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BEFORE THE

DEPARTMENT OF TRANSPORTATION

WASHINGTON, D.C.

Joint Application of )

)

AIR TAHITI NUI )

SOCIÉTÉ AIR FRANCE )

DELTA AIR LINES, INC. )

KONINKLIJKE LUCHTVAART MAATSCHAPPIJ N.V. ) DOCKET DOT-OST-2013-_____

ALITALIA-COMPAGNIA AEREA ITALIANA S.P.A. )

)

Under 49 U.S.C. §§ 41308 and 41309 )

for approval of and antitrust immunity )

for alliance agreements )

PUBLIC VERSION

JOINT APPLICATION FOR APPROVAL OF AND ANTITRUST IMMUNITY

FOR ALLIANCE AGREEMENTS

April 15, 2013
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Communications with respect to this document should be sent to:

Evelyn D. Sahr

James G. Ehrig

Eckert Seamans Cherin & Mellott, LLC

1717 Pennsylvania Avenue, NW

12th Floor

Washington, D.C. 20006

Phone: +1 202 659 6622

Fax: +1 202 659 6699

esahr@eckertseamans.com

jehrig@eckertseamans.com

Counsel for AIR TAHITI NUI

Andrea Fischer Newman,

Senior Vice President, Government Affairs

Alexander Van der Bellen,

Managing Director,

Government Affairs and Associate

General Counsel

DELTA AIR LINES, INC.

1212 New York Avenue, NW Suite 200

Washington, DC 20005

Phone: +1 202 842 4184

sascha.vanderbellen@delta.com

Rita Ciccone

General Counsel & Vice President Legal

and Corporate Affairs

ALITALIA-COMPAGNIA AEREA ITALIANA

S.p.A.

Piazza Almerico da Schio. Pal RPU

00054 Fiumicino (Roma), Italy

Phone: +39 06 65635136

ciccone.rita@alitalia.it

Richard D. Mathias

Zuckert, Scoutt & Rasenberger, L.L.P.

888 Seventeenth Street, NW, Suite 600

Washington, DC 20006-3309

Phone: +1 202 973 7917

Fax: +1 202 342 0683

rdmathias@zsrlaw.com

Counsel for ALITALIA-COMPAGNIA AEREA

ITALIANA S.p.A.

Robert E. Cohn

Patrick R. Rizzi

Hogan Lovells US LLP

555 Thirteenth Street, NW

Washington, DC 20004

Phone: +1 202 637 4999/5659

Fax: +1 202 637 5910

robert.cohn@hoganlovells.com

patrick.rizzi@hoganlovells.com

Counsel for

SOCIÉTÉ AIR FRANCE and

KONINKLIJKE LUCHTVAART

MAATSCHAPPIJ N.V.

Laurent Timsit,

Vice President –

European and International Affairs

SOCIÉTÉ AIR FRANCE

45, rue de Paris

F-95747, Roissy CDG Cedex

Paris, France
Table of Contents

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I. INTRODUCTION. 2

II. OVERVIEW OF ALLIANCE AGREEMENTS. 9

III. SUMMARY OF ARGUMENT. 15

IV. THE APPLICABLE LEGAL STANDARD. 21

V. APPROVAL AND GRANT OF ANTITRUST IMMUNITY 22

FOR THE ALLIANCE AGREEMENTS WILL PRODUCE

SUBSTANTIAL PUBLIC BENEFITS AND BE IN THE PUBLIC INTEREST.

 

A. The Immunized Alliance Agreements Will Enable the 27

Joint Applicants to Increase Service Over the LAX-CDG 

Joint Venture Route and Expand Beyond-CDG 

Codesharing, Resulting in Significantly Improved On-Line 

Service Options and Cost Savings.

 

B. The Immunized Alliance Agreements Will Eliminate 38

Inefficient “Multiple-Profit Markup” Pricing and 

Thereby Reduce Fares. 

 

C. Immunity Will Enhance Efficiencies and Thereby 41

Reduce Costs Which Will Inure to the Benefit of Consumers. 

 

VI. THE GRANT OF ANTITRUST IMMUNITY FOR THE ALLIANCE 43

AGREEMENTS WILL ENHANCE, NOT SUBSTANTIALLY 

REDUCE, COMPETITION.

 

A. Global Alliance Competition. 45

B. U.S.–Europe. 46

C. Country-Pairs. 50

D. City-Pairs. 53

E. There Is No Risk Of “Spillover” Between Immunized 57

and Non-Immunized Activities, Routes or Carriers. 

 

VII. THE EXTENSIVE BENEFITS FLOWING FROM THE 64

PROPOSED ALLIANCE CANNOT BE ACHIEVED 

WITHOUT ANTITRUST IMMUNITY.

