line. Metal neutrality will be 

achieved through (1) the terms of the joint venture commercial agreement, and (2) 

agreed common marketing and distribution strategies that involve a high degree of 

shared access to each partner's inventory and a high degree of interchangeability in the 

partner's services for selling purposes. Decisions on price by point of sale will be 

supported by mapping of selling classes that favor partner capacity, to maximize joint 

venture revenue. 

Delta intends to replicate V Australia’s codeshare relationship with the short haul 

carriers, complete with class mapping of Delta’s long haul traffic to the short haul 

carriers’ highest availability (a benefit that Delta does not enjoy today, and which the 

Virgin Blue Group is not willing to offer absent a joint venture). The net outcome of the 

proposed arrangement will be Delta’s full and unbiased access to the domestic and 

beyond- Australia market (equivalent to V Australia’s access) and the reciprocal access 

for V Australia on Delta’s domestic US network. 

 Common fares will be available by point of sale for Delta and V Australia to sell 

the combined network flexibly via the “DL” and “VA” codes. This opens up a range of 
Joint Response 

Page 29 

selling options as illustrated in the itineraries below, using the example for travel from 

Adelaide to Atlanta, where options for selling include: 

ADLSYD (VA*DJ) SYDLAX (VA operated) LAXATL (VA*DL) - VA itinerary 1 

ADLSYD (VA*DJ) SYDLAX (VA*DL) LAXATL (VA*DL) - VA itinerary 2 

ADLSYD (DL*DJ) SYDLAX (DL operated) LAXATL (DL operated) - DL itinerary 1 

ADLSYD (DL*DJ) SYDLAX (DL*VA) LAXATL (DL operated) - DL itinerary 2 

 

Delta will be integrated in the Virgin Blue Group revenue management system 

strategy to achieve equality of inventory access between Delta and V Australia, on both 

V Australia and Virgin Blue Group short haul operated flights. As discussed above, 

Delta's marketing flights on the short haul networks will link to “P class”, which is the 

highest access of the reservations classes that the short haul carriers have set up for 

international partners who need inventory access. From the perspective of revenue 

production on a short haul operated flight, there will be no distinction between inventory 

made available to V Australia versus Delta. 

5. Upgrades to the Navitaire Platform Make it Fully Compatible with 

Deltamatic. 

The current perception of a codeshare system incompatibility issue arises from a 

rare and unlikely set of circumstances which is actively being addressed. Following its 

merger with Northwest, Delta was subject to an 18 month system freeze, which 

prevented it from developing the IATA standard codeshare messaging option that was 

used by Virgin Blue Group’s Navitaire system. The messaging options in question are 

used to communicate the specific information for the operated flight “booked as” 

information between the marketing and operating carriers. This is a back-room technical 

function and does not affect the core joint venture revenue management functions, nor 

the economic incentives or public benefits. These system functions will be fully 

automated in a matter of months. 
Joint Response 

Page 30 

The current version of Navitaire system supports IATA messaging Options 2 and 

4, but will now support Option 1 as well, which is the option used by Delta. In the 

interim, the Joint Applicants devised a manual work-around solution, which they are 

currently using to support the limited beyond codesharing that has been implemented. 

Virgin Blue Group migrated from Open Skies (Navitaire) to the updated platform, 

New Skies (Navitaire) in June 2010, allowing for more functionality particularly in the 

interline and code-share systems, which in itself has been an investment of $10 million. 

Specifically, with New Skies, Virgin Blue Group will acquire functionality allowing it to 

provide to Delta a seamless and interactive link with its inventory. Interactive sells by 

the marketing carrier will immediately decrement the operating carrier's inventory exactly 

the same as if the operating carrier had sold that same seat, effectively leveraging the 

operating carrier's inventory controls and nested segment logic. 

 In November, 2010, Virgin Blue Group will receive the code from Navitaire 

necessary to support the latest New Skies upgrade version 3.3.1. This will include IATA 

Option 1 messaging (compatible with Deltamatic). In the same code release, Virgin Blue 

Group will also receive new capabilities including IATA standard IATCI (InterAirline 

Through Check-In) processing between the Navitaire and partner airline systems. This 

is known as IATCI edifact version 3.1, which supports APIS and secure flight message 

requirements and will allow Delta to more efficiently process inbound connection 

passenger from the Virgin Blue Group network. 

