MOTION

FOR LEAVE TO FILE AND 5UPPLEMENTAL

COMMENTS

OF HUBERT

HORAN AMERICAN

AIRLINES

BRITISH AIRWAYS-IBERIA-FINNAIR.ROYAL JORDANIAN JOINT APPLICATION

FOR ANTITRUST

IMMUNITY DOCKET

DOT,O5T-2008-0252 31 lanuary

2010

MOTION

FOR LEAVE TO FILE

On January

10'n, I filed public

comments

in re5ponse

to the Department

of Jurtice's

December

Comments.r The5e comment5

were tiled duringthe public comment

period established

by the Department's

order of 22 December.':

My romments

were filed via regulalions.gov and havebeenavailable to the Department and the public

aince 11 .January

2010.r My comments

were largely

tocused on the Joint

Applicants'claim that a grant of antitru5t immunity

would generate

$92 million in annual public benefits

due to lower fares in connecting

markets-the largest

and most important

economic

claim in thelr application. The Department

of Justice

took no position

on the legitimacy

of this claim,

but argued

that iJ any such
consumer

bene{its

existed, they couldbe largely achieved

without a grant of immunity. My comments challenged

the DOj position

that the possibility

of beneJitt

of thi5 magnitude

could be assumed

without analysis or other 5crutiny.

On 28 January,

while discossing

an unrelated

matter on a 5eparate case, a DOT stafJer informedme that my public

comments

had been rejected

by the Department,

and the evidence

I presented

about the public beneJit claimr would be totally ignored. This was be<ause

I had failed

to meet the requirements ot 14 CFR 30207 mandating

email or physical

distribution

to all parties

to the case,

and inclusion

of a signed "certificate

of servi(e"

stating that su(h distribution has o<curred.

Although

the Department

actively encourages

public commentg

via regulations.gov,

and there ir nothing in 14 CFR 302.07 specifically precluding

the use of docket

managernent

sy5tems uch as regulations.gov

as a means

of distributing

ca5e Jilings, I wa9 told that the Department interprets

14 CFR 302.07 to mean

that evidence

introduced

by tilings distributed

solely via regulations.gov

are wholly inadmissible. I had no knowledge

of this issue

prior to 28 lanuary,

ar the Department

had (and hat not provided me with any official

communication indicating

the deficienq or its intentlon to reject

the comments.

I havenot received

any informal communication

about any de{iciency

other than the "certi{icate o{ service"

issue.

I am filing this motion Jor leave to refile my original 10 January comments,

including

the missing certiJicate,

that will bring my filing into compliance with the Depafrment's intefpretation

oJ 14 CFR 302.07. TheJanuary

10'n comments

are completely

unchanged

from the version

that has

beenavailable

to the Department

and the public

since 11 lanuary.

I believe

the Department

lhould grant thi5 motion,a,

r The public

comments

are {ully consistent

with the reasons

the Department

estab ished the supplemental

commentDeriod

on 22 December

. The public

comments

provide objective

evidence

and substantive

analylis of one oI the most important

asDects o{ this case
r I had made a sincere, good-faith

effort to comply

with the Department's public comment

and filing requirements;

there is no reasonable way that a member

o{ the general

public wishing to file a public comment

on an imoortant

case such as this would havereajized

that the email

and certilicates

were mandatory

requirements;

when I initially

inquired

about making public

comments
on cases

such as this, staff at the DOT Dockets Office informed

me that I simply

had to follow the filing procedures

at regulations.gov,

and complete

the tiling within the designated public (omment period. which I have

done

DOT-OST-1008-0252-3i7.l I DOT Ordcr 1009-12 t6 ' Dor-osr-2008-0252,i379: There is no inJormation

at regulations.gov

r any DOT

website ;ndicating

that evidence introduced

viapublic

comments

would beautomati(ally

rejected unless the distribution

and certificate

requirements

hadbeen

met

. The public dockets on this and similar cates include many submissions

that do not include certifi(ates,

thus a reasonable

member ol the general

public would not assume

this is a mandatory

requrrement

. I have

made a sincere,

good faith effon to remedy

the distribution

and certificate

defi(iency

as soon
as I discovered

it was an issue, and would have done 3o 5ooner, had the Department

made me aware of the issue

sooner.

. The diltribution

and certificate

requirements

oI 14 CFR 302.07 rerve legitimate,

important

purposes, butthose

purposes will have

been met if this

motion is granted. Granting this leave to refile a{ler the end oJ the official

comment

period places no terious

disadvantage

on any party to this casel as the comments

have been fully available

for review

by all partier

gince 11 lanuary, and the Department

hadnever

issued anypublic

statement

disqualifying

them; the initial

omission of the certiJicate

and this motion {or late (re)filing is obvioLrsly

not attempt

to artificially

disadvan'tage other parties to this case, who largely

consist of large international

airlines, represented

bysome ol thetop aviation

counsel in Washington.

. Granting

this leave to retile after the end of the official

comment

period would be fully consistent

with all past actions taken by the Department

in thi5 case, including

the granting

of all prior

motions for leave to file late

comments

in its December

Order. In all of these

past de(ision5,

the Department

ha5 properly given higher priority to establishing

a complete

case record, and allowing all partiet

full opportunity

to review

and comment

on that re(ord,

than to producing

a less complete

decision on a tighter schedule.

r For many years. the Department

has actively encouraged

public input into regulatory

and administrative

decisions,

and was one of the pioneers

of the us€.Jriendly

internet-based

docket management

systems that have

evolved into regulations.gov.

Granting thi5 motion would indicate that the Department

places greater weight on the importance

ol public a(cest to and parti(ipation in its decision making, that it places

on any unintended

in(onvenience

caused to the airline3

and law firms that have

had aace5s to these oublic commentr

tince 11 lanuary, but had not received

a direct emailwith

these comments

until thie filing.

The batance of this filing consists of a verbatim

copy o{ my 10 january comments

and the certilicate

o{ servi(e. Following

an introduction

explaining

my background,

experience

andinterest

in this (ase, the aommentt

are divided into five sedions

A. RECENT

SUBMISSIONS

HAVE NOT ADDRESSED

THE IOINT APPLICANTS'

HIGHLY DEFICIENT

CLAIM OF $92 MILLION lN ANNUAL

PUBLIC BENEFITS

FROM CONNECTING

SERVICES

(pages 'l-6)

8,THE ORIGINAL

NORTH ATLANTIC

ALI.IANCES

OID CREATE 5IGNIFICANT

CONSUMER

WELFARE

BENEFITS BUT WELFARE

GAINS DUE TO ALLIANCE

PRICING WERE VERY NARROW

AND THESE WELFARE

EENEFITS WERE FULLY EXHAUSTED

BY THE LATE 905 (pages 7-9)

C. THE BRUECKNER

WHALEN

REGRESSIONS

FUNDAMENTALLY

MI5REPRESENT

THE HISTORICAL CONSUMER

PRICING BENEFITS

FROM ALLIANCE

ANTITRUST

IMMUNITY

(pages 10-11)

D. DOUELE

MAR6INALIZATION

DOES NOT EXIST, NEVER EXIsTED.

HAS ABSOLUTELY

NOTHING

TO DO WITH THE BENEFITS

OFIMMUNIZED

ALLIANCES.

AND ERUECKNER

AND WHALEN'S

THEORIES

AEOUT DOUBLE MARGINALIZATION

ARE NOT SUPPORTED

BY ANY DATA OR ANALYSIS

(pages 12'18)

E. THE jOINT APPLICANTS'

CLAIM5 OF J92 MITLION IN ANNUAL

PUBLIC BENEFITS

INCONNECT

MARKETS MU5T BE RE.IECTED.

IT NOTONLY FAILS

TO MEET

THE MINIMIMUM REOUIREMENTS OFTHE HORIZONTAL MERGER GUIDELINES,

BUT THE CLAIM 15 DEMONSTRABLY

FALSE. (paqes 19-20)SUPPLEMENTAL COMMENTS

OF HUEERT HORAN AMERICAN

AIRLINES-BRITISH

ARWAYS,IEERIA-FINNAIR-ROYAL,JORDANIAN JOINT APPLICATION

FOR ANTITRUST

IMMUNITY DOCKET DOT-O5T-2008-0252 8 January

2010
My name

is Hubert

Horan. I amJiling

these comments

in rerponse

to the Department

o{ Justice

filing at OOT-O5T-2008-0252-3374. There are supplementalto

comments

I originally

{iled on 15 October 2009 under DOT'OST-2008-0252-3362
Ouring my25 year aviation career I have done consulting

work with over

30airlines

andheld airline management

positions with Northwest,

Ameri(a West, Swirsair and Sabena- | have signilicant

experience in international

airline competition

and the actual

operation

and e(onomics

of airline

allian(es.

While at Northwesl

I was personally

responsible

Jor the original

development

of the KLM-Northwest

Alliance network and introdu<ed

the intense

hub-to-hub

operationt

that allowed

Northwest

to be(ome

the most profitable

US (arrier on the North

Atlantic, and established

the template

followed

by all ol the subsequent

alliance networks.

I spent four years at Swissair-sabena,

including

thetransition

of 5wigrair'r alliance from Delta

to American,

and thus have been involved in alliance

management

on both 5ides of theAtlantic.

I have not onlyhelped

build highly soccesstol

allian(es,

I have helped shLrt down highly unprofitable

ones, including

the intra European

QualiJlyer

alliance, and the domestic

alliance between Continental

and America Wert. Over theyears

I have written extensively

on airline

competition,

global airline consolidation,

and Open Skies treaty negotiations,

and I also

testified beJore Congress

on the Delta-Northwert

merger. I am ba5ed

in Phoenix,

Arizona. A Jull list of publicationr

and {urther biographical

information

is available

at my webgite, horanaviation.com.

I have no active

business or financia!

interests with any of the parties

to this case. and am only commenting

as a private aitizen concerned

about the issuet

raised bythis case.

A. RECENT

SUBMISSIONS

HAVE NOT ADDRESSED

THE .,OINT APPLICANTS'

HIGHLY DEFICIENT

CAIM OF '92 MILLION

IN ANNUAT

PUELIC BENEFITS

FROM CONNECTING

SERVICES

A1.DOT may not orant

the reouested

ltn1munity

without eviden(e.

meetingthe

standardt

oI lhe 4_otizontal

MetgelSldeljDcf \Latjng colt5q]I€LbclqfLts in no6lqp ald conneltitgiqarkets Elglilicantly

grealellbalelyjllt!!!:tqdneqd,Egmpetition in nonstoo or coli€qlilg markets

. Applicants

for antitrost

immunity

must prove that immuni'ty

"is neces9ary...to

achieve important public bene{it5"

that "cannot

beachieved

by reasonably

available

alternatives

thatarematerially iegs anticompetitive."'

Both the DOT and OOJ have recoqnized

that airline

antitrust immonity applications

such as this one would directly eliminate

competition

in the same

manner that a loll merger would and applicants

must prove that those

public benelits outweigh

the risk that it .ould harm competition

by increasing

the ability

or incentive

to raise price or reduce

output in any relevant market.2 The burden of prool for public

benefits rests withthe applicants,

and the Horizontal

MergerGurdelrrei

defines the evidentiary

standard5

that must be metl i "lthe applicantsl

must substantiate

efficiency

claims 50 that theAgency

can verify by rearonable

means the likelihood

andmagnitude

of each asserted efficiency,

how and when each would beachieved

(and any costs of doing so) how each would enhan(e the merged {irm't ability and incentive

to (ompete,

and why each

would be merger'specilic.

Efticiency (laims will not beconsidered

if they are vague or speculative

or otherwise

cannot be verified by reasonable

means"l

rl9 USC secrjons 41308.4ti09(b)

- f(J.ra Trcde

CornIri.'ion.

Deprnnrenr

of.lu.lir(. sccrions l.:. i.3. Feo(jral

I raOe ( ollllnl.rion. Depanmenl ol JU\lr((. Anlitrusl

(;uidelines

for Collaboraiions

Among Conrpelilors

(1000)

Horironldl

Meqer Guidelines

(1997) p.i I

### Horan

EAAA Supplemental

Comments

8 January

2010

r The Joint Applicants

have made four substantive

claims in support

of their request

for antitrust immunity:

(1) that immunity

would generate

$92 million in annual

public beneJits in thetorm of capacity driven price reductions

to North Atlantic parsengers

using conneding

services (2) that immunity

would generate

$45 million in annual

public benelits from increased

nonstop capacity added to hub-to

hub routess

(l) competition

would not be reduced

or eliminated

in the overlapping

nonstop markets served by the Applicants6,

and carve-outs

of nonstop

routes from any immunity

grant would reduce

consumer

benefits by i55 million?