Exhibits JA-1 to JA-6

Appendix A

Appendix B

Appendix C

Appendix D
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BEFORE THE

DEPARTMENT OF TRANSPORTATION

WASHINGTON, D.C.

Joint Application of )

)

AIR TAHITI NUI )

SOCIÉTÉ AIR FRANCE )

DELTA AIR LINES, INC. )

KONINKLIJKE LUCHTVAART MAATSCHAPPIJ N.V. ) DOCKET DOT-OST-2013-_____

ALITALIA-COMPAGNIA AEREA ITALIANA S.P.A. )

)

Under 49 U.S.C. §§ 41308 and 41309 ) April 15, 2013

for approval of and antitrust immunity )

for alliance agreements )

PUBLIC VERSION

JOINT APPLICATION FOR APPROVAL OF AND ANTITRUST IMMUNITY

FOR ALLIANCE AGREEMENTS

Air Tahiti Nui (“Air Tahiti Nui” or “TN”), Société Air France (“Air France” or

“AF”), Delta Air Lines, Inc. (“Delta”), Koninklijke Luchtvaart Maatschappij N.V.

(“KLM”), and Alitalia-Compagnia Aerea Italiana S.p.A. (“Alitalia”), and their

respective majority-owned affiliates1(collectively, the “Joint Applicants”) hereby

apply, pursuant to 49 U.S.C. §§ 41308 and 41309, for approval of and antitrust

immunity for alliance agreements covering foreign air transportation via transatlantic

routings as described more fully below. The Joint Application proposes to link Air

Tahiti Nui to the existing antitrust immunized alliance among Air France, KLM, Delta,

and Alitalia through a transatlantic Joint Venture between Air Tahiti Nui and Air

1

The Joint Applicants request that the grant of antitrust immunity (“ATI”) extend to their majorityowned corporate affiliates. See 2009 Star ATI, DOT Order 2009-7-10, Ordering Paragraph 1 at 27;

and 2011 Star ATI, DOT Order 2011-11-16, at 7 & Ordering Paragraph 1 at 11 (ATI granted to the

“majority-owned affiliates” of the joint applicants).
Joint Application

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France (“the AF-TN Joint Venture”) and Cooperation Agreements and a

Coordination Agreement with the other Joint Applicants. The AF-TN Joint Venture is

the featured centerpiece of the proposed Alliance, and it provides for “metal

neutrality”2and revenue sharing on the trunk route between Los Angeles, California

(“LAX”) and Paris, France (“CDG”) and for codesharing on beyond-CDG routes. The

AF-TN Joint Venture and the other Alliance Agreements, linked to the existing

antitrust immunized alliance among Air France, KLM, Delta, and Alitalia, will expand

Air Tahiti Nui’s very limited transatlantic network, enable the carriers to increase

transatlantic service options, and enhance competition with other global alliances

and unaligned transatlantic carriers. The proposed Alliance is consistent with the

public interest, will produce significant public benefits, and will not substantially

reduce competition.3

I. INTRODUCTION.

Air Tahiti Nui’s position in the global air transportation marketplace is unique,

and Air France has a unique and longstanding relationship with Air Tahiti Nui. On

the basis of that relationship, Air Tahiti Nui and Air France desire to participate in a

deeply integrated, immunized alliance to preserve and enhance competition and to

expand benefits to their customers.

2

““Metal neutrality” is an industry term meaning that the partners in an alliance are indifferent

as to which of them operates the “metal,” or aircraft, when they market and sell their services on a

joint network. Without a metal-neutral sales environment, the partners have an economic incentive to

book passengers on their own aircraft in order to retain a larger share of the revenues for themselves,

which may not be in the best interest of the consumer or the alliance as a whole.” Delta/Virgin

Blue/Pacific Blue, DOT Order 2011-5-8, at 2 n.4.

3

Appendices B and C contain additional information typically furnished to the Department in

response to information and document requests in other proceedings involving applications for a

grant of antitrust immunity.
Joint Application

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Air Tahiti Nui is the flag carrier of French Polynesia. It is headquartered in

Papeete and operates from Faa’a International Airport on the island of Tahiti (“PPT”).

Air Tahiti Nui was founded in 1996 and commenced flight operations two years later

with its inaugural flight from Tahiti to Los Angeles on November 20, 1998. The

Government of French Polynesia is the airline’s major shareholder, together with

Tahitian private investors. Air Tahiti Nui operates a fleet of five widebody Airbus A340-300 aircraft between Tahiti and four destinations: Los Angeles, Paris (via Los

Angeles), Tokyo, and Auckland. Air Tahiti Nui currently operates ten flights a week

between LAX and PPT.