Virgin Blue Group and Delta plan comprehensive system-to-system testing of all 

code before public release. The current plan is to test between November 2010 and 

January 2011 with Go Live for the Option 1 code share with Delta in February 2011.9

 

 

9

 A letter from Navitaire attesting to the system development and timeline is provided at 

Attachment 2. 
Joint Response 

Page 31 

The Joint Applicants propose that their immunity be effective at this time, as full, 

automated codesharing will be available across their systems equivalent to other 

approved alliances. The following table summarizes the milestones achieved to date, 

and the timeline to complete the remaining steps: 

Date Milestone 

Completed Interline Eticket VA/DL/DJ 

Completed IATCI – VA/DL 

Completed AVA codeshare VA*/DL 

Completed Block codeshare DL*/DJ 

November 2010 DJ Navataire Option 1 Codeshare Messaging; 

IATA standard IATCI processing 

November 2010 – January 2010 Option 1 and IATCI Testing 

February 2011 Implement Option 1 Codeshare DL/DJ 

 It should be noted that Amadeus supports all the relevant messaging types for 

codeshare and IATCI and will be included in the testing phases. In parallel with the 

initiatives supporting the Virgin Blue Group carriers, the activation of the Amadeus 

seamless product between V Australia and Delta for VA*/DL flights will give Delta the 

information (journey data, trip data, married segment logic, ABI) needed for advanced 

inventory management. This will open the North American network for more codeshare 

possibilities. 

6. Upgrades to the Navitaire Platform Make it Fully Compatible with 

Industry Standard Systems. 

[Confidential] The 

[End Confidential] Virgin Blue Group is also making key changes to the way 

Australian Travel Management Companies (TMCs) book and settle on the “DJ” code, 
Joint Response 

Page 32 

which will also have direct benefits for interacting with Delta and other partner airlines. 

Virgin Blue is moving from Type B to Type A messaging and e-ticketing for TMCs 

booking the “DJ” code, making the sales and bookings management process identical to 

any IATA airline. At the same time, Virgin Blue will be moving to IATA's BSP system for 

TMCs, allowing for industry standard settlement processes. 

As noted above, for Delta and other partner airlines, this change in messaging 

will mean moving from Codeshare Option 1 with some caching delay due to Type B 

messaging, to real time inventory access with Type A messaging, giving them greater 

confidence and allowing last seat availability. Overall, by making the Virgin Blue Group 

easier to do business with, these changes will eliminate any remaining barriers to sale 

on V Australia and VA*/DL. 

E. Delta and the Virgin Blue Group have a successful history of 

cooperation. 

Virgin Blue Group and Delta began commercial negotiations at the beginning of 

2008, and launched their bilateral cooperation with interline agreements between V 

Australia and Delta and also Virgin Blue/Pacific Blue with Delta in March 2009. The 

carriers have been selling and marketing interline connections throughout their history of 

working together. In December 2009, the carriers launched reciprocal frequent flyer 

partnership benefits, allowing customers to earn points on each other’s networks. At the 

same-time we also launched a reciprocal lounge agreement between both companies, 

allowing Delta’s domestic guests access to Virgin Blue Lounges in Australia and Virgin 

Blue & V Australia guests access to lounges throughout North America. Finally, in early 

2010 we launched the current, limited arms-length code-share relationship. Delta now 

codes on select domestic Virgin Blue flights between Sydney and Brisbane and 

Melbourne. V Australia codeshares on select Delta flights between Los Angeles (LAX) 

and New York, Salt Lake City, Orlando and Cincinnati. 
Joint Response 

Page 33 

In light of the foregoing additional information, together with the demonstrated 

commitment and investment to compatible systems and procedures, the Joint Applicants 

believe that there is no longer any material doubt that the Joint Applicants will be able to 

timely implement and carry through on their codeshare and joint venture activities. The 

Joint Applicants recognize the Department’s desire to see that benefits will be timely 

realized by the traveling public. However, a pre-existing codeshare relationship has not 

been a predicate for a successful antitrust immunity application, and the Department has 

approved numerous ATI arrangements in which the applicants sought initial codeshare 

approval at the same time they filed for immunity. With the new information provided, 

the Joint Applicants now believe their application can be viewed as consistent with the 

Department’s prior approvals. 

F. The Joint Venture will be timely implemented in third countries. 

The North America-South Pacific joint venture includes the major third country 

markets of New Zealand, Canada and Mexico. The U.S. and Australia have air services 

agreements with each of New Zealand, Canada and Mexico which provide a framework 

for cooperative marketing with other airlines, including those from third countries. The 

codeshare approvals that will be necessary to enable travelers to use the joint network 

are straightforward and routine. [Confidential] The 

[end Confidential] 
Joint Response 

Page 34 

IV. U.S.-AUSTRALIA MARKETPLACE HAS STABILIZED. 

The international aviation marketplace is dynamic and changing conditions are 

the norm rather than the exception. It is true that the U.S.-Australia marketplace had 

undergone significant changes when Delta and V Australia first applied for antitrust 

immunity. However, the marketplace is now comparatively stable, and service levels 

have been nearly constant for more than a year. 