(4) competition

would not be redu(ed or eliminated

in transatlantic

connecting

marketss,

- Other

alaim5 made bythe loint Applicants

(increased

convenience,

applicants

better able to compete)

are either derivative

claims (theimpa(t

of increased

(onvenience

and competition
are already rellected

in the quantified

public benelit claim5) or are not supported

by any of the typet of evidence

required by the Horizontal

Merger Guidelines.

A2. Previous

!$!im9ny has

already fully lelqlqdthe Joint

Applicao!!!ai!! tliqljlhCle i5 no rilLtq consum-erslrom

reduced OOIStqp competitioO

r The only veritiable

vidence

presented

bythe loint Applications in defense

of claim (3), that competition

in nonstop

markets would not be reduced

enough to increase

ability or incentive

to raiSe price or reduce

output, and that carve-outs

o{ nonstop

routet would harm (onsumers,

is in<luded theWillig/Lexecon

Compass affidavit.

That aJlidavit claimed that its regression

analysit demonstrated

that risks

from reduced

competition

were de minimit

because "there is no statistically significant

fare effect from reducing

the actual

number oJ carriers on a route

from two to one"and that "granting

antilrutt immunity

has no significant

effect on fares"

and "carving-out

Jrom antitruSt immunity

thefour oneworld

overlap routes would impose harm on (onsumers

equivalent to at Ieast

t55 million

annually"e

. Previous

testimony

ha5 already thoroughly

refrrted the Willig/Compass

Lexecon claims, the only evidence supportjng

the Joint

Appliaant5

competition

(laimt.

- My October

testimonyro

demonstrated

that the key

claims (allowing

two (ompetito6

on a route to (ollude

viaimmunity,

and that reducing

the number

of (ompetitors

on a route

from two to one did not atfed pricet,

were entirely based on a regression

that dad not correctly

<ount the number

of competitors

historically

servin9 a route. The regression

iput data explicitly assumed that immunized

partners, such as Northwest

and KLM

on Detroit-Amsterdam, were independent

price competitors,

and that results

linking price levels to the number

of competitors

on a route

were 'fundamentally

invalid since the independent

variables

were improperly

calculated

("rooter with 2 competitors"

were a mix of routes

with 2 actual competitors,

and routes

ruch as Detroit-Amsterdam

with 1 actualaompetito0. L The Department

of Justicet

December

submis5ionri

provided a much more exhaustive

attack on the methodological

problem5

in the Willig/Compass

Lexecon regressions,

and the DOI submitted

independent

regresrion

analysis demonstrating

serious risk5 that redoced (ompetition

on nonstop

routes would lead

to higher

prices. The DOJ regressions,

based on data reflecting

current market conditionr,

showed an average

150lo fare increase

when competition

on a route

was reduced lrom 2 to I, and

6%when

competition

was reduced {rom 3 to 2 carriers.

When the DOJ corrected

the statistical

flaws in the Willio/Comoars

' Joinl Applicatjon

( DO I-OST-1008-0152-0001

) p.7.:.1.

e\hibir JA-li, JA-19

(thc Brarle aftidavir).

Allrefercn(cs

k) docket materials in thissubmi\\ions

rclcr to public

vcrsfuns : pa-qinalion

nra)yary sli-qhtl) liom conlidcnrial

!ersions ' Joint Application

op.cii.. Joinr Applicanrs

Consolidalcd

Rcply (DOT-OST,2008-0252-il lJ) p.19. " Jo int A pplication

p. I5 -,1 I

. Joint App licants Supplemenral

Con m€nts

( DOT-OST-1008-015l-i 35 7 ) p.l-g. n\h ib

it | ( rlre willigLerecon

Compass amdavn) loint Application

p.4l-57. SupplementalConrments p.1 l- 19. the W'llig,'Le)iecon

Conrpas affida!it ' Joint Application

p. 4l'57. Suppl€mental

Conlrncnrs

p.4-9 'Willi9Lexecon

Compass amdayil p.6. 13, 18.22 ' Hnran commenrs.

DO r-O5T-'008

025:-iJo: I Depanmcnt

ofJustice

commenrs.

DOT-OST-2008-0252-337,1, appendi\ A and BHoran

BAAA Supplemental

Comments

8 January

2010 l

Lexecon regressions,

results upported

the DOI findings of (onsumer

risks, andno longer supported

theJoint Appli(ants'claims.

The DOJ rubmission

alropresented

HerfindahlHirgchman

Idex ("HHl") measures

o{ competition

showing that these

nonstop markets are afready highlyconcentrated,

and that under

the Horizontal

MergerGuidellne5

further reductions

in (ompetition

(ouldbe presumed

to create

additional

market power.

: The Joint Applicantr'

claim that immunity

would lead to increased

capacity in the5e market5 does not meet Horhortal Meryer Guidelines standards

as it is purely

speculative

(the loint Applicants

say they would look

seriously at capacity

increases

but have made no commitments),

butthe DOJ

submis5ion

reluted the counter

argument

that added

hub-to-hub {lights would mitigate pricing risks since any added capacity wouldbededicated

to connecting

markets.r:

More importantly,

the OOJ submi55ion

rpeci{ically

identifies

the huge barriers to potential

fulure entry in theJe markets, an issue that is critical to any evaluation under lhe Horizontal Merger Guidelines.

A3. Tlc JajrtABpljlal$llg? million Public Bene{it claiDs are lhqllrqest and most ilnpolt?IllLaim in thgi! appli(ation.

but neilherthe 0epartmed gl l!!lr!€!c.omr!e!l!! lqr other recent submissig]1sjropel]y addressed

the deficiencies

in this claims

. The OOT cannot accept theJoint Applicant's

claim o{ t92 million

in annual

public benefits in connecting

markets without

. proper,

verifiable,

non-speculative

evidence supporting

the specific

eflicien<y

benetits thatthe lointAppli(ants

claim will becreated

it immunity

is granted ! proper,

v€ri{iable,

non-speculative

evidence supporting

thatthese

gpecific consumer

beneJits are highly likely to beachieved

inthe Applicants'

markets under current market conditions

: clear evidence that the (laimed

public benefits could not beaahieved

by reasonably

available allernativer

that are materially

less anticompetitive

. The Department

of Justice's

comments

did not directly

address the loint Applicantl

claim that ;mmunity

would create $92 million in publi( benefits, but argued

more narrowly that these

benefits (ouldbe achieved

without immunityrl

r The Joint Applicant's

claim that immunity

will generate

$92 million in annual

beneJits in connecting markets is entirely based on two theoreti(ai

arsumptions j Attumption

1--lnterline

fares on carrie15

with antitrust

immunity

are a[vays lower than interline

or code5hare

fares on carriers

that do not hav€

antitrust immunity

because carrierr without immunity

are alt rey! stru(turally

bound to the higher

costs of "double

marginalization"

(i.e. successive

markupt.

This structural

efficiency

advantage

would beobserved

in any market and occurs independently

ot any other factors (supply/demand,

competition,

etc.). E Assumption

2-lntroducing

antitrust immunity

to existing

itineraries

operated

on a non immunized

codesharing

ba5is would lead

directly to {are reductions

of 17.450lo;

this magnitude

of fare reduction

would occur in any market, independent

of any other factors. These price redu<tions

can beassumed

even in markets

where there is no eviden<e

than non immunized

pasrengers

(urrently

pay higher fares than passengers

traveling

on online

or immunized

allian(e services. These farereductions

would stimulate

new tralli( growth

based
on a price

elasticity measure ot -1.7. d

r The S92 million in annual

publi( benefits is calculated

by applying

the 17.45%

pri(e reduction

to all AA-BA,/AA-lB

interline pa5sengers

identitied

in the 2007

DB IA data, and further increasing

'' The Joint Applicalion

sho$\ (Supplenrenral

Conrmenrs

p.5) lhar rhe Dallas-Irr.Wonh-l-ondon ma.ker alrcad! has 8 Iinres
asnranv sents as rcquired

lo serve the localmarket '' DeDanmeni

ofhrstice

commcnrs.

D. l2-:9 '' BraBle allldavit p l. 5-8: also restared in Joint Applicanrs

Consolidatcd

Reply -.tsratllc Group repl] lo Frontier Econonrici

. Brattle would have applied largcr (22%) pfice reduction

in non-codesharing

interline cascs. butthese could
nor be identified

in the DB IA data.

so dre morc conscrvar ive I 7.4 5%facLor

was applicd to al1 coupons.Horan

BAAA Supplemental

Comments

8 lanuary

2010
traffic based on the pri(e

elasti(ity lactor. These welfare gainr are (laimed to be "annual"-- ongoing andpermanent;

and would never

beeroded

or competed

away by the marketplacer The sole ba5i5 {orthese two asrumptions

are theoretical

arguments

made in pape.s

published

by .J.K. Brueckner

in 2oo3 and W.T, Whalen in 2007, derived from a single jointly-authored

2000 paperrt. The later papers updated regression

analysis from the original

paper but made

no significant change5 to the original

theoretical

arguments

or conclusions. t This comment

will argue

thatthe DoTmust

completely

reject heJoint

Applicants'

claim of $92 million in publi( benefit5 in connecting

markets as it not only

tails to meet the evidentiary

standards

o{ the Hotizontal

Metger Guidelines

but is demonstratively

false. The Joint Applicants'

claims totally rely
on the Brueckner

and Whalen

theoretical

arguments;

if those argumenltmeetthe Hoaizontal Meryer Guidelines

standards,

then the DOT

should affirm the .loint

Appli(ant!' public benelits claim. ff those arguments

do not meetthe Horizonta I Meryer Guidelines

standards,

then the DOT

should reject he.loint

Applicants'

claim. A5 a result, this comment

will: E Detcribe

the Brueckner^vhalen

aalysis and arguments

from their published

papers, including theirregression

analysis of (largely)

North Atlantic data {rom the 1990s,

following

the introduction

oJ the originel

immunized

allian(es

- Des(ribe

the actual

North Atlanti( competitive

environment

o{ the 1990s

and the actual competitive

and efficien(y

advantage5

ot the original

immunized

alliance5,

based on DOT data andmarket

studies, but also based on my experience

as one of the key

people responsible

for the development

of the original

KLM-Northwest

alliance network,

my sub5equent

srategi( and network

alliance work at Swis5air

and other carriers, and olher wo* throughout

my25 year career directly relevant to the competitive

is5ue5 raised bythi! cate, including

hub network

development,

merger' and consolidation,

and revenoe

management. ! Evaluate

Brueckner

and whalen's

statistical

nalysis, which i5 used to estimate

the loint Applicant's

projected

public benefits, and their theoretical

arguments

about "double marginalization",

which are centralto

the loint Applicants'

claim.

r lt must

beemphasized

that, while the5e comments

will focus

heavily on the Brueckner/Whalen theories and papers,

the issue at hand is claims made bythe Joint

Applicanls,

not by Brue<kner

or Whalen personally,

neither of whomhas

submitted

testimony

in this case.

&Lfhe "Economics

Literatore"

s!1pp!rting

the claim

tbat imnldzf! aLrllre

alli- ncet-gcM:ate

consumer beneltlllarull15al? 5in9le joir!!!:a!!halellpaper, plullwqjlqllow-up-lapers by the same authaEthat uldated r€gre55ip!5trylIbqut changingLtbc_qdg_ilcl

argoments

or cgn(lusieE

r The "economic

literature"

on the price

effe<ts ot international

alliances contitt5 of one journal article published

by Erueckner

and Whalen in 2000'0,

and reveral follow'up

pieces bythe same

authors oltering minor updates on the original

paper. That original paper outlined the malerial

that was repeated,

with minor

moditications,

in all subsequent

papers, including L- A statement

of the general

hypothesis

thatthe "cooperative

pricing" lowers airtares in connecting

markets; each paper specifically

noted that (onsumer

benefits from lower

airfares in these coonect markets could be o{fset

by reduced

aompetition

in hub-to-hub

nonstop markets, and thatthe analysis

in the paperl

was fo(used on connect

market impad5, and was not intended

as an evaluation

of the overall

wellare impacts of alliances

. A description

of the authors'

behavioral

theories about how interline

prices are set in alliance andnon-allian<e

situations,

which underlay the authors'

asslrmptions

ot stru<tural

barriers to efficient non-allian(e

pri(ing, causing cooperative

alliance interline fares to always

be lower than non-cooperative

interline fares

'' Jan K. Rrueckner.

curently on ihe [conomics lirculty nr rhe Uni!ersir)-

ofCalilbmia-lr!ine

and w. l om whalen.

currenr ll $ ilh the

Anritrust D i\ is ion of l hc Depannrenr

of J usricc. Borh $ ere ar thc lJ 0 iversit) of I llinois-UrbanaChampaign

ar the rime ofthe oricjnalpaper '" Brueckner.