Tourism accounts for 25% of French Polynesia’s GDP and is the primary

source of hard currency earnings. Approximately 70% of all tourism to French

Polynesia arrives via the Los Angeles gateway, and the CDG-LAX trunk route

accounts for 70% of the traffic between Europe and Tahiti. Accordingly, the LAX–

Paris trunk route is a vital lifeline for Air Tahiti Nui and French Polynesia.

French Polynesia is comprised of several groups of islands, the largest and

most populated of which is Tahiti. The islands of French Polynesia are located in the

middle of the Pacific Ocean approximately 4,000 miles from the United States, about

halfway between Australia and South America. The islands are spread out over an

area the size of Western Europe but have a total land mass approximately the size

of Rhode Island. As an island nation, French Polynesia is largely dependent on air

service for supplying the islands with goods and services not otherwise available,

such as the importation of specialty items from around the world, the delivery of

international cargo and mail, and, most importantly, the transportation of tourists to
Joint Application

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and from the islands. Tahiti is an 81⁄2 hour flight from Los Angeles. The geographic

location of Air Tahiti Nui’s home base necessarily limits a multitude of service

options, and, accordingly, air service between the United States and Tahiti is quite

limited.

French Polynesia is an “overseas country” of France and has been politically,

culturally, and economically connected with France since the late 1800s, when the

French Republic united all of the French Polynesian island groups into a French

protectorate. More recently, between 1946 and 2003, French Polynesia held the

status of an overseas territory of France. It became an overseas collectivity of

France4in 2004 and is now officially referred to as an “overseas country”. French is

the official language of French Polynesia and is spoken by the vast majority of its

population.

As a result of this long-term relationship, the two countries are politically,

culturally, and commercially connected. They share a deep-rooted history,

connected heritage, and common language. Air Tahiti Nui and Air France are both

French carriers and serve the French public living in their respective home countries.

In addition to many long-standing cultural similarities, Air France and Air Tahiti Nui

also share common business interests and have had a successful reciprocal

codeshare relationship since 2003 for service between Papeete and Paris via Los

Angeles.

The link Air France provides for Air Tahiti Nui, funneling traffic from France

and European beyond points to French Polynesia, is essential to the continued

4 CIA World Factbook, French Polynesia, http://ciaworldfactbook.us/oceania/french-polynesia (last visited

January 17, 2013).
Joint Application

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viability of Air Tahiti Nui as a competitive international airline. In addition, Los

Angeles is the prime gateway between French Polynesia and the rest of the western

world, with approximately 70% of all tourism to French Polynesia arriving via the LAX

gateway. Tourism from France and the United States is vital to the French

Polynesian economy, and due to the travel distances involved, the only way to

funnel traffic between French Polynesia and Europe is through a West Coast point

such as Los Angeles. Nonstop travel between Tahiti and France is not feasible.

Paris is the natural, most desired European destination and connecting

gateway for French Polynesia passengers. Air France is therefore the natural

partner for an alliance with Air Tahiti Nui because no other airline would provide the

level of access to Paris and points beyond Paris in Europe. And, from a geographic

point of view, LAX is the key pipeline for serving Paris from French Polynesia.

Arms’-length codesharing with Air France on the LAX-CDG route is not an

option. Based on Air France’s experience with the immunized SkyTeam

Transatlantic Joint Venture (“SkyTeam TATL JV”)5, Air France believes that a

metal-neutral joint venture is the only way to produce a win-win for Air France, Air

Tahiti Nui, and their customers. The AF-TN Joint Venture will ensure that the

decisions are made for the benefit of the AF-TN Joint Venture enterprise as a whole,

not the self-interest of the individual carriers. Moreover, Air France is willing to give

Air Tahiti Nui access to its CDG network only on the basis of an immunized joint

venture which, in turn, will create value and produce incremental revenues not

attainable under arms’-length codesharing.

5

SkyTeam II ATI, DOT Order 2008-5-32; DOT Order 2009-6-26.
Joint Application

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As discussed in detail below, the AF-TN Joint Venture will produce substantial

public benefits. The AF-TN Joint Venture will enable Air Tahiti Nui and Air France to

increase nonstop service between Los Angeles and Paris, which will greatly benefit

the traveling public. Antitrust immunity will also allow the carriers to optimize and

harmonize their flight schedules to improve time-of-day flight coverage over the LAXParis trunk route and to offer faster, more efficient connecting service to and from

points beyond Paris. Further, Air Tahiti Nui is currently located in Terminal 2A of

CDG, which is a lengthy walk to Air France’s main section of the airport located in

Terminal 2E/2F. Due to Air Tahiti Nui’s remote location, currently U.S. travelers from

Los Angeles to Paris on Air Tahiti Nui flights have a difficult time making connections

out of CDG on Air France. With the AF-TN Joint Venture, Air Tahiti Nui will move to

the 2E/2F Terminal next to Air France, making it easier for U.S. travelers to connect

out of CDG to points beyond in Europe. Thus, the AF-TN Joint Venture will provide

capacity enhancements, connecting efficiencies, and more choices for the U.S.

traveling public.