Australia and the United States previously had a restrictive aviation regime which 

sharply limited the addition of new capacity. Indeed, that restrictive agreement, would 

have permitted carriers which wished to enter the market to offer only four weekly 

frequencies. As the Department is aware, it was V Australia's intent to enter the market 

with 10 weekly frequencies. The reopening of the US-Australia air service relationship 

and conclusion of the new Open Skies agreement was based in large part on Australia’s 

desire to secure market access for V Australia, which received its US operating authority 

shortly after the February 14, 2008 signature of the US-Australia Open Skies 

Agreement.10

 The observed addition of new capacity and lower fares are the positive and 

expected result of U.S. open skies policy. In addition, in absolute terms there were 

comparatively fewer flights between the US and Australia than in other international 

markets, so the addition of even one or two new daily services produces relatively large 

changes in market share. And, shown below, capacity has been flat for the past 15 

months: 

 

10 See Notice of Action Taken, Docket OST-2007-28705, dated February 15, 2008 (granting 

Virgin Blue International Airlines Pty Limited an exemption to provide scheduled service on all 

routes authorized under the US-Australia Open Skies Agreement dated February 14, 2008). 
Joint Response 

Page 35 

 

A. The Joint Applicants are Providing A Year’s Worth of Additional 

Data. 

The Joint Applicants are providing the Department with an entire year’s worth of 

additional MIDT traffic data (YE August, 2010) which reflects the current, fully 

implemented services of both applicants -- and which was unavailable to the Department 

when the show cause order was issued. The Applicants are also furnishing an 

additional 9 months of internal fare and traffic data in the format requested in the 

Department’s November 25, 2009 supplemental evidence request. Together, these data 

supplements provide a more current and comprehensive set of market data for 

consideration in the final order. The above data are being submitted to the confidential 

Docket on CD. 
Joint Response 

Page 36 

B. The U.S.-Australia market is more stable than other markets where 

ATI has recently been granted. 

The Department has previously evaluated ATI applications when service levels 

were changing, or expected to change, significantly after the introduction of open skies. 

For example, following the US-EU open skies agreement, US-London Heathrow 

capacity increased 25% year-over-year when American and British Airways submitted 

their antitrust immunity application in July 2008. The increase in US-Australia capacity 

was 19% immediately following the introduction of the V Australia and Delta services 

and has now stabilized. 

The Department reached a tentative positive decision this month on two ATI 

applications in Japan, where the market is in a state of considerable flux. JAL is 

undergoing a major restructuring at the same time it is seeking antitrust immunity with a 

US partner. The new provisions on Haneda access provide for four new flights per side, 

which will result in a substantial addition of new capacity to the market. 

The Joint Applicants note that the Department once previously proposed to 

denied immunity on the grounds of “market flux” in the SkyTeam 1 transatlantic alliance 

proceeding. However the market conditions are quite different here. In that case, DOT 

denied the application in part because “the regulatory framework governing transatlantic 

markets is in flux.” (Order 2005-12-12 at 2). The EU had declared the individual bilateral 

agreements between the member states and the United States to be illegal and the draft 

US-EU umbrella agreement had not yet been adopted. Those factors are not present in 

this case. 

V. THE GRANT OF IMMUNITY IS CONSISTENT WITH U.S. OPEN SKIES 

POLICY AND INTERNATIONAL COMITY 

A key policy rationale behind the introduction of the Open Skies Agreement was 

the Australian Government’s desire to introduce further and sustained competition on 
Joint Response 

Page 37 

what it considers to be one of Australia’s most important air routes, by enabling new 

entrants such as Virgin Blue’s V Australia to operate. It was also considered a 

significant milestone in the strengthening of the U.S. - Australian relationship. In 

announcing the signing of the Open Skies Agreement in February 2008, Australia’s 

Minister for Infrastructure, Transport, Regional Development and Local Government 

declared that the historic new agreement would deliver greater choice through increased 

competition, and provide significant employment opportunities for Australians in the 

aviation and tourism industries: 

"This agreement demonstrates the strength of the Australia-US 

relationship.....[It] highlight[s] the Australian Government's strong commitment to 

Australian travelers.........The United States is Australia's third largest aviation 

market and this agreement removes restrictions on Australian and US airlines 

starting services and routes between the two countries and beyond to third 

countries...Australia [is] a strong advocate of liberalizing air services between 

Australia and the US, while at the same time securing our national and 

economic interests......The new agreement will provide great opportunities for 

increasing trade and commercial links between Australia and the United 

States....We will have more competition in the market for Australian travelers 

through the entry of new carriers, such as V Australia....This should result in 

greater choice for Australians travelling to and from the United States and to 

other destinations.....The new arrangements will enable V Australia to proceed 

with its plans to introduce air services between Australia and the US from late 

this year.” 