J. K. and Whalen. W. T.. (1000).

"l he Price

Ellect5 of Internalional

Airline Alliances

. /,r'e Journdl t)l Ld| dnl Ecor.,ni.s

\13 n2. p.503

### Horan

BAAA Supplemental

Comments

8 January

2010

I A discussion

of the authors'

mathematical

models of how interline

carrierr, alliance andnonalliance, maximized

the ditterence

between marginal

revenue andmarginalrosts,

whi(h were then applied to a 5impliJled

(4 to 8 leg) airline network where there economies

oJnetwork density and either positive or constant

scale economies.

Since it was assumed thatthe structural

barriers inherent in non-alliance

pricing imposed an efficiency

penalty that immunized

airlines did not fa(e,

solving these equations

(not surpri5ingly)

demonstrated

that non-alliance

interlining

was always less profitable

than alliance interlining

r A discu55ion

oJ the OOT DBlA data and the regression

results, which contirmed

the general hypothesis

that alliance

interline fares were materially

lower than non-alliance

interline fares.

. None

of Erueckner

or Whalen's

follow-up

papers made any signi{i(ant

changes to the approach

or conclutions

of the 2000

paper, and should not beseen

as separate trom the original

analysis

: Brue(kner-Whalen

(2000) also attempted

to estimate

the net welfare impact oJ a Britirh Airways American

Airlines immunized

alliance. Thit was calculated

by applying

the regression alliance coefficients

o all BA-AA

interline traffi(, and applying the average

price detriment irom those

regressions

due to reduced

competition

to traffi<

on BA-AA

hub-to-hub

flighls. The welfare losses lrom reduced

hub-to-hub

competition

eliminated

almost most gains in connection

marketg, although

the exact

radeoff depended

on price elastiaity arsumptioni.
n Brueckner

(2001)r7 did not undertake

any regression

analysis, but fleshed

out the behavior pri(ing theories andmathematical

profit maximization

model a bjt. The paper introduced

the terms "double maximization"

and "negative

externalities"

as descriptors

Jor the alleged structural

inability of non alliance

(arriers to optimize

interline revenues.
: Brueckner

(2003a)13 was thefirst paper to recognize

multiple levels of alliance

codesharing,

and updated the original

Brueckner-Whalen

(2000) regressions

using 1999 data, which separately identjtied

the "marketing"

and operating

carriers. The results indicated

greater price reductionr

for alliances

with antitrust

immunity

than {or coderharing

within alliances that did not have antitrust immunitv.

._ 8rue(kner

(2003b)re

5ummarized

Brueckner

(2OO3a) results for a more

general audience,

and estimated

the benefit

oJ Star Allian(e coderharing

in connecting

markett. Like the eadier

8AAA analysis,

this involved a gimple application

of regression

coefficients

repfegenting

"pri(e benefits of allian(et

in (onnecting

markets"

to all Star

Alliance connecting

traffic. Brueckner did not attempt

to weigh

the conneding

market benefits (roughly $80 million) against detrimentt

from lost

competition

in overlap

markets, but a<knowledged

thete exirted.

: Whalen

(2007)'?o briefly 5ummarized

Erueckner'r

general hypothesis

and theories of pricing behavior,

andpresented

new reg.essions

using 11 year panel data in5tead of <ross-section data lrom a single

quarter as the input

to his regression.

Panel data minimizes

errorr or false correlations

in cross sectlon analysis that are due to Jactors

such as length oJhaul or local route characteri5ti(t,

although

panel data (an introduce

problems

due to temporal

factors. Whalen also extended

the databa5e

to include

online connecting

trip5. His results confirmed the general

hypothesis

butJound

smaller price dilference5

than Brueckner's

cross-section analysis. A separate

analysis found that the existence

of an "Open

5kies" treaty war actually correlated

with higher

average connecting

tares than found in non-"Open

Skies" markets.

l'Bruccfncr.J.K..(100l). rhe Econonricsol

lnrernarionnl(ixtcsharing: AI An{l)sis

olAirlirrc

Alliance\"-

lnnratunndl .hto\tu .l Inlxsttul 0 gdrilltitrl )19. p.l 17J '' BrueckDef.

J. K.. (2001a). -lnternational

Airt-arcs in thc Agc ofAlliancesi

The Effecls ol Codesharing

and Antilrust InrmLrnit)

. nd/A .y'

tr{ rrr,tit s un.l Stutisti(\ \85 nl. p105.

l he papef cires Whalen as anuncrcdired

co-author.

and was aclually conrplcred

in2001. '' Brueckncr.

J. K.. (1003b). l he Bene llls o l Codesharinq

and A nritrust lmnr un ir) for lniernal

iona l Passen gcls. N ith an Application

to rhe Slar Alliarce .JouttldloJ

.1n Trdnspoft

lktndg4neht

\9 \7. paa ' Whalen. W. T.. (200?)

_A Panel

Data Anallsis ofCode Sharing. Antirrusl nltrunil) and

Open Skics Trearies in Internar ionr l A! iar ion Markels

. Rdk,r' d r?.rr

l1|i al O\ldni.at

ion \i0 2007:

ntost anal) s i! was conducled

) ears bc lbre and earlier worliing papcr vcrsions included Whalen. W. T.. (:001) Corslrained CoDtracring

and Quasi-Mergers:

Price Eftbcts ofCodcsharing

and Antitrusr lmmunit)in Inremational A;linc Alliancei and Whalen. W. T.. (1005)

-A Panel Data Anallsis ofCode Sharjng.

Antitrust lmmunir]

and Open Skies lrcaries in Inremational

Aviarion Markets'Horan

BAAA Supplemental

Comment5

8 January

2010

r All quantitative

evidence

of alliance

pricing benefit5

quoted in these

antitrust

immunity

cases are baged on two regression5

of data from the 19909-8rueckner's cross-section

analysis of 1999 data, and Whalen's

panel 1990-2000

data. These (and the original

2000regre55ion5

that were superseded the 200J

work) are summdflzed rn the table below publication data used in regression author's key findings

about price differences

based on reqressions Brueckner-Whalen 2000 3Q97 (cross section) international

intedine connect trips in DB 1A 45,520 trlps in 16,765 0&Ds alliance vs. non alliance

interline 24% total database 15olo total U5 behind

gateway 1 5-1 8% Tran5atlantic+Central America
(8%) US-5outh

Pacific 0% US south America/North asia 

### Brueckner-2003 3Q99 (cross section) international

interline connect trips in DB 1A 54,687 trips in 17,518 0&Ds ATI v5 non alliance interline 17-31olo totaldatabase 21-2lolo Transatlantic 22Yo total uSbehind gateway non-ATl codeshare

vsinterline 7-10% totaldatabase 7-9% Transatlantic 5% total u5 behind

qatewav Whalen 2007 11

year panel data 1990-2000

(3Q each) all U5-Europe

connect trips in DBl A; 120.758 couoons 17-23% online vs nonalliance

interline 17-20olo ATlv! non

alliance interline 6-9% non-ATl

codeghare

vsinterline (3%) open Skies

vs. non-open

Skies

Brueckner,

the primary

author, has been a paid advocate

tor United

Airlines and the Star alliance throughout

the period

when these pieces have been published'?l,

and in addition

to the Brueckner (2003b) paper estimating

star Alliance consumer

benefits, has presented

testimony

on behalf

of the Star Alliance in the re(ent

antitrust immunjty

(ases." It should be noted whilehe has

consistently

claimed that immunity

generates

sizeable <onsumer benefits, each of Brueckner's

papers also rais€d some concerng about possible consumer

detriments when competition

is reduced

in overlapping

markets, andBrueckner

has argued thatthe merger

of the previously

independent

KLM-Northwert

and Delta'Air

France groups into a single

entity was anti-competitive.

Thus while Brueckner's

published

opinions are extremely

consistent

with the public positions of United

Airlines and the Star Alliance, they arenot necessarily

consistent

with the positions oJ other parties advocating

international

airline consolidation. Brueckner's

papers can and should be evaluated

on their own merits.

Nonetheless,

there is no basis Jor the claim

by the loint Applicants

and other consolidation

advocates

for the claim

that alliance
consumer

benefits have been welldocumented

by an independent

"economic

literature"'zr-

The entire basis fo. the claim

conskts of one article plus statistical

updates, and the principal

author
serves as a paid advocate

for United

Airlines and the Star Alliance. They should not beevaluated any differently

than the Brattle

affidavit in the current

cale (written by paid advocates

{or Ameri.an Airlines), or similar

paid testimony

in other cases.

' Moonnan.

R. (2000) United

Turns io Acadenics

ro Show Alliances

Aid Consumers

..1rtr.n,? J,'cek

d,/.Spd.. Terhnoh{ \153 nll2 Ocrobcr 2000 p. 56 Bruecknef

s paid advocacy

rolc was not disclosed

ir an} ofthese

papors. " for e\ample

"An Evaluarior

ofthe Skyream-wings

Antirrusr Immunit_v

Applicarion"

submitled

in docker DoT-oS I2004-1921.1and

"An Evaluation

ofihe Latest

Srar Alliance Applicarion

for Antihrst Inmunit,""

submiued

in dockel DO I OST1005-22912.

Since the AA-BA analysis

in Brueckner-whalen

(2000), Whalen has not published

anv conrments

about any specific nrerger. consolidatioD

or antitrust

immunity

proposal. " The Bmftle

affidavit makes rhe "has bccn wcll documented

in thc economic

literature"

point ar p.L Anolhcf

piccc wrilten by paid advocat€s

fof Amc can

Airlines c laimed: "vituall] e\ery

peer-re! icwcd academ ic study of immun;7ed intematioDal

liances has concluded

rhat. as a resulr ofeliminaring

caffiers' incentjves

10 impose successive

nurkups on larcs lor connecting

tickets (rhe so called 'double

marginalizaiion

problem).

allianccs have led lo lower

firres and expanded

outpuf. Kasper

and Lee. -why Aniitrusr

Inrmunit]

Beneiits ConsurneN"

CCP Anritrusr Joumal. Sep. 1009r

### Horan

BArM Supplemental

Comments

8 January

2010 7

B. THE ORIGINAL

NORTH ATLANTIC

AILIANCE5

DIDCREATE

SIGNIFICANT

CONSUMER

WELFARE

SENEFIT5 BUTWELFARE

GAINS DUE TO ALLIANCE

PRICING WERE VERY NARROW

ANDTHESE

WELFARE

B€NEFITs WERE FULLY EXHAUSTED

BY THE LATE 905

r The consumer

benefits

of the original

North Atlanticimmunized alliances

(KLM Northwest

in 1992, Delta-Swissair-Sabena in 1995, United-Lufthansa-SAS in 1997) were driven by an efficiency enhancing

network innovation-the use of codesharing

and joint scheduling

and pricing

to create "quasi online" service

in a specifi(

(ategory

of double (onned O&Ds that prior to 1992

had qdy been ,erved

on interline

services Prior to alliances

70% of transatlanlic

demand hadnonstop

or trueonline

connecting

service via

one of the many

large network hubs, and these online carriers offered good schedules

and a full range

of discount

fares; the other

30% oJ the market

were required to ute interline rervices whereconne(tions

were often poor,and discount fares were more limited;

the original alliances extended

the schedule

andpricing

beneJits that had alway5 been enioyed by passengers

in 'l stop (onnect markets to parsengers

in the 2-ttop

double connect markets The table below summarizes

the competitive

situation ot the 19905;

(ertain carriert focused on the (ategory

(1) large nonstop O&Ds eerving the largest

marketr (London,

New York, Chicago); these nonstop services also provided capacity serving the category

(2) l-stop markets beyond their hubs; the new alliances had competitive

advantage

in the category

(3) double connect markets where the non-aligned

carriers could not aompete

and the only alternative

was interline connections,

butthey al5o carried signilicant

tra{Iic in (ategory

(2) l-5top markets Mid 1990s

Carrier Competitive

Advantage by North Atlantic Market Category o/o of total Trans-Atlantic market in these O&D5 in 1995 Didlarge

non-aligned carriers (BA, CO,AA) have Competitive Advantaoe? Didlarge immunized

alliance5 (KL-NW 5R-DL) have Competitive Advantaoe? (t) Nonitop O&D' <9areway-gareway> 