In addition to the above benefits, the AF-TN Joint Venture will provide Air

Tahiti Nui with the opportunity to participate in multiple frequent flyer mile/award

programs. Because Air Tahiti Nui currently is not in an alliance, it does not have

access to an interchangeable frequent flyer program. Travel between Los Angeles

and Paris involves a large quantity of potential frequent flyer miles, and Air Tahiti

Nui’s inability to tap into an alliance’s frequent flyer programs limits its competitive

effectiveness as some passengers, especially those traveling for business,
Joint Application

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frequently choose an airline based on the frequent flyer miles and awards offered for

their travel.

Notably, Air Tahiti Nui’s small size and geographic location necessitate a

limited, hybrid approach to its alliance with Air France. In July 2012, Air Tahiti Nui

entered into a transpacific codesharing relationship with American Airlines for U.S.–

French Polynesia operations. Under that codeshare agreement, American Airlines

places its AA* code on Air Tahiti Nui flights between Tahiti and Los Angeles, and Air

Tahiti Nui places its TN* code on American Airlines flights to 19 destinations in the

United States. This relationship allows Air Tahiti Nui to feed U.S. traffic to Tahiti

through the Los Angeles gateway and also gives it the ability to sell tickets in the

U.S. market for travel between the United States and Tahiti.

The Government of French Polynesia has indicated that it “wholeheartedly

supports” this hybrid approach involving (i) arms’-length codesharing on the LAX–

Tahiti route and (ii) the Joint Venture alliance with Air France on the transatlantic

routes, because it “will strengthen both Air Tahiti Nui and the lifeline of tourism into

French Polynesia from Europe and in particular from France” and because “this

connection is invaluable to the tourism industry in French Polynesia.”6It requested

that Air Tahiti Nui exclude Tahiti–Los Angeles from the proposed Alliance with Air

France because, in contrast to the transatlantic service, Tahiti–Los Angeles “is a

restricted market with little competition, as there is no connecting service to the

Pacific.” [Exhibit JA-1]

6

Letter from the President of French Polynesia to the President of Air Tahiti Nui, dated January

21, 2013. [Exhibit JA-1].
Joint Application

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As noted above, approximately 70% of all tourism to French Polynesia arrives

via the LAX gateway, and roughly half of that traffic originates in France. Air Tahiti

Nui’s ability to expand transatlantic traffic flows and service for traffic originating in

France and beyond in Europe under the AF-TN Joint Venture is vital to its continued

economic health and its ability to remain a viable transpacific competitor between the

U.S. and Tahiti (without immunity) and in the global marketplace. Coordinating

within the AF-TN Joint Venture on the transatlantic route will provide a sustainable

model to capture as much tourism traffic as possible from Europe that can be

transferred via Los Angeles to Tahiti. In this way, the immunized transatlantic AF-TN

Joint Venture will strengthen Air Tahiti Nui and enable it to preserve and enhance its

competitive position on its non-immunized transpacific routes. Thus, the

combination of Air Tahiti Nui’s arms’-length transpacific codeshare arrangement with

American and the proposed transatlantic AF-TN Joint Venture will ensure Air Tahiti

Nui’s long-term viability and preserve healthy competition on both the transatlantic

and transpacific routes.

The proposed immunized Alliance will also allow Air Tahiti Nui to

expand service options and synergies with multiple airline partners, thereby

increasing its competitive effectiveness in the important U.S.–Europe

transatlantic market. Such service will also benefit the travelling public in that

consumers will have additional choices and greater scheduling options for

travel between Los Angeles and Paris and points beyond Paris.
Joint Application

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II. OVERVIEW OF ALLIANCE AGREEMENTS.

By DOT Orders 2008-5-32 and 2009-6-26, the Department granted

authority for Air France, KLM, Delta, Alitalia, and Czech Airlines to operate

an antitrust-immunized alliance. Air France, Delta, KLM, and Alitalia are

parties to the immunized SkyTeam TATL JV. This Joint Application seeks to

link Air Tahiti Nui to the alliance among the four SkyTeam TATL JV Partners

through the transatlantic AF-TN Joint Venture, a multilateral coordination

agreement among all of the Joint Applicants, and bilateral cooperation

agreements between Air Tahiti Nui and each of the other Joint Applicants.

Air Tahiti Nui is an airline licensed by the DGAC of France, with its

principal office and base of operations in Tahiti, French Polynesia. Air Tahiti

Nui holds foreign air carrier permit authority from the Department authorizing

it to engage in scheduled foreign air transportation of persons, property, and

mail from points behind French Polynesia via French Polynesia and

intermediate points to the United States and beyond. See DOT Order 2003-

9-27.