 

At the time the Open Skies Agreement was concluded, Qantas and United 

Airlines were the only airlines operating direct services between Australia and the 

mainland United States, in what has often been described as a “virtual duopoly.” The 

lack of effective competition to the incumbent carriers on these routes was widely 

acknowledged to have led to high fare levels, restricted seat availability, and a 

corresponding negative impact on tourism and employment growth. The Open Skies 

Agreement was intended to bring much needed competition to this market, and there 

was an expectation that this competition would be delivered by Virgin Blue’s soon to be 

launched international airline, V Australia. However, as noted above, the success of 
Joint Response 

Page 38 

second Australian carrier on this route would in part be determined by that carrier’s 

ability to enter into a partnership with a U.S. airline to provide critical network feed and 

distribution access to the US market. (As noted above, 60% of Australian outbound 

passengers require connections to fly beyond LA and 90% of the US inbound market 

require connections to LA to begin their Australian journey). In the case of two carriers 

that both serve the market, this requires a depth and breadth of partnership that can only 

be delivered through antitrust immunity, as discussed in more detail in section VI below. 

In this unique market, antitrust immunity for a second or third Australian carrier is 

fundamental to the delivery of the competitive outcomes sought to be achieved under 

the Open Skies Agreement. 

One of the most important benefits available under Open Skies is the potential 

for forming an immunized joint venture with a U.S. carrier. The Department recently 

stated that “The value of Open Skies agreements in our foreign air transportation policy 

has been enhanced by prudent grants of antitrust immunity. Moreover, we strive not 

only to reach Open Skies agreements, but also to maintain them. Were we to suddenly 

change our antitrust immunity and public interest approach . . . the credibility of the U.S. 

Government with its international aviation partners would be significantly compromised 

and our ability not only to reach new Open-Skies agreements but also to maintain those 

agreements that we have already achieved would be undermined.” Continental/Star 

ATI (DOT Order 2009-7-10) 

While there was a clear expectation and linkage between the signing of the Open 

Skies Agreement and the launch of V Australia, the V Australia business case was not 

sufficiently advanced to enable the development of an ATI application in parallel with the 

Open Skies negotiations. However this should not detract from the importance of the 

Australian government’s and Virgin Blue’s expectations at the time of entering into the 

Open Skies Agreement. 
Joint Response 

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The Show Cause Order acknowledged that “U.S. foreign policy goals are a key 

element of [DOT’s benefits analysis].” Order 2010-9-4 at 4. The Joint Applicants 

respectfully urge that approval of this application will facilitate the important public 

benefit and foreign policy interest of the United States in achieving and maintaining 

Open Skies agreements, and also promoting international comity with Australia. The 

United States has been a long time friend and ally of Australia for over 60 years and is 

Australia's single most important economic partner. The United States is also Australia’s 

most important two-way investment partner, accounting for around a quarter ($514 

billion) of total foreign investment stock in Australia at the end of December 2009. The 

United States is by far Australia's most important destination country for foreign 

investment abroad, with stock valued at $404 billion at the end December 2009. The 

Australian Government continues to work closely with and support the US Government 

on a wide range of strategic issues including national security to which aviation is critical. 

The Australian Competition and Consumer Commission (ACCC) conducted a 

detailed and through examination of the proposed Joint Venture pursuant to Australia’s 

competition laws. The ACCC “considers that the Joint Venture is likely to enable the 

applicants to compete more vigorously and effectively against the established carriers on 

the route. The Joint Venture is likely to allow the applicants to continue to compete on 

price as well as service offerings through the enhancement and expansion of the 

applicants’ operations on the trans-Pacific routes.” (Final Decision, December 9, 2009) 

Significantly, the ACCC also noted that the development of new services by Delta and V 

Australia under their joint venture furthers the Government of Australia’s key policy 

rationale in entering into an Open Skies Agreement with the United States. 

The Joint Applicants recognize that the important benefit of immunity is not 

automatic and must be earned to the full satisfaction of each government’s competition 

authorities. The Joint Applicants note that the Department has made significant steps 
Joint Response 

Page 40 

harmonizing its regulatory approach with those of other governments. Indeed, the US 

Government wrote that obligation into the U.S.-EU open skies agreement, and DOT 

modified its proposed remedies in the AA/BA alliance case to be consistent with the EU 

Commission’s remedies. Order 2010-7-8 at 16. With the substantial additional 

information provided in this Response, the Joint Applicants [and the Government of 

Australia] are hopeful that the Department will be able to reach a positive final 

determination consistent with that of the ACCC. 

VI. THE BENEFITS AND EFFICIENCIES OF THE JOINT VENTURE CANNOT BE 

ACHIEVED WITHOUT IMMUNITY. 