### 30vo MAJOR ADVANTAGE-maior share of large nonttop O&Ds NOUNCOMPETITIVE

(2) Online 1-*op O&Ot not terved by nonstops <beyond

uS-gateway

EU> <aatewav

US-bevond

EU> 40% Could compete

but no carrier had strong Could compete but
no carrier

had strong advantage
(3) Double Connect O&D3 with no online

service <bevond

US- bevond EIJ> 3Oo/o NOUI{COMPETITIVE MAJOR ADVANTAG€-only

interline

service The conrumer

pricino benefits oJ the new alliances

was significant

b!it was strictly limited to the price reductions

achieved

in category

(3) markets-the

difference

between

interline prices and "online" allian<e pricer in these spe(i{i( O&D5 that hadbeen

exclu5ively

terved on an interline

basis

c The new allian<es

erved a significant

amountof category

(2) traffi(, but these

passengers

in these markets already had online pricing, and thus the new alliances did not create

anynew pricjl|g benefitt for these

passengers;

the overall

groMh of these

allian(es would seriously overttate

the sjze of thetrue pricing

benetits Allian(e pricing benefits were only a small part of the overall

consumer

benefits realized as a result oJ innovation

and increased

competition

on the North

Atlantic; evidence of consum€r

benefits (sustainable

lowerfares/increased

service due to improved

industry efficiency)

ir not always evidence of alliance

benelits or prjcing

benefjtg

r Consumert

benefited

whenever

profitable

new capacity added, as this groMh put downward pressure on fares;

most of this capacity growth of the 909

was due to favorable

overall industry supply/conditions

and was not alliance

related. The graph below shows thal seat capacity groMh during

the 90s on the North

Atlantic (where allian(es and codesharing

were strong) tra(ks very closely

to seat capacity growth on the North Pacific (where there was noHOran BAAA Supplementa

Comments

8 January

2010 5

antitrust immunity

and codesharing

was extremely

rare); while alllance factors rnay explain the siightly

{a!ter growth on theAtlantic,

it is clear that capacity

growth war {undamentally driven by underlylng

market conditions,

and those conditions

explain a large portion of the pricing changes observed

in the regressrons.

p.city Growth-IransAtlantlc v3 transpacili. r99O-2ix)O (nlllion. of oheway
rears DoT

Tt00 data)

-r Consumer

we fare was gigniflcantly increased

by other non pricing

factors inc uding increased market liberalization, the originalOpen

Skles treatle5,

the growth of network hubsin the U5 (resLrlting

from deregulation-based changes

in the 80t, major improvement5 ln European carrier euiciency

(including

the privatization

of British

Airways,

and the (onsolidation of the Air France-UTA-Air

Inter hub in Parit, major improvements in distribution

and other intormation

technologie5,

and the widespread

introduction

of 767 and Al30 air(raft that made it possible

to operate

a much wider range

of transatlantic

llight! profitab

y, and declining

fuel prices.

The "quari-online"

alliance network innovatlon

was on€ of the beneflts of increased

transatlantic

competitlon,

but it was a small

part of the overall

picture
The ability

of the new alliances

to generate

significant

consumer

benefits

depended

on the <onvergence

of three critical

factors Aggressive

market-oriented,

pro-competitive

policies in both Warhington

and Brussels, includinq

the Department

of State's

effortsuse

of ultra-liberal

Open 5kie5

treaties with countries

likethe Netherlands

and Switzerland

to encourage

less llberal countries

like Germany

and France

to remove

traditional

barriers to open entryand marketpricing

. The arge,

untapped,

Category

(3)double-connect

marketopportunity;

priorto KLM Northwest,

no one had recognized the size of this segment

(individual

O&Os were extremely

small and highly fragmented);

given the traffic potential,

dornination

of this niche

became the central focus of the KLM-Northwest's alliance.'?i

The allian(e's

network coverage

created signifi(ant marketing

and di5tribution

efficien(ies,

including

strongmarket

awareness

in every US and European

"beyondgateway" market that KLM-Northwest

off€red a full range

of flightsat competitive

practices

to every

significant

ransatlantic

destinatlon.

The success

of KLM

' I sas prrsonalh

responsible

tbr e\nrnding

allianc. hub-ro-lnrb

Uighrs lionr I ro 10.

{ll 7.17s nnd DC l0s.nllor'$hich \\ere highl) prolltrblc.

a\ part ol a cd scious

sr'are!\ ro e\ploit

the alliance s llrsr-n)o!er

!d!anlage

and esubli\h

a dominant

position in thi\ nich..

Th,.j l,rtcf Deltn'SwissaiFS

b.nr and Lulihania

t;nircd 0lliancc\

lbllo$ed

rhis c\Lrcl ncr\!ork terrrp lle. and rendcrcd

No|'lh Atlanlic interline service llnost completel!

obnrlete.Horan

BAAA 5upplemental

Comments

8 January

2010

Northwest

and the other alliances in developing

this category several DOT studies at the end of the decade.:!

. The coincidental

strongly

favorable

supply/demand

conditions

that made

capacity

growth profitable;

the alJiances'development of secondary

connect

market5 would havebeen significantly

riskier in an environment

with low demand

growth and overcapacity.

r These

incremental

consLrmer

benefits were fully exhausted by the end of the 90s; the allian(es remained

(ompetitive,

but were not introducing new efficiencies

or reducing

prices ln any rnarkets

: ,A5 in any competitive

market, the introduction

of new efficiency

enhanclng

innovation

spurs
some competitors

to match

the efficiency

gains (viaadditional

alliances

or expanded

direct services)

and forces

other capacity

out of the market,

and interline

rervice had become

totally irrelevant

on the North Atlantic by 1999'?6.

Alliances

only create

pricing benefits to the extent they introduc€

online pricing

to a market previously only served

by high fare interline servi(es

. The category

(3) doubl€ connect

niche that drove

all alliance

pricing benefits

also shrank dramalically

with the major expansion of new nonstops,

whichshifted

most category

(3) O&De into online 1 stop category (2)O&D5;

rnany citiet 5uch

as SLC, CLE, PDX, MEM, BCN,

VCE, BHX received

nonstop

transatlantic

serv ce for the first tirne,

as did rnajor

destinalions

in Indla, the Middle Eatt

and Afri(a that had previo(]5ly required

connections

via European

hubs Allian(es

are not generating

any incrementalconsumer benejits

in the low/negative

qrowth environment

oJthe last

decade; transatlantic

demand

growth and profitability was halted by overexpansion

in the late 90!, as(arriers assumed

growth drivenby the one time early-90s innovations

and the dot-com

bubble would be sustainable; capacity

and traffic hae

only barely returned

to peak 90s levels, and mu(h oJthi5 may havebeenartifi(ially supported

by the recent

financial

bubble. (3) niche was documented

by

CrpaclB| Growth.TranrAtl.nti< v5 Transp.cillc 199O-20Oa (mllllons of on€way re.ts DOT TlO0 d.ia)

'US l)c|rnrlrcnt

ol Trnnspornrion.

olfcc ofthc Secrcl.rr\. ( l()99) lDtemari(nrirl

,^\iirriofl)c!elopnrenl\ (ilobLrl l)e.egulflionlnkesOitUSDeprnnrenrolTransportation.OfilccoflhcSccrerar).(10001.-TransathnlicD.rcgulirlion The Alliarclj Ncl\\ork h flcca- r"\\hilerrmrlcrscotcrinsi0ooolknnldenrand$ereonl)sd\cdb\inrerlineser\ic.striorro1991.inrerlinerrrt\

accounled

ii)l -l(f.l50o

oftolal Nonh rhn(ic rra\el. since $rre lr$cngers in car.gof) : nrarkers

usrd inlcrlirrL

irstcdd of a!ailablc

onlinc rnrrkets. The Deplnrnenr

ol Justicc

r recenl a al)5is ol l008 con[eclin-q

travel sho$ed (nr]\ 1", ofrh. cotrpons

irl ir\ sflnple

$ere inrerline

trips. \uggcsting

rhat inrerline n!!cl probabl)

accounrs

lbr less tharr :!ro ol lhe total Norlh Atlanlrc.

See Depnrlment

olJuslice.

( {rnnrenLs

on thc ShoN

Cause Order. DO l-( )S

I-1008-0li+'0llr). f.lq'51Horan

BAAA Supplemental

Comments

8 January

20 10 l0
C. THE BRUECKNER.WHALEN

REGRESSION5

FUNDAMENTALLY

MISREPRESENT

THE HISIORICAL CONSUMER

PRICING BENEFITS

FROM ALLIANCE

ANTITRU5T

IMMUNITY

C1. Almost all of the orice

reductions

the authors

attribote to "coooglative

alliance interline olicing" <!! be better explained

by improued upplylclcnlld (onditions artdother chanoes

in the marketplalc

r B.ueckner

claims that antitrust

immunity

reduces fare5 by 17 to 30% and that his paper "measures

the separate impacts of (odesharing

and antitrust immunity

on theJares

charged {or interline

trip5".17 He attributes

all of the observed

alliance beneJits to pricing,

specifically

"the cooperative

pri(in9 of trips bythe partners

puts downward

pressure on fares in the interline

city pair markets."'?3

None oI these papert are attempting

to measure

the overall

benelits created by alliance

xpansion,

they are spe(ifically

attempting

to measure

alliance pricing benefits.

While there is no quettion

that
consumers

benefited

from lower

fares in transatlantic

markets in the 1990s,

and thete regressions thowa (lear

correlation

between

"alliance prerence"

and "lower

lares" in connecting

markets, there is nothing

in the data

or analysis

presented

in these papers justifying

the claim

that "cooperative

alliance interljne pricing" behavior was the sole and ex(lusive

cause oJprice shilts of this magnitude.

This is an unsubstantiated

theoretical

argument

based on claims

of structLrral "double marginalization"

barriers to elficient

non-alliance

pricing that will be discussed

in 5ection

D, botthe regressions

provide absolutely

no empirical

data supporting

thetheoretical

causation

claim. I The actual primary driver of the observed

pricing changes was the highly

{avorable

supply/demand and competitive

conditions

of the mid and late

90s- As shown inthe graphs

in the previous

section, transatlanti.

(apacity grew rapidly

during this period (7.4% CAGR 1990-97,4.9Vo

aAGR 1990-2000'z) with overall

strong growth in international

trade and travel. some of this occurred

in the hub-tohub routes

serving alliance (onnect markets, butthe huge

increaset

in nonstop

and trueonline connect servi(es would have had a much bigger impact on market

price leveb than the increased connecting

!eruice in markets

that hadno online

service.
r At noted

earlier, there were other important

non'alliance

{acto15 thatalso contributed

to the observed

price (hange5, including

pricing liberalization

i Europe,

carrier efficiency

(the expansion of hubt terving jnter(ontinental

tlights, marketing

and distribution

te(hnology

9ains, 757 and A330 aircraft efficienciet.

and declining

tuel prices.

C2. TheJegle$jon

analvsis seriously overstated

the correlatign

attributed

to "(oooerative

allian(e interline pricing" byfailing

to reslrict

inpqt data to the marketst41belefhelqpricing benefits would have actuallv o(aurred

I Alliance

connecting

fares were in factlower

than pre'alliance

interline fares, and alliance xpansion did create

legitimate

consumer

benefitr, but Brueckner

and whalen seriously overstate

this benefit by defining

their data sets in a manner

inconsistent

with their

own pricing

hypotheges

and inconsistent

withthe actual

dynami(s

oJ these markets. As discussed

in section

B, alliance pricing benefitt only occurred

in category

(3) double'aonnect

markets that had onlybeen

served on an interline basis, and did not occur

when alliances served category (2) connect markett hat already had online service andprices.

All of Brueckner

and Whalen's

papers expliaitly

assume thatthe "online" pricing the existed

in category

(2) markets prior to alliances

was fullyefficient.

But their regre5sions

overstate

the beneJit

becau5e the data in(ludes

a very large number

ol category

(2) connect markets.r0

Category

(2) is the most

competitive

category of markets

on the North Atlantic since they (an beserved

by every network carrier and all three alliances-11

But "allian<e

price levels"

- Brueckner

(l00ia ) p. | 05.Whalen

(2007) mak.c thc nafio\ler.

nrore appropriate

c laim\ rhat

.-alliances

arelbuftl to hnle significantl)

lo$er prices or "are

associated

wiih' price

benelits p.39. " Brueckncr

(200l) p.1.175 '' DOTT-100

sear capacilv dala '"-fhe rcgressions

exclude carcso!- (2) haffic

originaling l tJS

gatcwar- cities served by Etrropcan

caffier nonstops (due to inhcrcnt limilalions

in the DBIA data).

but includc allothcr catcgory (2) one-stop markets '' Calegory

3 markels

can only bc scNed

by the three allianccs. and calegory I market compcliLion

is a tirnction

ofthc numbcr ol caniers

that choosc lo operate

nonstops.