The homelands of each foreign Joint Applicant have an “Open Skies”

agreement with the United States, which is “a necessary predicate” for any

antitrust immunity from the Department. 2010 oneworld ATI, DOT Order

2010-2-8, at 3. The EU–U.S. “Open Skies” Air Transport Agreement governs

air transportation among the United States and France, the Netherlands, and
Joint Application

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Italy – the homelands of Air France, KLM, and Alitalia, respectively.7 The

U.S.–France “Open Skies” Air Transport Agreement, as amended, remains in

force and governs air service between the United States and French

Polynesia, the homeland of Air Tahiti Nui.

Air France and Air Tahiti Nui currently have an arms’-length codeshare

arrangement involving flights between Paris and Los Angeles and between

Los Angeles and Papeete. That codeshare arrangement was approved by

the Department in August 2002. See Notice of Action Taken, dated August

30, 2002 (Docket DOT-OST-2002-13268). Air Tahiti Nui and Air France now

desire to broaden and deepen their commercial relationship to achieve greater

operational efficiencies and expand their networks on a more integrated and

coordinated basis. To accomplish this objective, Air France and Air Tahiti Nui

have entered into a Joint Venture Agreement establishing – subject to a grant

of antitrust immunity – a highly integrated, metal-neutral, revenue-sharing

transatlantic joint venture covering the LAX–CDG trunk route, as well as new

free-flow codesharing on the trunk route and beyond CDG.

Air Tahiti Nui has also entered into a multilateral Coordination

Agreement with the other Joint Applicants and bilateral Cooperation

Agreements with each of them. The requested antitrust immunity must

encompass the Coordination and Cooperation Agreements and include Delta,

7

Air France, KLM, and Alitalia each holds an “Open Skies” U.S.–EU foreign air

carrier permit. See DOT Order 2008-3-16 (Air France); DOT Order 2008-5-40 (KLM); DOT

Order 2010-1-15 (Alitalia). Air France, KLM, and Alitalia are members of the immunized

SkyTeam Alliance and the immunized SkyTeam TATL JV. SkyTeam II ATI, DOT Order

2008-5-32.
Joint Application

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KLM, and Alitalia, in order to bridge the two immunized Joint Ventures, to

avoid any potential “immunity gap” between the two joint ventures, and to

allow for Air Tahiti Nui to coordinate with the SkyTeam Joint Applicants. Such

coordination could include codesharing on Air Tahiti Nui’s nonstop LAX–CDG

flights, coordination of fares/schedules, and sharing confidential competitive

information with respect to foreign air transportation via transatlantic routings.

Accordingly, the Joint Applicants seek approval of, and a grant of antitrust

immunity for, the following agreements to be made effective immediately upon the

issuance of a Final Order, for a term of not less than five years:

 A bilateral Joint Venture Agreement between Air France and Air Tahiti Nui

(“AF-TN Joint Venture Agreement”);

 A multilateral alliance coordination agreement among the Joint Applicants

(“Multilateral Coordination Agreement”);

 Bilateral alliance cooperation agreements between Air Tahiti Nui, on the

one hand, and Air France, KLM, Delta, and Alitalia, on the other hand

(“Bilateral Cooperation Agreements”);

 An AF-TN “Free Flow” Codeshare Agreement; and

 Any existing and future implementing agreements in furtherance of the

foregoing agreements and any transaction undertaken pursuant to any of

the foregoing agreements.

These Alliance Agreements8 mirror the types of alliance agreements that the

Department has approved and immunized in many other recent ATI cases. See,

e.g., 2010 oneworld ATI, DOT Order 2010-7-8, at 22; SkyTeam II ATI, DOT Order

2008-5-32, at 4; U.S.-Japan Alliance Case, DOT Order 2010-10-4, at 21.

8

The above-referenced agreements between and among the Joint Applicants are collectively

referred to as the “Alliance Agreements” and are attached in Appendix A.
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It is also important for the Department to understand what this Joint

Application does not seek. The requested immunity will not encompass foreign air

transportation between the United States and French Polynesia, between the United

States and the South Pacific, or between the United States and other international

destinations served via transpacific routings. Similarly, although previous grants of

antitrust immunity by the Department have typically been global in scope,9the Joint

Application seeks antitrust immunity only with respect to foreign air transportation via

transatlantic routings. In addition, although the AF-TN Joint Venture will

coordinate with members of the immunized SkyTeam TATL JV, there are no

plans for Air Tahiti Nui to become a member of the immunized SkyTeam TATL JV

or of SkyTeam. Finally, Korean Air Lines, Czech Airlines, Virgin Australia, V

Australia, Pacific Blue Airlines (NZ/Aust.), and non-immunized SkyTeam carriers are

not included in the Alliance Agreements or the requested antitrust immunity, and

thus are not parties to this Joint Application.

