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, 2010Communications 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.comi 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. ......................................................24ii 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............................................................................43iii 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 ....................................................................................................51BEFORE 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 Ltd 1 (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 consistenc y 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 e nable 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 competitiv e 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, pr oviding 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 NewJoint 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 placeJoint 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 Applicant s 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 neitherJoint 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 conv enient, 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 inte rest 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 thisJoint 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 prom ote 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 besignificantly 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 a ttain 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 tr ans-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 t he 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 w ill 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 t hat 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 impo rtant 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 basi s 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, whic h 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 improvement s 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 jointJoint 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 addr ess this concern by engaging Compass Lexecon to examine the impact on prices and capacity as well as any potential competitive harm arising from the allianc e. 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 Americ a - 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 androbust 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 distincti on Delta (and its predecessor Northwest) held for fifteen years. Delta implemented its comple x, 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 forJoint 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 mec hanism 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 ei ther 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 fl ows beyond the United States to Canada and other third countries. The Joint Applicants her e will also serve Canada and Mexico beyond theJoint 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 Departm ent found that “the procompetitive effectsof global alliances can be particularly evident in the case of behind- and beyondgateway markets where many passengers now la ck convenient online service . . . theproposed 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 comprehensiveNorth 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 pl ayers 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. Mo reover, third-country bey ond 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 will ing 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 intoJoint 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 spectr um 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 A pplicants 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 theJoint 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 hi ghly integrated revenue management functionsJoint 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 co mpatible 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 handl ed 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 pass enger who would have paid a relatively high local fare the segment. If anything, the cl ass mapping system employed by V Australia on its sister short haul carriers over-weight s 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 systemJoint 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 Au stralia’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 ofJoint Response Page 29 selling options as illustrated in the itinerarie s 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 bey ond 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 decrem ent 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 interli ne 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 w hen 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 regu latory framework gov erning 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 CO NSISTENT 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 onJoint 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 employ ment 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 ofJoint 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 Page 39 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 sati sfaction of each government’s competition authorities. The Joint Applicants note that the Department has made significant stepsJoint 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 reciprocalaccess 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 limit ed 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 fromdecades 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 al liance 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 carrierJoint Response Page 42 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 wouldlike 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 av ailable, as the El Al example illustrates, even longstanding, well-formed arms-length code share partnerships are at risk from the conflict inherent in would-be partners operat ing 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-M adrid route. Notwithstanding the platformJoint Response Page 43 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 eachJoint 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. De lta’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 AustraliaJoint Response Page 45 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 resultJoint 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 absenc e 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 net work U.S.-Australia codesharing in the absence of a Joint Venture. However, the commer cial 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 ex pansive access to beyond/behind points on both sides of the Pacific. The establishment of a De lta/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 mo re 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 co mpatible systems and processes that will be in place prior to the effectiveness of i mmunity, will produce substantial and proximatepublic 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 improv ements. While antitrust immunity is not necessary to achieve every public benefit envis ioned 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 allianc e would create significant efficiencies and cost reductions. They provided estimates based on De lta’s extensive historic experience with other immunized partners, which is also consistent wi th the ranges estimated by the Star and oneworld carriers in similar proceedings. While the App licants believe those efficiencies are both real and attainable, they do not rely on this as a primar y 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 syst ems. 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 noJoint 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 Applic ants. Delta plans to cooperate on Virgin Blue flights, not Air New Zealand f lights, and the JV schedules w ill 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 sh uttle 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 approv ed 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 servic e which benefits the traveling public, as well as U.S. airline interests and aviation employees.Joint Response Page 51

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

# APPENDIXCERTIFICATE 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