Delta and V Australia have been working together since 2008 and began 

reciprocal codesharing in January, 2010. For the last 15 months the carriers have 

worked to advance their vision for a joint venture partnership to provide full reciprocal 

access to each other’s beyond/behind networks – while also competing on a head-tohead basis on the Los Angeles-Sydney route. Although substantial public benefits 

could be gained by offering consumers an integrated network with more online 

destinations, and greater choice of frequency and schedule, the carrier’s individual 

economic interests preclude expanded codesharing and cooperation – unless antitrust 

immunity is granted. Absent ATI, the limited arms length codesharing and interlining that 

exists today is all that is likely to materialize – and may, in fact, decrease. This is an 

unfortunate result because it harms consumers, and sub-optimizes the network 

resources of both carriers – which together form a whole that is greater than the sum of 

its parts. The benefits and efficiencies that would be created by the joint venture are 

substantial – and similar to those which the Department has found sufficient to justify a 

grant of immunity on numerous prior occasions. With the additional information and 

clarification contained in this response, the Joint Applicants hope the Department will 

also reach a positive final determination in this case. 
Joint Response 

Page 41 

The passage of additional time will not remedy the commercial barriers to 

expanded arms-length cooperation. While the applicants have gained some experience 

with each other, the basis for this highly informed commercial judgment comes from 

decades of experience that Delta’s and V Australia’s senior management in both armslength and immunized relationships. This history and experience reinforces the 

conclusion that antitrust immunity – and the joint venture it enables -- is essential to 

unlocking the benefits and efficiencies of the alliance by incentivizing both partners to act 

in the collective interest of the joint venture – rather than the individual interest of each 

carrier. 

A. Arms-Length Codesharing is prone to failure in directly competing 

markets. 

Arms-length codesharing can, in some instances, be a useful way to expand 

network access and serve as a stepping stone to greater cooperation. That is 

particularly true when carriers are not head-to-head competitors in important nonstop 

markets. For example, United had an arms-length codeshare arrangement with LOT, 

TAP and Swiss, none of which directly competed with United on a nonstop basis. It was 

therefore possible for these carriers to follow a progression of arms-length codesharing 

to fully immunized cooperation without undue conflict or difficulty. 

Delta’s commercial experience, however, demonstrates that the market realities 

of arms-length cooperation are very different in markets where carriers are directly 

competing on a nonstop basis. In those instances, arms-length cooperation is very 

difficult and prone to failure due to a misalignment of commercial interests. With 

immunity, however (and the appropriate alignment of commercial interests), carriers 

have proven the ability to substantially grow and enhance service through network 

cooperation well beyond what the local market alone would justify for each carrier 
Joint Response 

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individually. The following examples demonstrate the difficulty Delta and V Australia 

would have in advancing their cooperation on an arms-length codeshare basis. 

1. Arms-Length Codeshare Failure: Delta/ El Al 

El Al and Delta were arms-length codeshare partners and enjoyed a successful 

relationship for more than seven years until Delta began serving Tel Aviv on a nonstop 

basis with its own aircraft. Delta entered first with a single flight from Atlanta (which El 

Al did not serve directly). Delta recognized the benefit of the El Al relationship, including 

the potential for beyond-Tel Aviv feed, and tried to continue the relationship. However, 

market place conflict continued driving the carriers apart. Delta terminated the 

codeshare when it started to service in the JFKTLV market (in direct competition with El 

Al), which complemented its ATLTLV service. Delta wanted to use its JFK network and 

marketing advantages to support its own flight – and not that of El Al. 

This example is directly analogous to the instant case, where V Australia would 

like to take advantage of Delta’s Los Angeles network to feed V Australia’s LAXAustralia flights which compete with Delta, along with Qantas, United and Air New 

Zealand. The limited cooperation that has occurred to date was based on the premise 

that Delta and V Australia would be able to form a mutually beneficial and lasting joint 

venture partnership. If immunity were not available, as the El Al example illustrates, 

even longstanding, well-formed arms-length codeshare partnerships are at risk from the 

conflict inherent in would-be partners operating directly competing services. 

El Al subsequently secured American Airlines as its U.S. codeshare partner -- 

which has a large JFK feed network and does not operate to Tel Aviv. The pattern 

repeats itself. 

2. Arms-Length Codeshare Failure: Delta/Air Europa 

Delta and Air Europa are currently both full members of the SkyTeam alliance. 

They are also direct competitors on the JFK-Madrid route. Notwithstanding the platform 
Joint Response 

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of commercial cooperation (including codesharing) which SkyTeam is intended to 

promote, the two carriers have thus far been unable to reconcile their commercial 

differences in order to agree to reciprocal codeshare access on each other’s 

beyond/behind networks. Delta would benefit from access to Air Europa’s substantial 

behind-Madrid network, and Air Europa would benefit from Delta’s behind-JFK feed. 

However, the conflicting commercial incentives on the nonstop segment have prevented 

the carriers from agreeing to arms-length codesharing onto each other’s flights. The 

barriers to such cooperation are very real and difficult to overcome. 