With their proposed Joint Venture, Air France and Air Tahiti Nui intend

to coordinate their services, facilitate seamless air transportation between

the two carriers, improve the efficiency of their operations, enhance their

ability to compete in the transatlantic marketplace, and expand the benefits

available to the traveling public. As more fully described below, the

proposed AF-TN Joint Venture will involve coordination in the following areas with

respect to their nonstop passenger flights between LAX and CDG:

9

“The immunity from United States antitrust laws granted by the Department typically extends

to all global markets and services involving international air transportation.” 2007 Star ATI, DOT

Order 2006-12-17, at 2-3.
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 Schedules and Capacity Planning

 Pricing, Inventory, and Yield Management

 Revenue Sharing

 Codesharing

 Passenger Sales and Marketing

 Joint Purchasing

 Ground handling and co-locating/sharing airport facilities

 Information technology, distribution systems, and support services.

The immunized coordination will enable Air Tahiti Nui and Air France to coordinate

their transatlantic services on the LAX-CDG trunk route as if there had been an

operational merger between them.

Air France and Air Tahiti Nui will also engage in expanded codesharing on a

free-flow basis. This will enable Air Tahiti Nui to expand its competitive transatlantic

presence by placing its code on beyond-CDG services operated by Air France (and

Air France’s affiliates) and by improving the connectivity of service between Europe

and Tahiti via LAX (without immunized coordination with respect to the local LAXTahiti segment).

The Bilateral Cooperation Agreements with the other Joint Applicants

and the Multilateral Coordination Agreement provide the opportunity for

enhanced commercial cooperation between Air Tahiti Nui and the other

SkyTeam Joint Applicants through cooperative joint marketing programs and

coordinated activities on transatlantic passenger air transportation services.

After receipt of the requisite regulatory approvals, the other Joint Applicants
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will participate in, and share confidential, competitively-sensitive information

regarding, the coordination of fares, schedules, and capacity on the LAX–

CDG route. For example, [confidential]

[end

confidential]

Air Tahiti Nui’s small size, market niche, and location make it better suited to

participate in a limited joint venture with Air France, as opposed to joining the larger

immunized SkyTeam Alliance or the SkyTeam TATL JV. The costs and burdens

imposed on Air Tahiti Nui to join the SkyTeam TATL JV would far outweigh the

benefits. Air Tahiti Nui does not have the resources or manpower required to

participate in the global joint venture, particularly given that only one trunk route is

involved in the proposed Alliance. Nonetheless, for the reasons discussed above,

Air Tahiti Nui believes it is essential for it to be part of an immunized alliance in the

transatlantic market to strengthen traffic flows over the key LAX-CDG trunk route.

In summary, granting antitrust immunity to the Alliance Agreements will

enable the Joint Applicants to generate substantially greater consumer and

competitive benefits than they could otherwise achieve in the absence of immunity,

all without a substantial reduction in competition.
Joint Application

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III. SUMMARY OF ARGUMENT.

The Joint Application fully satisfies the statutory criteria under 49 U.S.C. §§

41308 and 41309 for approval of, and antitrust immunity for, the Alliance

Agreements. The requested approvals and antitrust immunity are also fully

consistent with Department precedents in other antitrust-immunized alliance cases.

The AF-TN Joint Venture Agreement will create a common economic interest

between Air France and Air Tahiti Nui on the LAX–CDG route. Implementation of

the AF-TN Joint Venture and other jointly coordinated activities and programs

pursuant to the other Alliance Agreements will produce important new integrative

efficiencies and enable the carriers to generate substantial public benefits. These

benefits, discussed in more detail below, include the expansion of Air Tahiti Nui’s

transatlantic presence, increased service on the LAX-CDG route, substantial

beyond-CDG codesharing, new online city-pairs and improved elapsed travel times,

optimized schedules resulting in improved time-of-day coverage and expanded

connectivity, and the greater availability of discount seats.

The carriers also anticipate that substantial economies can also be

achieved through closer coordination of their operations, marketing, planning,

purchasing, and support services with respect to the LAX–CDG route. These

efficiencies will, in turn, benefit air travelers because they will translate

directly into more competitive fare offerings and innovative new service and

product options not otherwise attainable in the absence of antitrust immunity.