### Horan

BAAA Supplemental

Comments

8 January

2010 ll
in the regressions

arebeing

measured

by the prices

in a combination

of category

(2) and(3) markels, while they should have been measured

solely based on the (higher)

category (3) observationr.
r lnterline

fares were alsonot properly

restricted

to category

(3) marketr,

and "interline

tares"were not defined in a way to show the actual

pricing impacts. Most (if not nearly

all) the interline

(oupons in Erueckner't

1999 sample were incidental

trips representing

a tiny fraction of total demand in each O&D and wholly unrepresentative

of any "market"

price points. In 1999 almost every North Atlantic O&D would have had actual or alliance

online service-any

interline travel would have represented diversion5

due to flightcancellations

or last minute emergencies

or perhaps

the occasional

expenre account traveler going out ot hi5

way to collect

frequent

flyer miles. By definition

these tickets would show a high average fare, butthey are meaningless

in any evaluation

of possible

allian(e pri(e benefits. Srueckner's

primary regressions

includes interline pri(es worldwide,

including markets where all pri<es aremuch

higher than the North

Atlanti<. A legitimate

attempt to ettimate alliance price benefits would have

been stridly limited to alliance

verrus interline coupons in the Nonh Atlantic O&Ds that hadno trueonline servi(e, but none

of these regressions

were appropriately

foculed. Thege would have been included in Whalen's

tran5atlantic

panel data, but his data also included large quantities

of onrelated

non-category

(2) marketcouponrr The analysis not only failed to limit the regression

data to the appropriate

markets, butthe papers made no aftempt

to place their "17

to 30% lower pri(e" type consumer

welJare conclusiont

in any type of meaninglul

context. There ir nothing

in any of the papers

that would help

readers understand

the magnitude

of the alleged

(onsumer

benefits relative to the 5ize

ol the overall market, or even to understand

the saope

ot the markets

in the regression

relative to the 5ize

of the market. Despite an analytical

scope specilically

targeting

"interline"

traf{ic and markets,

the autho15 made no attempt

to show what portion

oJ there markets actually use non-alliance

interline ticket, or what percentage

of the O&Ds

in the regression

were only served on an interline

basis, and failed to show that these

interline-only

markets had almost completely

disappeared

bythe end

of the decade.

An analysir

appropriately

targeted at category

(3) interline markets might have Jound simila. price reductions

Jollowing

the introduction

ot alliance

online pricing, butfrom an economics and policy

standpoint.

it is mu(hmore

important

to understand

what the actual

historical

consumer wel{are gain from antilrust

immunity

hadbeen,

and whether there are opportunitieg

Ior tuture gains in markets

that could,

but do not <urrently

enjoy "online pricin9".

r Any gerious, caretully designed

analysir of North Atlantic competition

in the 1990s

would 5how a clear correlation

between the introduction

and expansion

of immunized

allian(e and growing consumer benefits (lower prices and increased

capacity).

But (orrelation

does not equal

causation.

Notall oJ the observed

consumer

benefits would have been caused by alliance5

(most were caused by capa(ity 9roMh, increasing

liberalization,

industry efficiency

and other fadort, andnot all of the observed price reductions

on alliance

tickets were cauted by effi<ienciet

spe(ifically

related to antitrust ammunity.

A proper

analysis of the Nonh

Atlanti( would also show consumer

benefits in general, and specific allian(e pricing gains fully exhaurted

bythe end

of the decade.r')

': See tbr e\ample.

Rob) n. J.. Reitzes.J

(2005 ) untitled

paid ana l) sis of tbe Sl)team

anl itrust iln m un;l\ .pp licat

ion preparcd on befialfofAmerican

Airlines DOI-OST-1004- lSl IJ. Robyn.

J.. Reitzes.J.

(1006) ntiiled paid

anal)sis ofrhe Star Alliancc anlitrust immuniqapplication

prepared on behalfofAmerican

Airlines DOT-OST-1005-2lgll

### Horan

BAAA Supplemental

Comments

8 January

2010 12

D, DOUBLE

MARGINALIZATION

DOES NOT EXI5T,

NEVER EXISTEO,

HA5 ABSOLUTELY

NOTHING

TO DO WITH THE BENEFITS

OF IMMUNIZED

ALLIANCES,

AND ERUECKNER

AND WHALEN'5

THEORIES

ABOUT DOUELE

MARGINALIZATION

ARE NOT SUPPORTED

BY ANY DATA

ORANALYSIS

D1. Brueckner

and Whalen

specificallv

claim that all of their observellGgle5tlalprlce correlation5

are due to the abilitv

of coooerative

oricino to eliminate

"Doublel4arginalization" or "Double Markups" and that thi5 isthe orimarv

consumer

benefit (reated when antitlu5t

jmryr!lnity

aoolications

are aDoroved

Brueckner

and Whalent

(entral "Double Marginalization"

(laim ir repeated

in each of their papersir. They believe thatall ol the price/alliance correlation

in the regressions

is(aused

by a "negative externality",

a gtructural

barrier that prevents

non-alliance

carriers from setting optimal interline fares, even when it wouldbe in their

joint economic

interest to do so. The claimed rtructural

barrier arises becaute non-aligned

<arriers allegedly

e5tablish

"5ubfare5"

(prorates)

for interline

travel over their routes

without any consideration

of the prorate

levels of connecting

airline5, or any consideration

of the joint interline

fares that might

result from the sum of these two prorates.

This "non(ooperative

pricing of an interline

trip leads

to an excessively

high fare whi<h does not maximize

joint prolit"ia.

The two interline

carriers aremaking

"two separate

markups"

while immonized

alliances and online carriers would only make onels, Becaute alliances can eliminate

the "double marginalization",

their interline {ares are alwayg lower than non-alliance

interline fares16. Thug when Br!eckner

and Whalen solve orofit maximization

eouations

for alliance

and non-alliance interline services, the non-alliance

equation

includes the effiaiency

penalty of the "double marginalization"

and is always less profitable.

The internalization

of this "negative

externality",

i! not just a useful teature, but ir lhg primary

benefit of immunized

airline alliances.3' The alleged efficiency

penalty of non-alliance

"double marginalization"

i5 claimed to add $200 to the price ot a roond-trip

ticket. Whalen cites an average

nonalliance

fare of $929 in one of his regression

sets versus an average

immunized

alliance fare ol $727.33

The idea that eliminating

non alliance "markups"

would create a 25olo efficienry

gainis preposterous

on theJace

of it; su(h

an efficiency

gain would be of the same

order of magnitude

of eliminating

all wage andbenelit expenses.re

The Joint Applicants

are claiming benefits of $257 per ticket in this cate (applying

the smaller regrestion

gapbetween

alliances and existing codeshares

to higher

2007 faret). l{ t200'250 per ti(ket price

redudions

actually o<(ured

in the market

every time airlines receiv€d antitrust immunity,

there would be ample

evidence from multiple

sourcer, and immunity

advocates

would not be relying

exclusively

on this a(ademic

paper.

D2. The entire "Double Marginalization"

theory i9 based p! !!!qbrte!!!ated claim5 that normal (qnpetitive, ratiqnql,

plol!! maximizinga_efr_a_vioral assumptions!19

!ql!!dyto interline

pJlcjlg. and the theorv is fundamentallv

contradicted

by actoal

airlile pricing

practices and systems

r Brueckner

and Whalen'r

theory of "double

marginalization"

assumes phygical barriers to optimal

nonalliance interline pricing that do not exist

andignore5

the existence

of revenue

management.

The

" Brucckncr

rnd Whalen

(2000) p.505'6. Brueckner

(2001) p. 1J77. arucckner

(200ja) p. 106. tsrucclncr

(l00lb) p.8.1-85. whalen (:001) p. 2-4.

Whal€n (2005) p.24- whalen

(2007) onrirs rhe bcha!ior c\planation

found in all prc!ious

pap€rs. and sinpl) not€s

thal lhose papers idenrified

a Double Mar_qinaliTation

problem. and that rhe regression

anrllsis ir lhos€ Pnpers found a correspondirg

price difference

p.l0 " Arrrclncr (1003a)

ibid- " Brueckner.

J.K..Proost.

S (1009) -Carve-ou6

Under AirlineAntitrust

lmmunir) CESIFO

working papcr ''' Whalen

(2005) p. .l sa)s lhat the double marginalization

cosr probl€ onl) erists

when fte two carriers

ha!c marlcl power on their respective

portions oflhe roufe,

and can set price abolc marginal

cosi. bur Whalen (100?) deleles all rcl-crcnccs

ro pricing

powe.. bur offers no altcmatc

c\planation

for the alleged cost problcm- ' Brueckn€r

(2003b) ibid. Whalen (2007) ibid. r3 Whrilcn (2003) p. 24. Orhcr.cgrcssion

s€ts havc rlighrlykNcr olerall average l-ares. bul alc.age

hres lbr ke) subgroups $ere not identiflcd. I'Accordirrg

to its l0-K. rvages,

salafies and benefirs accounted

fi)r 26% ol Anrerican

Airlines'total

2008 op€fatingHoran

BAAA Supplemental

Comments

8 lanuary

2010 1i
assumed independent

noncooperative

processet

with fixed

(per route) mileage based prorates (derived from IATA

practices)

were abandoned

ecade5 agoao. Even carrie15 with limited

automation
were always fully capable of designing

and adjurting

interline faret to more profitable

levels.or. Although

interline fares were not easily

handled byfirst generation

yield management

tools, interline fares are now easily

linked to both (arrjer's

inventory

systems; prorates can vary by booking class, so that interline

farer can be revenue

managed

just as effectively

as online connecting

{aret,

r The"double

marginalization"

theory al5o assumes that fares

are set with reference

to the marginal cost o{ {light legs. This ignores overwhelming

historical evidence thatfares

are set with respect

to (ompetitive

"market pri(es" andnot with resoect

to internal

cottmeasures.

The entire claim of "double marginali2ation"

is based on "markups"

above marginal co5t, butthe claim

falls apart because real world airlines do not construct

price5 on a "cost

plus markup"

basis, and do not evaluate prices or prorates

againgt marginal cost.lf prices

were se1 on a markup

basis with respect to marginal

cost-type

measures/

one would observe wild price

fluduations

when tuel pricer

are volatile. lf prices were set on a markup

ba5is with respect

to marginal

cost-type

measures,

one would rarely observe pri.e matching

on competitive

O&Os, given underlying

cost differences between carriers, aircraft and routin95. t Brueckner

and Whalentphysical

barrier theory explicitly assumes that alliance

interline fares will always be lower than non-alliance

interline fares, which would be irrational,

and also ignores the basic "opportunity

cost" logic behind inventory

management

at hubs, which Jocoser on revenue contribution/dilutiona?. (Jsing "marginal

cost" logic, Brue(kner

and Whalen Ialsely assume any "hi9h" interline

prorate suboptimizes

joint revenue.

Most KLM-Northwest

alliance fares in the 90t might have been lower than mo5t

alternative

interline fares, but ratjonal,

profit-maximizing

airlines (alliance or other) will vary these levels based on specilic

opponunity

costs andmarke't

conditions. Carriers with "high" proratet

may be maximizing

profits based on opportunity

cost of connecting traffic from other route5. Connections

over hubs with capacity

limitt and highlocal

arer (London, Tokyo, New York) will have

highprorates

(to limit yield dilution) regardle5s

oJ whether the5e are set
on an immunized

alliance arms-length

codeshare

or traditional

interline basis. Connections

over hubs with ample

(apacity and low localfares

l8angkok,

Amsterdam,

Los Angeletare

rationally

set at lower levelt. "High" prorates ;nvery tiny interline

markets may be entirely

rationel in the sense that the added

pricing andrevenue

management

costs needed to maximize

jointtraffic

in each of thethousands

of these markets could easlly exceed the potential

revenue gain. International codesharing

andinterline

prorate arrangements

have always been highly dynamic,

as carrierg adjust and cancel arrangements

that arenot profitable.

. The Brueckner/whalen

claim that there

arebehavioral

barrie6 to optimal

non'alliance

prorate setting

was never true, and is in ta<t

a claim that market

competition

does not work.

They claim that nonaligned carriers are incapable

oJimproving

or optimizing

prorate levels even in the {ace

ol evidence that existing

prorates do not maximize

joint revenue.