3. Arms-Length Codeshare Failure: Delta/Air Jamaica 

Delta had a strong relationship with Air Jamaica for almost 10 years (April 1998 

to April 2007). Jamaica was then one of the relatively few Caribbean routes that Delta 

served from Atlanta, while Air Jamaica did not serve Atlanta. Air Jamaica operated a 

significant intra-Caribbean network onto which Delta connected passengers, and, in 

return, Delta carried Air Jamaica traffic to interior U.S. cities beyond Air Jamaica’s 

gateways. The arms-length codeshare began to unravel when Delta started to expand 

its own Caribbean network at the same time that Air Jamaica focused less on intraCaribbean flying and more on the US-Jamaica market. Delta ended the codeshare 

shortly after Air Jamaica announced its intent to begin serving Atlanta on a nonstop 

basis from Atlanta. 

4. Arms-Length Codeshare – Succeeds by Moving to Joint Venture – 

Northwest/KLM 

The oldest and most successful Joint Venture – Northwest/KLM – narrowly 

survived its difficult and strained beginnings. Northwest and KLM each recognized the 

potential of linking their respective Detroit/Minneapolis and Amsterdam hubs, but 

struggled from the beginning to find a workable business arrangement. Codesharing 

alone did not provide the proper incentives. The carriers stole customers from each 
Joint Response 

Page 44 

other, were not incentivized to flow traffic to the transatlantic capacity of the other, and 

the alliance nearly collapsed due to internal disagreement and mis-aligned business 

incentives. It was only after 1996 when the metal-neutral joint venture agreement was 

signed that the potential of the alliance was realized. Today, Detroit-Amsterdam 

sustains four daily flights, and Minneapolis-Amsterdam sustains three daily flights – 

solely as a result of the traffic flows enabled by the metal neutral joint venture. 

It is this same deeply integrated joint venture model which the Joint Applicants 

seek to bring to the U.S.-Australia marketplace. Delta and V Australia each operate 

major domestic and regional networks servicing North America and the South Pacific 

beyond their respective U.S. and Australian gateways. By linking their networks, 

thousands of online city-pairs would be created with new, more attractive, and more 

competitive services for the traveling public. But, as was the case with the numerous 

examples cited above, the commercial conflict created in an arms-length environment on 

the competing nonstop segments prevents the Joint Applicants from moving forward to 

create a comprehensive and beneficial transpacific alliance. 

B. Delta and V Australia’s Experience is Consistent with Problems that 

have frustrated other arms-length codeshare relationships 

The problems that Delta and V Australia foresee in an arms-length relationship 

are based not just on their experience as partners, but on decades of alliance 

management and strategic decision making. Delta’s most important strategic asset 

which supports the Los Angeles-Sydney flight are its vast U.S. domestic network, large 

frequent flyer base, and corporate accounts with global market demands. In the 

absence of a Joint Venture, Delta will use its strategic and marketing assets to benefit its 

own flight – and deny them to V Australia – except to the limited extent necessary to 

gain reciprocal codeshare access to the key Australian points of Melbourne and 

Brisbane. Absent a Joint Venture, every passenger provided by Delta to a V Australia 
Joint Response 

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flight across the Pacific (through codesharing or other cooperation) is at the expense of 

Delta’s own Los Angeles-Sydney flight. The equation is similar on V Australia’s side. V 

Australia uses a comprehensive network in Australia and New Zealand (operated by 

Virgin Blue and Pacific Blue) to feed its transpacific flights. While V Australia might be 

willing to trade access with Delta for select points in the U.S., V Australia does not want 

to enable Delta to achieve deep penetration to the Virgin Blue Group’s interior Australian 

markets – since those passengers would otherwise likely fly on V Australia metal across 

the Pacific. And, V Australia also does not want to open up its frequent flyer base or 

corporate accounts for transpacific travel on Delta, when those passengers would 

otherwise fly on V Australia. 

Additional time as arms-length partners will not solve these differences. On the 

other hand, approval of a joint venture relationship would immediately remove the 

impediments caused by the Joint Applicants' natural self-interest, and allow them to 

create a broader combined network, offer new flights and increase frequencies 

(supported by the larger numbers of passengers exchanged between the networks), 

offer their customers the optimal choice of routings and itineraries across the combined 

network (rather than trying to capture them on own-metal service), and offer lower 

combined fares (since each partner shares in the transpacific revenue generated by the 

other -- rather than just its own metal services). The Joint Applicants can and will move 

quickly to implement their alliance and pass along these many benefits to consumers. 

Without antitrust immunity, new codesharing is unlikely to materialize and the 

level of cooperation may actually decrease due to the factors that led to the demise of 

similarly situated arms-length relationships. Notably, V Australia requested (but was 

denied) codeshare access to serve Atlanta and other strategic points on Delta’s network 

– which Delta wants to ensure flow onto its own flight. This is an unfortunate result 
Joint Response 

Page 46 

because there are a large number of potential passengers in beyond/behind city pairs 

that are not reached by the current limited network of either carrier.11 

VII. THE COMMERCIAL AND PUBLIC INTEREST OBJECTIVES THE 

APPLICANTS SEEK TO ACHIEVE ARE CONSISTENT WITH THE 

DEPARTMENT’S PRIOR GRANTS OF IMMUNITY. 