Indeed, the consumer benefits of the AF-TN Joint Venture are substantially greater

than under arms’-length cooperation because metal neutrality eliminates the self-
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interested incentives to channel passengers onto a carrier’s own aircraft. With their

immunized metal-neutral, revenue-sharing Joint Venture, Air France and Air Tahiti

Nui will be able to focus on gaining the customer’s business by providing the best

available LAX–CDG itineraries and more frequencies at fares likely to be lower than

would be possible without antitrust immunity due to the Joint Venture’s elimination

of double marginalization10.

Closer integration of operations, planning, and marketing will also better

position Air Tahiti Nui and Air France to develop an integrated transatlantic

network of seamless transportation services over the LAX–CDG trunk route

and beyond–CDG services. The improved connectivity between Europe and

Tahiti via LAX will expand Air Tahiti Nui’s global footprint, enhance customer

convenience and satisfaction, and enable the Joint Venture Partners –

particularly Air Tahiti Nui which is not a member of any global alliance – to

compete more effectively over transatlantic routes. Indeed, Air Tahiti Nui

believes that its proposed immunized transatlantic Joint Venture with Air

France is essential to its long-term ability to compete in the global

marketplace.

To achieve these significant public benefits, Air France, Air Tahiti Nui, and the

other Joint Applicants need to be able to agree on service and capacity, jointly plan

schedules/routes, align economic incentives, work together toward common

10 “Double marginalization, also called multiple mark-ups, occurs when two airlines have basic

interline or code share arrangements to handle multiple segments but are unwilling to cooperatively

price the combined itinerary for the consumer. Thus, for example, Airline A is not willing to accept a

cooperative price for the segment it operates because it risks losing revenue to Airline B, which might

operate the longer, more profitable segment in the itinerary. The consumer is ultimately not offered

the most competitive fare or optimal routing.” Delta/Virgin Australia/Pacific Blue, DOT Order 2011-6-

9, at 4 & n.15.
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economic interests, jointly establish prices and fares, jointly determine inventory

allocations, agree on products, and share revenues, among other activities. These

important, consumer-benefiting joint activities and this deeper level of integration,

however, are only possible “following a grant of immunity,” particularly in light of

antitrust exposure risks with respect to the AF–TN Joint Venture Agreement and the

planned collaborative activities between Air Tahiti Nui and the other Joint Applicants.

2007 Star ATI, DOT Order 2006-12-17, at 18. Arms’-length codesharing or other

forms of non-immunized collaboration will not generate comparable public benefits,

as the Department has recognized:

“We also tentatively find that a grant of antitrust immunity is necessary

to achieve many of these [public] benefits. In the current environment,

the two sets of [carriers] are unable to cooperate on fares, route

coordination, and other business plans on a network-wide basis

because of the risk of a legal challenge. As such, the carriers are

currently unable to implement many of the provisions that would deliver

the most significant consumer benefits: joint pricing, joint scheduling,

and network coordination. . . . Absent the ability to share revenues and

establish a truly metal-neutral network, the alliances would also lack

the commercial incentive to fully integrate their networks.”

2010 U.S.-Japan Alliance Case, DOT Order 2010-10-4, at 14.

In addition to the need for antitrust immunity to implement the AF-TN Joint

Venture,11 antitrust immunity between Air Tahiti Nui and the other Joint Applicants is

necessary for three principal reasons:

11 “These second-stage commercial agreements, such as the [AF-TN Joint Venture

Agreement], involve revenue and benefit-sharing arrangements that create a greater risk of

antitrust litigation and potential antitrust liability, even though we have tentatively found that the

alliance expansion will not substantially reduce competition.” 2007 Star ATI, DOT Order 2006-

12-17, at 17.
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First, under the SkyTeam TATL JV, [confidential]

[end confidential] Given this structure, it will be necessary for Air Tahiti

Nui, Delta, and Air France to discuss competitively sensitive topics such as pricing,

yield management, and inventory control on foreign air transportation via

transatlantic routings.

Second, it is necessary for Air Tahiti Nui to have antitrust immunity for its

Alliance Agreements with the other SkyTeam Joint Applicants in order to permit freeflowing discussions and the exchange of competitively sensitive and confidential

information on subjects like schedule coordination, capacity levels, optimization of

cooperative activities, marketing initiatives, frequent flyer programs, joint

procurement, and harmonization of standards.

Third, Air France will contribute its share of revenues under the revenuesharing provisions of the AF-TN Joint Venture to the SkyTeam TATL JV as part of

the SkyTeam TATL JV financial settlement. As a result, the other SkyTeam TATL

JV Partners will effectively be participating in the pooling of revenues with Air Tahiti

Nui under the AF-TN Joint Venture.

Failure to grant antitrust immunity for the Alliance Agreements among and

between Air Tahiti Nui and the other Joint Applicants would subject the carriers to

unacceptable antitrust liability risk.