Thus the theory

asrumes thatthe classic

'Brueckner(2001)claimstharhknoncooperativeproccssisbasedonhistoricallAlApracriccs.b rlfienquoresDougrnis (198:) Fltins OlJ CLMx!. sa) ing that (cvcn b) 1985)majorairlincsalmosr neveruscd

IATA-derivrd

pro.n(e fbrnrulns. Bnreckncr

(200ia) p. 108 also notes that nlost inrcrlinc fares are in l-act bascd on 'special

prorare agreemcnrs

that do not fbllo$ his modelofseparate

leg prorates set in istalion

ofwhal interlirc p!(ners arc doing. and rotrlly conlradicrs

th. 'unavoidable

e\temality'

claim when he adn)irs that those agreenrents

ma) Iroduce

fares nol much

highc. than droso observ€d under antilrusl immunil\". " I $orled e\lensivcl)

t\ irh SN B.usscls

Airlines. which belrlcen 1002 and1009 $as no. a nrembcr

ofan\ alli.rnce

but hrd i5 diflercnt

l)pes of inlerline

agreements

whh ovcr80 airljnes.

alladministered

ma uall). Alla_qrcenrcnrs capable ol' gcncrating

significant

tralllc llorfstrere

carefully designed $ith respect

ofthc competirive

pricing situalion in rheinrerlinc O&Ds. and the local dcmand levels and patterns (time ofday, day

ofweek. scasonal) on each al-lected flight leg. Profalcs
werc not lixcd by roule.

butvaried

wiih thebooking

classes used. sothal partnefs nrainrained

full bilit) to limir inlcrline sdles thal would dilute )iclds. Defauh prorates were used i'r b\r-!olume cases.

bulthese reflecrcd rhe opportnDil\

costs ofcapaciry'on

individudl

SN llights.

nol dGunce

based fonnulas. ' -Opponunit)

cosC is uscd in irs revenue

nanagement

contcr\l here: rhe opporrLrnit)

cost ofan) potential

neN Iralllc flo$ is lhc revenue

from the trafficil mighr

d isp lace: carriers wou ld a l\!a) s set proralcs fi;gher than thc opportun

it) cosa le\ e

lWith low load

factors. lhisopportunity

cost approaches

zero. Actual evaluations

$ould be bascd

on a range

of lhclon. including seasonality

and how revenre

manag€ment

sr'stenrs aclually allot irvenrory

to differenl

are caregorics.Horan

BAAA Supplemental

Comments

8 January

2010 l.l
modek ol dynamic

ompetitive

markets that apply

well to every other (ategory of airline

prjcing suddenly

break downat the door

ol the int€rline

pricing department. E Thi5 behavioral

theory oJ competitive

market failure rests upon the unsubstantiated

assertion that at all nonalliance

airlines, the process

oJ establishing

le9 prorates

is completely

isolated Irom any consideration

or publication

of joint interline

fares. "Neither carrier considers

what effect setting a highprorate

would have on the other"ar

The aulhors explicitly assume that online fare setting is efficient, which implies theybelieve

thet online

fare setting Iollowt rataonal profit maximizing

(riteria, and is rapidly

adjusted in thetace

oI newinformation about the marketpla<e.

However they offer no explanation

ol why rational,

protitmaximjzing

logic cannol be applied

to interline

pricing

: Hub complexity

cannot he source

of the alleged

structural

problem;

every large international carrier operates

hubs, and its pricing 5taffs understand

the process

of prorating

thru fares
across connecting

hub5, and how prorate

formula5 affect the pro{itability

oI thevarioLrs

longhaul and short-haul

legs at the hub.

Thus they would have a very strong unde.standing

of how any given prorates or joint fares would affed the protitability

of a potential

interline partner, and could negotiate

jointfares

within ranges

thatwouldbe profitable for both carriers. Information

cannot bea serious

issue; thanks to highly

sophisticated

yield management

androute

profitability

systems, airline staffs have detailed information

about leg contribution5,

can establish the "opportunity

co5t" oJ anypotential

new revenue

{lows. and can readily understand

how other

airliner would value these interline opportunitie5.44

. Brueckner

and Whalen's

theory oI strudural

barriers (au5in9 competitive

market failure cannot be accepted without substantial

real-world

examples

of carriers

refusing to introduce

or adiust prorates to leveh that would increase

total revenue

contribution.

At noted

above, the existence

of interline fares that arehigher

thanonline

or alliance

fareg does not demonstrate

suboptimality,

as there could be many rational reasons {or maintaining

"high" prorater

in there ca5es. The inability of airlines to agree onjoint interline

{ares is also not evidence

ol irational

suboptimalilty,

as there are many cases where there is nojointly

benefjcial

solution.

:: Whalen's

analysis illustrates

that interline

negotiations

normally onlyhave

a limited

set of jointly beneficial

solutions.

Hepresents

a detailed

(omparison

oJhypotheticalalliance and non-alliance

interline negotiations,

howing the full range

ol posrible

prorate5 that would

be profitable

for both carriers,a5

InWhalen's

example there i5 a narrower

ange of golutions beneficial

to both (arriers in the non-alliance

case because of the rtructural

"double marginalization"

costs he has assumed,

but a timilar

retult would holdiI the assumed

higher (osts were due to higher

"opportunity

corts" ol displa<ing

high yield traffic, and there would (ertainly becases where "opportunity

(ost"differentialr

lead to higher

allian(e versusnonalliance prorates,

lrrational

guboptimization

would only occur il there was a consastent pattern where non-alliance

(arrierr failed to achieve

recognized

opportunities

beneficial

to both carriers existed, consistently

reducing their own proJits.

His example assumes price in the interline O&D is 3-4 times greater than cost, while in the real

world airlines evaluate trafJic options with only ra2or-thin

margin. Inthatworld

the opportunities

to improve

joint profits vlalower

prorates would be rare, and it would

be entirely

rational to turn down moet reouestt to lower ororates.

'' Whalen

(2003) p.3. Incertain situations.

caricrs might r{tionally

set deiirult pnrroles in isolatnri,

brred otr the opporluniry

costs on Li routc. tJSAirways

nrishl have a delhult prorate avaihblc lbr ils midda)

Los Angcles-l.as

Vcgas flight alailablc to lranspacilic

arfiers wirh morning

affivrlsal l.os

Angeles interestcd

in selling rhe conncclion.

and given nrodern reveDue managefiert

systenrs lhisdclbull

prorale nrighl be ven closc

to an optimal lelcl. Butfie _doublc mar-qinalization

lheor-l 5pccificall)

c laims lhar USAinva)

s \\'ou ld refuse ro aher rhis prodc. elcn if a tran

spac ific carrier proposed an altcmalive

lhat \forld bc morc

prcfirable

for USAir$a)s- " Ihe aurhors

nrake passing reterence ro -double

marginalization

inrhe literarurc

un negoriarion

\!hhin lcrticaI indusnics. butthis is largely

focused on hrmslhat have

ver) Iimited

inlbrnration

about thccosts.

internal operations

and proutabilit) ofconrpe(ilors.

conditions

rhat do not apply

to aviation.

Ironically.

the authors apply thelow-conrperiti!c

inf-oflnation concept ol ndoubie

nrarginalization

lo an analysis

based on DBIA. a comprebensivc dalabase that providcs conrpetitors $ith ncar-perfecr

jnlbnnaiion

abour pricillg in everv significant

nrarker. " \!halen

(200i) p. l.l-15 and Figures l.: p.35

### Horan

BAAA Supplemental

Comments

8 January

2010 

### t5

r

. There

has been no research

showing

that any carriers

currently

set interline

prorates

or joint interllne prices {ollowing

the approaches

theorized.

None of the hundreds

of non-aligned

airline5 in the world seem

to think that "double marginalization" exists, 5ince none of them haveundertaken any efforts to minimize

or overcome

the huge ($200

250 perticket)

competitive

pricing disadvantage

it is alleged

to create

### D3-Ihq!0!rkeI!5!!c B4ecknef ard \&halqr

bavci lpropldy atldbutedlailrullq4l barrlq! ?aO "Doublc l4arqLoaljzeljall Lbe readilycrplailcllbLfallqrs unrelated tq antitl!'Lh[qnity

r Brueckner

and Whalentpape15

have totally mischaracterized

the actual

nature of the etJiciencies achieved

bythe orlginal

9Os North Atlantic alliances.

Asdiscussed

in section

B,real consumer_ welfare enhancing

benefits were created, butthey were strictly of {unction

of the unusual opportunity

presented

bythe category

(3) double-connect

markets. There was not only the "online

vs. interline"

price benefit, but more

importantly,

there was the marketing/distribution ef{iciency opportunity

created by the large

size of the category

(3) niche. The size ot the market.

comblned with the size

of the KLM-Northwest

priclng advantage

created the opportunlty

to quickly

and cheaply establish powerful

brand awareness

among frequent ravelers and travel agents in all of these many non-gateway

cities. KLM-Northwest

had no etJiciencies

allowing them to determine profit-maximizing

levels oJ connecting

fares any better than codesharing

or non_aligned

carriers

on initially

entering the large

set oJ category (3) double-connect

markets, they did exploit

brand marketing

efficiencies,

but these

were the same

e{{iciencies

any hub network

operator would enjoy against point-to'point

competitors46,

and were not a unique

Jrlnction of antitrust

lmmunity

r Tothe extent

thatthere

was a historical

obstacle

imiting the spread

of interline

fares, it hadnothlng
to do wjth alliances,

but was due to the major

economi(

differences

between thorthaul

and longhaul flights. Prorate tormulas-the

1960's IATA formulas,

the {ormulas

currently

u5ed in every carrier's pricing androute

profitability

systems, and everything

in between-all

attempt to reflect the nonlinear

relationship

of operating

costs andlength

o{ haul. Unit costs accelerate

rapidly with shorter flights, more rapidly than unit revenues

do in thevast

majority ot markettPrior

to deregulation,

the CAB imposed pricing formulas that did not reflect

he underlying

cost curves, creatjng structural

profitability

problems

tor local service carriers, and artiJicial advantages

for trunk carriers operating

longhaol

routes. The problem can beseen today within the route

profitabillty reports of hub operators,

most c early at large European

hubs like Amsterdam

or Frankfurt

that have a di5tinct

mix of short 60-90 minute flights, and longhaul

intercontlnental

flights, where shorthaul

Jlights carrying significant

connecting

traffic will appear

very unprofitable,

while the longhaul connecting

flights appear highly profitable.o'The

obstacle here is that it ls extremely dillicult to find jointly beneficialjoint

fares in longhaul'shorthaul

situatlons,

where thevery low shorthaul

prorate will rarely

approach

the opportunity

cost ot alternative

local or short haul connecting

traflic. KLM-Northwest

and the subsequent

North Atlantic alliances did not break through this barrier because of an ability

to internalize

"double markups"

as Brueckner

and Whalen claim, but because

the North

Atlantic alliances,

by pure happenstance,

paired partners with highly parallel networks.

In each.ase

partners had equivalent

longhaul operations

and equivalent shorthaul

feedinq flights, so there was no "big prorate

v5. small prorate" or other type o{ structural imbalance.

Desoite the Droven

success of the North

Atlanti( alliances,

this model has not been

r" The illirial KLM-Nonhwesr rersus inrerline conrpcrition

\vas analogous

to a niew

hub enlcring nlarkets

prc!iousl] served by ftagmented

point-ro-poi flights. I'ln one ofthe firsr KLM-Noiht!esr alliance rexvork nreetirgs 1allended. we rlofked with our KLM coufterparts to sho$
then llut the Alllsterdanr-Hcalhrorv roule was nol the biggesl money losing foutc on their s)stenl.and \\h) the ctrlbacks
rher were planning

\lould bc highl) damaging ro profitabilit). l hcir lleatlrro\! route P&L accounting dala $ as accurate. buL did nor sho\r.the

value of longhaul

connccting

.evenue that would be lost ifflights were cut. Sevcral )eaIS late.. lrlter revie$ ing similar rmrc P& L dala. Sabena d id eliminale ils anBscls-l learh Iow .oute. reduc

ing profitabilit] b] tcDs o I
millions ofUS dollars.Horan BAAA Supplemental Comments

8 January

2010 16
duplicated

in any other market,

because the parallel

markets

needed to enruremutual benefits and to facilitate

cooperation

between

independent

companie5

doer not exist.aB In the environment

of the 1990s,

KLM Northwest

would havenever

beenable

to stumble

onto and figure out how to exploit this marketopportunity without antitrust

immunity,""

but effective,

efficient

prorate and revenue

sharing approaches

{or these

types of parallel alliances

are now well understood, and co!rld

now be applied

without immunity

50 Codesharing

at hubsbetween mainline and regional

carriers further illustrates

the longhaul shorthaul

prorateimbalance

issues, and disproves

the claim

that productive

international allian(es

are impossible

without full antitrust immunity.

No regional

operator

couldexist without extensive

revenue and network integration with the mainline

partner. This can be solved with common

owner5hip

(as with American

Airlinee and American

Eagle), but thi5 approach

hasrnany

disadvantages

and is now exceptional, and airlines

have devlsed a range of contract

structures

that can allocate

market and financial

risks in different

ways.