The core focus of the alliance is to create a comprehensive “metal neutral” joint 

venture, including both trunk and beyond/behind segments, with a full sharing of 

revenue, risk, and benefits. Due to the unacceptable risk of antitrust litigation, the 

applicants will not proceed in the absence of immunity. The Department has 

consistently found that there is legitimate need for antitrust immunity, particularly with 

respect to joint venture agreements, such as those presented here: 

These second-stage commercial agreements, such as the 

[JV Agreement], involve revenue and benefit-sharing 

arrangements that create a greater risk of antitrust litigation 

and potential antitrust liability, even though we have 

tentatively found that the alliance expansion will not 

substantially reduce competition. 

DOT Order 2006-12-17, at 17. 

 The intended areas of geographic cooperation will involve all North AmericaSouth Pacific services, including revenue sharing on beyond-behind services in the 

homeland countries as well as commercially attractive routings to third counties including 

New Zealand, Canada, and Mexico. This clarification on flow markets remedies a 

 

11 Qantas and American have implemented broad network U.S.-Australia codesharing in the 

absence of a Joint Venture. However, the commercial incentives in that relationship are very 

different because American does not serve Australia with its own aircraft. Thus, there is no risk of 

American losing a passenger to Qantas (or vice versa) by granting open access to each others’ 

network. This has enabled American and Qantas to establish a unique position as the only 

comprehensive full network competitor with expansive access to beyond/behind points on both 

sides of the Pacific. The establishment of a Delta/V Australia Joint Venture will create the first 

true network competitor in thousands of U.S.-Australia city-pairs served only by 

American/Qantas. Moreover, because the new entrant Joint Venture competitors are 

incentivized through a common bottom line to offer more attractive joint pricing, the benefits for 

consumers are likely to be especially significant in this case.
Joint Response 

Page 47 

concern identified in the show cause order, which the Department felt could reduce the 

potential benefits resulting from the proposed partnership. (Order 2010-9-4 at 10). The 

broad and fully encompassing North America-South Pacific network proposed by the 

Delta/V Australia joint venture is larger and more fully integrated than the United/Air New 

Zealand alliance which received favorable consideration for immunity. There, the 

Department found that “the proposed alliance would allow the partners to improve the 

efficiency of their operations and to otherwise work together to improve service not only 

in the U.S.-New Zealand market, but also the U.S.-South Pacific market generally.” 

Order 2001-3-4 at 9. 

The Joint Applicants respectfully submit that their amended and clarified Joint 

Venture agreement, together with the fully compatible systems and processes that will 

be in place prior to the effectiveness of immunity, will produce substantial and proximate 

public benefits including (1) an expanded network, (2) elimination of doublemarginalization pricing, (3) maintaining and expanding nonstop transpacific service, (4) 

new and more convenient routing options for customers, and (5) more effective 

competition with rival carriers.12 Consistent with the Department’s recent findings in the 

Japan Alliance case, substantial public benefits will be realized from immunized 

cooperation between Delta and V Australia: “These proposed benefits result from a 

broad range of service, fare, and product improvements. While antitrust immunity is not 

necessary to achieve every public benefit envisioned by the [applicant’s joint venture], it 

is necessary to achieve the most important benefits” Order 2010-10-4 at 2. 

 

12 The Applicants also believe that their alliance would create significant efficiencies and cost 

reductions. They provided estimates based on Delta’s extensive historic experience with other 

immunized partners, which is also consistent with the ranges estimated by the Star and oneworld 

carriers in similar proceedings. While the Applicants believe those efficiencies are both real and 

attainable, they do not rely on this as a primary justification for the grant of immunity. 
Joint Response 

Page 48 

In the foregoing section III, the Joint Applicants have provided detailed 

information about their business plans, strategic vision for the joint venture, and concrete 

plans for timely implementation and realization of these benefits. The Department 

recently affirmed that “The likelihood that these proposed benefits will be realized is 

supported by both our historical experience reviewing antitrust immunity cases and 

several independent third-party studies of immunized alliances." Order 2010-10-4 at 13. 

VIII. THE INCLUSION OF ADDITIONAL AIRLINES OR GEOGRAPHIC REGIONS IS 

NOT NECESSARY TO REALIZE THE BENEFITS OF THIS ALLIANCE. 

Delta and V Australia seek to form the broadest and most effective North 

America-South Pacific alliance possible by bringing together all the network resources 

and traffic flows of their combined systems. The proposed arrangement will fully 

maximize benefits to U.S. consumers. There is no conflict with any other Delta or V 

Australia partner, because only Delta and V Australia serve the South Pacific. Routings 

via Europe or Northeast Asia (e.g. Korea) are far too circuitous to be effective, 

particularly given the abundant nonstop competition operated by Qantas, United and Air 

New Zealand. 