D4. Anticipatino the Joint Aoolilant's u5e of their regressi9I1

results in tXe (!tlc{L!ale-gMlkler and Whalen use

their Jegressiot

coefficients

to predict

consumer

beneJits

in other. unrelated

m4ke!!-b4 lLq
so in Ways

that violate

the basic

looic of their "Double Maloinalization theorv

Brue(kner

and Whalen's

theory 5ay5 that consumer

benefits Jrom collusive alliance pri(es will occur totally independent

of market

and competitive

conditions,

because every interline Jare in every market suffe15 trom the same

structural

"double marginalization"

cost problem,

and thu5 any immunity

grant will internalize

the problem,

and will directly

lead to lower farer. In line wlth the presumed

universal truth of this

"immunity

always lower fares 17-3070 " claim, thelr papers provide two examples

using their regression

coefficients

o predi(t

future price changes in other markets The Brueckner-Whalen

(2000) analysis of a potential

British Airways-American

Airlines alliance tookthe 25%

price/alliance

correlation

foundin the original

regression

and then5implistically claiming thatthe fare

on every BA-AA interline itinerary would immediately

fall25% as soon as immunily

was granted, creating a direct annual consumer

welfare gajnbetween

$48 and 'b5 mllron-. L Brueckner

(2003b) applies the same

simplistic

approach

in reverse,

takhg a 27% "benefit" rate Jrom the later regressions, and then claiming

that if the United'Lufthansa'SAs alliance suddenly

lost its antitrust

immunity,

its interline

fares woLrld immediately

rise 27%, leading (after knock-on

effects) to a consumer

welfare loss

on the order of $80 million annually. Applying

coefJicients

{rom the5e

regressions

to future cases

in di{{erent

markets

is only plausible

if oneacceptsthatnoneoflheregressioncorrelationswereexplalnedbyl990smarketconditionsand
one accepts

the Jull logic

of the structural

barriers/double

marginalization

theory,but even under these dubious conditjons,

the forecasting

ose o{ the coefficients

in these papers violated

the logic

of that theory.

'" lor c\amplc.

a hypothetical

innunized

alliance bcrwccn l.ufthansa

and Thai Ainlays would offer'l'hai

nearl) 100 importanl

conncclins

destilalions

befond Lutihansa

s htrb. btrl Thaionlyoperales

n handtul

ofroures at its Bangkok

hub \fhefe LLrfthansa-

l hai alliance conncctions

rlould be meaninglully

conpetirive.

Undcf a Kl-M-Nonh$est

revenue sharing approach.

even wjlh oretal

ncurralit).

Lufthansa

$ould be saddled with a dispropo(ionaro

drarc ol-ldv !.r1tre

shonhaul prorates. which might oor onl) displacc

high l-afe intra'Fufopean

short haultassengcA.

but loDghaulpassengers

tlral Lulihansa

could have caried on ils o$n longharl

llights. Wilh toda\'s s\stcms. a iointl) prolit improvirrg

s) stem could certainly bedesigned.

bur evcn in lhe absence

ofany regulatory

or antirrust

issLres. thenet gairsmighl ot i1l\rit),lhe reouired investmenr. " Aq\tith nlost

etficienc)

elrllancing

innolaLions.

theimponance

ofluck and

thc lack ol prior rnderstandirg

ofthe n ue opportunit)

cannot be ovcrstated. "'For discussions

ofapproachcs

see Gellman Research Associares

(1991) A Siud) ollntemational

AiflircCodc

Sharing. Department

ofTransponarion

Office ofAviationand

lnternational

Econo ics 'ThedaiapresenledinthepaperisfronrheDOTDBlArenpercenrsample.andrnusrbenrultipliedb)lentupruduccthc tulleslimaredmarkeiplaceimpact.NoneofwhalenslyritingsaftertheBA-AAanal)sisintheorignralioinr2000paperuse regression

resulis aspredictive

ofimpacts

nr other markets

### Horan

BAAA Supplemental

Comments

8 January

2010 

### t7

. The BA-AA forecast erroneously

assumes that every

current BA-AA interline ticket is sold in a market hat has no existing

online or alliance

interline service. Infact Brueckner

and Whalen made no effort

to determjne

what markets

these passengers

flew in,or whether

they were even paying higher fares than passengers

in other connecting

market5 were paying. Given the broad market coverage

o{ the existing

KtM'Northwest,

Delta Swissair'Sabena

and united Lufthansa

SAS alliances at the time this was

written, it issate

to assume

that the vastmajority of this traffic, perhaps over 90% was in markets

that already

had the benefit

on online

or alliance pricing, and the (laim

that allthese

BA-AA inlerline tickets were sold at rates 25% higher than ones in comparable

alliance and online markets is wildly implaurible.

- The Star Allian(e calculations

assume that it the alliance

lost immunity,

none ot its (urrent passengers

could find equivalent

fares on other alliances or online

carrjers, and that United, Lufthanra

nd SA5, after six years of immunized

cooperation.

They would not only be totally incapable

of establishing

any type oJ alternate

codesharing

arrangement,

but since they would have reverted to "double

maximization"

practices,

they would be establishing

leg prorates with markups

over marginal costs, wo!ld do in asolation

of the pricing

situation

on anyinterline

market, and would refure

to (onsider

any proposalt

from their former partners to alter these proratet to levels that would

increase joint profits.

Brueckner

also cal(ulated transatlantic

consumer

impads using the 27% factor from his worldwide

regression,

instead of the 21olo

fador from his

transatlanti(

regre5tions,

5Lr99estin9

this analysis may best be viewed as corporate

advocacy,

and not 5erious

academic

tesearch.

D5. Brueckner?ndl

/halen clairn thet.'lPguble

Marginalization"

is a rtructural

i$ue inherent

to alliances. and that anv and all new immunltyjlallls-tryould create sjmil?r consuOer

gaint (dlre to the internalization

of thesebarriers)

is fuld!rnedeXylate-ald is contjadiqlCllby all available_Cyiden(e

. The Joinl Applicants'claim

of public

benefits in connecting

markets totally dependt on the claim

that "double marginalization"

not only exists, but would

have the powerful

effect on (onsumer

pri(eJ (17'307o reductions,

t200'250

per ticket) any and every time a new g.ant of immunity

was made, regardless

ot supply

or competitive

conditions

in the specitically

affected marketr at thetimeof the immunity

grant. Neither the Joint

Applications

in this case, or any prior applicantt

for antitrurt immunity,

have 5ubmitted

any proper, veriliable,

non'speculative

evidence oJ this alleged universal causal link between

immunity

and lower

connecting

tares ercept tor (itations

of the BruecknerMhalen

articles discussed

here. All other

available

vidence directly contradicts

heJoint Appli(ant5'claims.

. In order

to claim that the Srue.kner^r'r'halen regression

coefficient5

can be osed to predict

price effects jn other, unrelated,

markets, one must

demonstrate

thattheirregrelsion'

were able to surgically isolate the "cooperative

alliance pricing" impact on interline

prices from all other

marketplace Iactors influencing

these fares, including

rupply levels, efficiency

improvements.

and the general level of fares in the 70-95olo

of all market5

retued bv true onlineservicer.

This woLrld be an astounding

statistical

caim, but it :s not supported

by any analysis showing similar price effects in anypost-1999

markets, andit ir not sl.rpported

by analysis

putting the allian(e

impacts in the context o{ the broader

North Atlantic consumer

pri(ing gains that occurred

uring the mid90sE l{ one is

to argue thatthese

regression

perfectly

isolated the impact

of "cooperative

alliance pricing" from all other

possible factors, thenonemust

be willing to argue that the consumer beneJits actually enjoyed by KLM-Northwest

and Delta-Swirsair

parrengerr

in the 90s,

was not the 17-30olo,

or $200 per ticket identified

here, but a substantially

greater number. One must conclude

ither thatthese

immunity

grants were the single

most economically

beneficial decision in the history

of aviation,

or thatthe "double

marginalization"

coeffi(ients

cannot be used in forecasts.
c lf immunity

grants really did drive these huge (17-30%,

S2O0 250 per ticket) type of price reduclion5

under any market condition,

there wouldbeample

evidence,

in DB lA and other industry databases,

that one could use to support

he claim.

Neither theJoint

Applicants,

nor anyone else, has produced

any su.h evidence.Horan

BAAA Supplemental

Comments

8 lanuary

2010 l8

I Neither

Brueckner,

Whalen, or anyone

else has replicated

these "17-30%"

typeresul$

in any regressions

of any other markets. The analysis that has been conducted

shows ab5olutely

no evidence

of "market-independent (ooperative

alliance pricing" consumer

benefits, and tends to support he (laim

that consumer

benefits, i'f they exi5t, are not large

enough to offset he consumer welfare losses due to reduced

competition. E lames

Reitzet and Dorothy

Robyn oJ the Brattle

Group, the authors

of the Brattle

affidavit in this loint Application,

al5o submitted

analysi5 on behalf

oJ American

Airlines in the Star

I and Skyteam I cases.sz These affidavits

updated analysis of transatlantic

market growth since the initial introduction

of antitrust

immonity

that hadbeen

performed

bythe DOT

in 1999 and 2000.5r The new analysis found thatthe pro-con5umer

pi(ing trends of the 1990s

hadbeen reversed,

and that the greatest

1999'2005

price increased

had come in the connect

markets predominately

served by carriers

with antitrust

immunity.

Price5 hadincreased

21olo across the entire North Atlanti( (CAGR 3.5%) and 23olo in category

3 double connect ma.kets, despite flat capa(ity.

Thir suggested

that whatever

efficiency/consumer

benefits had been

generated bythe original

alliances hadbeen

short-lived,

and hadbeen

{ully offset by increased

pricing power. lt also suggested

thatthe later

Star Alliance immunity

grants did not have

the " 17 to 30%" level

effeds that the earlier

alliances were alleged to have, and hadno impact

after 1999.

r In the Continental/star

Alliance care, The Department

of Justice

presented

original rtatigtical analysit of price differences

in connecting

North Atlantic markets based on DB 1A data from 2005 through 2008.54 The regults directly contradicted

claims of "double

marginalization"

and immunity

e{ficiencies.

Interline ti(kets only comprised

7% ot thetotal rample, suggesting

that interline only accounted

{or 3'4%

of total No.th

Atlanti( travel. The analysis found that immunized

alliance fares were 2.1% higher thanonline

fares and 3.6olo higher than nonimmunized

codeshare

farer. This contradicted

the claim

that immunized

fares would be lower than non-immunized

codeshare

{ares because of "double

marginalization"

problems,

and lent {urther support o con(erns

thatthe immunized

alliances had developed

market power and were not maximizing

conSumer

welfare.

:r Inthe current

case the Department

of Justice

conducted

lurther new analysis o{ conneding market fares based on 3Q2008

DBlAdata,

with results

further broken downby alliance group.ss This (onfirmed

the earlier

con(lusion

that current

market data did not support

claims about "double marginalization"

and immunity

efficiencies,

and the DOI spe(iJically

noted thatthey"make

no representation

that fare

dilterences

across ticketr, as estimated

by this type oJ work, areintormative

about causality between immunity

grants and double marginalization"-

The results Jound that Oneworld

codeshare

lares were 1.50lo

ess than Oneworld

member onl:ne lares, undermining

theApplicants

claim that immunity

is needed to reduae artilicially

hjgh non-immunized

fares. The results also {ound that Skyteam

immuni2ed lares\\ete7.2Va

higherthan

Skyteam non-immLrnized

{ares and that Star

immunized

fares
were 11.7olo

higher than Star codeshare

Jares.

. The argument

"(onsumers

benefit from international

<ollusive pricing arrangements"

is explicitly saying "consumers

benefit whenever

international

(ompetition

iseliminated".

lf this were rrue, it would require

rethinking

a great deal o{ antitru5t

and industrial

organization

theory. But if each
newimmunized

alliance actually generated

price cuts on the order

of l7-30%,

or t200-250

a ticket, then the rethinking

would undoubtedly

be worthwhile.
r All oJ the available

evidence suggests that lhe two BruecknerAVhalen rgressions

failed to surgi<ally isolate "cooperative

alliance"

pricing effects in connecting

markets from the many

other factors influencing

these prices. The observed

correlations

between

" 17-30% price reduction5"

and "alliances"

is not explained

by "the internalization

oJ double markups"

which does not happen. The correlations

arelikely

to be largely,

if not fully

explained

by the marketplace

changes described in section

B, including

strong, profitable

capacity growth, market liberalization,

and ef{icien.y

:: Rob)n. J.. Reiucs.J.

(1005)and.

(1006) op. cir. " DOT. orJ.cit " Dcpannrm

ol-Justice.

Conrmenrs

on rhe Sho\ Cause

Order. p..19-51 " Comncnts

ol-rhc Depanmcnl

ofJusrice.

p.ll-.IHoran

EAAA Supplemental

Comments

8 lanuary

2010 l9 growth. The original antitrust immunity

grants undoubtedly

contributed

to thete overall effects in the mid 90s,

but specific

alliance pricing benefits would have been limited to one seqment of the markets, and would have been fully exhausted

by the late 90s, as"online"

schedule andpricing optionr expanded

from60 70%

to nearly

100% of the market.

r Since there ir no demonstrated

"universal

market,independent

<ooperative

allian(e pricing" impacl, it i5 totally inappropriate

to apply the coefficients

of these two regressions

to any other markets

with different

supply or competitive

characteristics.

The Joint Applicantr

are tpeciJi(ally

claiming thar regressions

refle<ting

the highly

competitive,

strongly profitable,

high demand growth1990r

North Atlantic can be used to predict

price effects in 2010. This is the equivalent

of saying

that an analysi5 of the price

impa(t of new lowcost

carrier entry onto markets

tolely served by Legacy

carrie15 in the 1990s can be ueed

to predict

the price

impact of the entry of a low (oit carrier onto a market already s€rved byotherlowcost

carriers in 2010, when the pricing

and efficienry

9apbetween

low cost andLegacy

carriers was substantially

smaller than it hadbeen.

This is the equivalent

ot saying that an analysis

o{ the price

appre(iation

of Las Vegas housing in the 1990s

can be used to predict the exact

level of hou5ing

appreciation

in 2010. The loint Appli(ants'

use oJ these regressions

to torecast future priae reductions

is completely

indefensible

and the consumer

beneJit claims based on tho5e

"predictions"

must be rejected.

E, THE JOINT APPLJCANTS'

CLAIMS OF $92 MILLION IN ANNUAL

PUBLIC BENEFITS

INCONNECT

MARKETS IV]UST BE REJECTED,

ITNOT ONLY FAILS TO MEET

THE MINIMIMUM

REOUIREMENTS

OF THE HORIZONTAL MERGER 6UIDETINES,

BUT THE CLAII\4 I5 DEMONSTRABLY

FATsE.

El-Jhe.loint

Aooli<ant's

Claim 01t92 millioO

il aMalpubli( benefits in connect

Darkets is er'!tirely b!!ed on two demonstrably talse.as5umptions.

and thutmust be reiected iLil! elljrety.

. The Joint Appli(ant's

public benefit claim depends on the false

assumption

thatthere

are structural "Double Marginalization"

barriers to efficient

non-alliance

pricing thatwouldbe

found in any and all non-alliance

cases a5 these barriers areindeoendent

o{ market

or comoetitive

conditions.
n There

have never been seriout structural

or behavior

barriers preventing

non-immunized carriers from setting

rational, profit maximi2ing

interline farelevels;

carriers do not set prorates in total irolation

of interline

markets and partners

as the "double

marginalization" theory attumes, and do not refuse

to (onsider

more jointly beneficial

alternative

prorates

: "Double

markups"

never exitted be(ause airlines never price on a "(ost

plus markup"

basis; I The general claim that "high" interline

prorates are evidence ot structural

barriers be<ause they

are inherently

suboptimal

is false; there are many examples

o{ rationally

higher prorates,

and thetheory

i5 not based

on any actual examples

of irrationally

suboptimal

pri(ing; Effi(ient interline pri.ing can be managed

at small airlines with limited

automation,

and i5 easily managed

via fatemapping

at any carrier uSing modern r€venue management

tools;

o Themarketinget{iciencyoftheoriginal l990sNorthAtlanticallianceshadnothingtodowith pricing; the actual

brand awareness

and distribution

efficiencie5

achieved are foundin any "hub network

versus point-to-point"

situation and were not uniquely

caused by antitrust rmmunrty

: Historical

limitations

to more widespread

interline pricing hadnothing

to do withthe lack

of alliances or antitrust

immunity

but was due to the inherent

difficulty

of establishing

jointly profitable

interline fare5 between longhaul and shorthau

operators.
r None of the statistical

nalysig inthe Brueckner

and Whalen paperr demonstrates

the existence of "double

marginalization"

or any related structural

barriers or supports

the claim

that it is thetau5e

of higher

nonalliance

prices; there is ab5olutely

no empiri<al

evidence thatthe theorized

structural

barriers to efficient

interline pricing adually exist. The Joint Applicant's

public benefit claim depends on the {alse

assumption

that non-immunized interline fares are always higher than immunized

alliance and online connectinq

fares in all

### Horan

EAAA Supplemental

Comments

8 lanuary

2010 20
situations,

regardlegs

of market

or (ompetitive

(onditions,

and thatthese

higher non immunized fares would immediately

fallto the lower

immunized/online

level upon grant of immunity ! The only legitimate

historical

cate of consumer

pricing benelits from immunity

occurred

in the 1990s in a specific

range ol double-connect

North Atlantic markets that hadno online

service, where new alliances prices were subitantially

lower than the previously

available

interline pri(es; this benefit is onlypossible

in cases where new allian(e servi(e enterr an O&D solely served on an online

basir; "interline-only"

O&Dr hadbeen

almost completely

eliminated

on the North

Atlantic by 1999, and thus it would not be possible

for any new alliance to achieve material pricing benefits fromthi5

5ource.

- Brueckner

and Whalen's

regression

correlation5

between

"alliances"

and "lower

prices" vastly overstate

the claimed

alliance pricing benefit, as their regressions

were not properly

restricted to the double-connect, interline-only

markets and included

many markets thatalready

had online pricing. There were major consumer

benefits realized on the North

Atlantic following the introduction

of alliances

in the mid 90s,

but most were due to non-alliance

Jactors including

prolitable

capacity growth and hub expansion,

market liberalization,

increased carrier efficiencies

due to fleet and technology

improvements,

and lower

fuelpricer.

The
consumer

benefils due to alliance

pricing in previously

interline-only

markets hadbeen

fully exhausted

bythe end

of the decade,

and all ol the available

empirical

evidence

shows that the consumer

welfare impact of antitru5t

immunity

grant' since 1999 has been negative.

- The loint Applicant's'

provided

no evidence

that their

current non-immunized

code5hare

and interline fares in any given market arehigher

thancompetitive

online and alliance fares, much less evidence showing thatthey

are 17.45%

higher as their testimony

claims; Neither theJoint Application

or the Brue(kner

and Whalen pri(ing theories are 5upported

by any empirical

evidence that non-immunized

carriers publish higher fareg thanonline

and alliance carriers in any given market, and the claims

of structurally

higher non-immunized

fares would contradict

all hirtori(al

evidence that airlines

with comparable

products cannot sustain higher than "market"

tares in (omoetitive

O&Dt.

, The Joint Applicants'claim

that non-alliance

fares are structurally

higher thanalliance

lare5 is based on thefalse

assumption

that all of these

competitors

sel farer on a markup

basis relative to a marginal

cort-type

rneasure;

iJ thir were

troe, airline {arer would fluctuate

wildly withvolatile

input costs such a5 fuel. lf a given

interline fare was rationally

pro{it maximizing prior to an immunity

grant, it would irrational

to reduce

it after an immunity

grant. Since there is no evidence

that current

arer areirrationally

set above profit-maximizing

levels, there is no reason

to believe

that an immunity

granl would systematically

reduce fares. There is no empirical

evidence

oJ any farereductions

dire(tly attributable

to any antitrust immunity

grant in the last

decade, and certainly no evidence

of {are reductions

of the 17-30%, $200'250

per ticket magnitude

suggested

bythe "dooble

marginalization"

theory and claimed bythe.Joint

Applicants.

: 5ince the Brueckner

and Whalen theories andregressions

do not justify the "universal

marketindependent

cooperative

allian(e pri(in9" impacts.laimed

bythe loint Applicants, there is no basir {or using

(oefficientg

fromthose

regressions

a the basis of predi(ting

such alliance pricing impacts in today's

market.

E2. Theloint ABpli<nitl-.Clqltr 9i$92 mr!!!o!ln a04ual publi. benefite comoletely

fails to meet t[e qvideltljarylle]]d?Ids

of the Horizontal

Meroer Guid_e_!j!C|!Id

mq5lbqlejected in itr edlgl!

r The Joint Applicants

have failed to provide

proper, veriliable,

non-speculative

evidence that the claimed structural

"double marginalization"

barriers to efficjency

actually exirt ,: The (ited Brueckner

and Whalen "double marginalization"

theories do not constitute

legitimate evidence ot actual

barriers to ajrline

elficiency E The cited Brueckner

and Whalen "double marginalization"

theories arenot sLrpported

bytheir

own empjrical

evidence or any other independent

analysis 5howing systematic

barrier5 toHoran

BAAA Supplemental

Comments

8 January

2010 2l

non immunity

pricing efficiency,

all of the assumptiong

underlying

thetheory

can be plausibly challenged,

and there are highly plausible alternate

explanationr

for all oI the evidence

they cite in support

of their theory E The credibility

of the theory

must bequestioned

further given Brue(kner's

longstanding

role as a paid advocate

for another

airline with similar

interests in reduced

competition

among international

airlines

: The Joint Applicants'failed

to provide

any other eviden(e tupporting

thejr "double marginalization"

claim.

. The Joint Applicants

have failed to provide

proper, verifiable,

non-spe(ulative

evidence thatthe proposed

immunity

grant would lower prices in the spe(ific

markets served by the applicants,

under current market Conditions. E The loint Applicants

provided

no evidence

that the (urrent

interline pricing functjons

of Eritish Airways, American

Airlines, Finnair, lberia or Royal Jordanian

actually suffer from any

of the structural

inefticiencies

implied bythe "double

marginalization"

claim
c The Joint Applicants

provided

no evidence

thattheir

current interline pricing is currently

above online or altiance

levels in the markets

where it currently

provides service

. The.loint

Applicants

provided

no evidence

ol any specitic (onsumer-welfare

enhancing

pri(e redu<tions

it would make in any market it currently

server following

a grant of immunity,

and no evidence

thatthese

merger-specific

changes would create 992 million in annual

publi( benetits.

r At has

already been shown in the (omments

of the Depa.tment

of Jurticet5,

the loint Appiicants provide no proper,

verifiable,

non-speculative

eviden<e that it would

be unable

to provide

the alleged consumer

pricing benefits in the abtence

ol a grant

ot immunity,

although

this point is mooted bythe lack

of evidence

tor the alleged

consumer

pricing benefits.
r A5 the DOT has acknowledged

on many occasions,

the law placer

the burden

of proof on the carriers requesting

exemption

from the antitrust laws; this burden has

clearly not been met.

Reipect{ully

submitted, 

# 7t a xt*-

Hubert Horan S lanuary

2010

'" UOI cornnrents.

DOT-OST,2008-0252-3i?4 p. 22-28CERTIFICATE OF SERVICE I hereby certily that I have thi5 date served the foregoing document on the persons identified below by causing a copy to be sent by electronic mail

anbird@fedex.com andrew,forman@cwt.com anita.mosner@hklaw.com aserranzana@geclaw,com benjamin.slocum@usairwayt.com bill@mietuslaw.<om bkeiner@crowell.(om blabow@omm.com bob.kneisley@wnco.com bruce.rabinovitz@wilmerhale.com byerlyjr@rtate.9ov (arl.nelson@aa.com cdonley@ssd.com cgosain@steptoe.com (jsimpson@zsrlaw.(om cwilson@omm-com david.heffernan@wilmerhale.com d{isher@kelleydrye.com dhainba(h@ggh-airlaw.com diarmuid.ryan@hammonds.com dkirstein@yklaw.(om donna.kooperstein@usdoj.gov dvaughan@kelleydrye.com dwight.moore@ustranscom.mil ebailey@wileyrein.com efaberman@wileyrein.com gmurphy@(rowell.com howardkass@u5airways.com james.garzia@apgnet.com jashetaylor@gibsondunn.(om jeff.o9ar@aa.com jeflrey.manley@united.com jenniler.tro(k@pillsburylaw.com jhill@dlalaw.com jill.ptacek@usdoj.gov jim.ballough@faa.gov jrichard5on@johnlrichardson.com julie.oettinger@united.com jyoung@yklaw.com karine.laden@freshf

ields.com kevin.montgomery@polaraircargo.com kohstantinos.adamantopoulos@hammonds com kquinn@pillsburylaw.com lachter@starpower.net leslie.abbott@wn(o.com lhalloway@crowell-com libowd@snllcrom.com mamaila@airfaance.,fr mchopra@jamhoff.com mcmillin@woa.com mgerchick@gerchickmurPhY.com mgoldman@sqbdc.com mholland@condonlaw.(om mroller@rollerbauer-com mroSia@crowell-com msini(k@ssd.com npeteGon@wileyrein.com paul.jasinski@ba.(om paul.yde@f

reshf ield5.com peter.irvine@dot.gov pmurphy@gerchickmurPhY.(om pmurphy@lopmurPhY.com prrizzi@hhlaw.(om pruden@asta.org rbkeiner@crowell.com rclayman@geclaw.com recohn@hhlaw.com rick.rule@cwt.com robert.land@jetblue.(om rrilverberg@sgbdc.com russell.bailey@alpa.org sametta-c.barnett@delta.com sami.sarelius@Iinnair.fi sascha.vanderbellen@delta.com scott.mcclain@delta.com sllunsford@fedex.com sophy.chen@hklaw.com thomas.bolling@aoair.com tmuriS@omm.com todd.homan@dot.9ov wkaras@steptoe.com

Hubert Horan 1 February

2010 

# A-^-..---------.-------_-