It is not necessary for every global partner to be part of every application – 

particularly where, as here, there is no overlap and no benefit to the inclusion of 

additional partners. The Joint Applicants note that while there is no conflict with their 

joint venture any of their other global arrangements, other alliances recently reviewed 

the Department in fact did not include all of the members serving the region. For 

example, Star partners Asiana and Air Canada (both of which serve Japan and its 

immediate catchment area) are not part of the proposed United/Continental/ANA joint 

venture. The fact that the Joint Applicants each have other alliance partners is by no 
Joint Response 

Page 49 

means remarkable, and in no way affects the delivery of the potential public benefits in 

this case.13 

The Joint Applicants requested global immunity in order to allow for potential 

future coordination in other markets which are unrelated to the primary purpose of the 

proposed North America-South Pacific Joint Venture. With the exception of SkyTeam 2, 

which involved transatlantic immunity for a transatlantic joint venture, all other DOT 

grants of immunity have been global, even where the applicants were proposing a more 

limited range of cooperation. There was a unique need to limit immunity in the case of a 

request between two U.S. carriers, because major U.S. international carriers compete in 

all relevant markets from the United States. In the recent Continental addition to the 

Star ATI alliance, the Star applicants received global immunity even though they had 

presented a joint venture limited to the transatlantic. Order 2009-7-10. The Joint 

Applicants understood this to be the Department’s modern trend, and therefore 

requested broad immunity to support future, though yet undefined cooperation in other 

global regions. 

However, the Joint Applicants hereby state that they are willing to accept a more 

narrowly tailored grant of immunity limited to North America-South Pacific markets. 

 

13 The proposed trans-Tasman alliance between the Virgin Blue Group and Air New Zealand is 

not part of the joint venture with Delta, and does not affect the public benefits that would be 

realized by a grant of immunity to the Joint Applicants. Delta plans to cooperate on Virgin Blue 

flights, not Air New Zealand flights, and the JV schedules will be coordinated to ensure full 

connectivity to New Zealand points of interest; only one high quality connection with the 

international flight is necessary. The type of high frequency short-haul shuttle service that would 

be enabled by Virgin Blue-Air New Zealand cooperation is intended to make Virgin Blue more 

competitive with Qantas in the local market, but does not affect the benefits of the international 

joint venture. 
Joint Response 

Page 50 

IX. THE GRANT OF IMMUNITY WILL ENHANCE THE JOINT APPLICANTS’ 

ABILITY TO SERVE THE PUBLIC AND DOES NOT UNFAIRLY 

DISADVANTAGE ANY MARKET PARTICIPANT. 

The DOT and the Department of Justice have a wise policy of discounting the 

claims of competitors in merger and competition proceedings. Nonetheless, it is 

significant that no party has opposed this application and none find that it would give 

Delta or V Australia an unfair competitive advantage. 

Approval of the joint venture will enable Delta and V Australia to offer new 

products and services, and enhance competition in the North America-Australia/South 

Pacific market. In addition to making the individual members of the alliance stronger and 

more effective competitors, approval of this arrangement will enable the Joint Applicants 

to expand the array or services on offer and make them better able to serve the 

traveling public. The Joint Applicants state for the record that there is no plan to 

rationalize service if their application is approved and the Joint Applicants are willing to 

make a 24 month capacity guarantee ensuring that no services will be rationalized as a 

result of ATI approval. The increased traffic flows across the joint network will help to 

sustain and expand nonstop transpacific service which benefits the traveling public, as 

well as U.S. airline interests and aviation employees. 
Joint Response 

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X. CONCLUSION 

The Joint Applicants respectfully submit that the benefits shown here are 

consistent with those found in other alliances for which ATI immunity has been granted. 

It would be an appropriate and beneficial use of the Department’s authority to grant 

immunity to the proposed joint venture. Accordingly, the Joint Applicants respectfully 

request that in its final order the Department approve and grant antitrust immunity for the 

Alliance Agreements pursuant to 49 U.S.C. §§ 41308 and 41309. 

Respectfully submitted, 

Anita M. Mosner 

for 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 (Aust) Pty Ltd 

Alexander Van der Bellen 

for Delta Air Lines, Inc. 
CONFIDENTIAL

ATTACHMENT 1
ATTACHMENT 2

APPENDIX 




















CERTIFICATE OF SERVICE

A copy of the foregoing has been served this 13th day of October, 2010, upon the 

following persons via email: 

carl.nelson@aa.com 

howard_kass@usairways.com 

benjamin.slocum@usairways.com 

hkamen@coair.com 

dan.weiss@coair.com 

jeffrey.manley@united.com 

steve.morrissey@united.com 

jhill@dlalaw.com 

byerlyjr@state.gov 

todd.homan@dot.gov 

peter.irvine@dot.gov 

christopher.mandel@dot.gov