A carve-out of the LAX–CDG route from the SkyTeam TATL JV is neither

necessary nor required, and would not be acceptable to Air France or the other

SkyTeam Joint Applicants. As a result of the SkyTeam TATL JV, pursuant to which
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[confidential]

[end confidential] A carve-out would be unduly burdensome and inefficient,

and Air France is not prepared to accept a carve-out of the LAX-CDG route and

sacrifice the benefits it achieves from coordinating with Delta and the other SkyTeam

TATL JV Partners on that route.

Moreover, the Department has repeatedly recognized that carve-outs in the

context of joint ventures would be counterproductive and anti-consumer because it

would undermine the benefit-producing efficiencies of the joint venture.

“When the SkyTeam and Star applicants presented the Department

with integrated joint ventures of substantial scope, the Department

ultimately decided that the carve-outs would undermine the

efficiencies of the joint venture, and thus we removed the carve-outs

on affected routes. (Certain carve-outs remain on routes that are not

subject to joint venture cooperation.) The key point is that carve-outs

affecting only certain passengers . . . introduce inefficiencies for

joint venture partners whose alliance is otherwise pro-competitive.

The costs of managing the carve-out for select fare classes or select

travelers disrupt the efficient functioning of the joint venture and impair

metal-neutrality, which limits the benefits for both nonstop and

connecting passengers. In short, we have concluded that the

disadvantages of carve-outs outweigh the advantages in markets

where there is joint venture cooperation. We find that this

conclusion applies to the facts of this case as well.” 2010 oneworld ATI,

DOT Order 2010-7-8, at 21 (emphasis added).
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Granting this Joint Application would be consistent with Department policy,

which has encouraged small, unaligned airlines to participate in antitrust immunized

alliances. And, applications to add smaller foreign airlines to an existing immunized

alliance have typically been noncontroversial and promptly approved by the

Department. See, e.g., 2007 Star ATI, DOT Orders 2006-12-17 & 2007-2-16 (LOT

and TAP join Star Alliance); 2001 Star ATI, DOT Order 2001-1-19 (Austrian joins

Star Alliance); 2011 Star ATI, DOT Order 2011-11-16 (Brussels Airlines joins Star

Alliance); 2007 Star ATI, DOT Order 2007-9-12 (bmi joins Star Alliance as a full

member); 2010 oneworld ATI, DOT Orders 2010-2-8 & 2010-7-8 (Finnair and Royal

Jordanian obtain immunity as part of oneworld).

Here, Air Tahiti Nui is a small carrier with a very limited presence in the

U.S.–Paris, U.S.–France, and U.S.–Europe markets, and it is not a member of

an airline alliance. [Exhibits JA-2, JA-3, JA-4] As previously discussed, it

needs to participate in an antitrust-immunized alliance in order to be an

effective transatlantic competitor and enhance its long-term position in the

global marketplace. Like the smaller carriers added to the immunized Star and

oneworld alliances (discussed above), Air Tahiti Nui desires to participate in an

antitrust-immunized alliance to realize the economies of scope and density that arise

from participating in a larger, more integrated network. Linking Air Tahiti Nui to the

existing immunized alliance among Air France, KLM, Delta, and Alitalia is consistent

with those precedents.

Importantly, a grant of immunity for the Alliance Agreements will produce

public interest and consumer benefits without any substantial reduction in
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competition. Given Air Tahiti Nui’s very small share of the U.S.–Europe, U.S.–

France, and U.S.–Paris markets, the Alliance Agreements will not appreciably affect

– much less alter – the competitive balance in any of these markets. The

Department has granted antitrust immunity to alliances and carriers (i) having far

more overlapping nonstop routes where the number of competitors would decrease

to one, and (ii) where the resulting market shares of the alliance carriers were higher

than here. Moreover, there are many competitive one-stop and connecting

alternatives between LAX and CDG which will continue to provide service and fare

discipline. Indeed, one-stop and connecting traffic accounts for about 45% of the

LAX–Paris market. [Exhibit JA-5] And, this is an “Open Skies” route that any EU or

U.S. carrier can serve at any time.

IV. THE APPLICABLE LEGAL STANDARD.

In considering applications for antitrust immunity, the Department engages in

a two-part analysis: a “competitive analysis” and a “public benefits” analysis. See

2011 Star ATI, DOT Order 2011-11-16, at 5; 2010 oneworld ATI, DOT Order 2010-7-

8, at 7-8. The Department is required under 49 U.S.C. § 41309(b) to “approve an

agreement . . . when the Secretary finds it is not adverse to the public interest and is

not in violation of this Part.” If the Department approves an agreement under 49

U.S.C. § 41309, the Department has the discretion to grant the transaction antitrust

immunity under 49 U.S.C. § 41308 “provided that [the Department determines that]

the exemption is required by the public interest.” 2011 Star ATI, DOT Order 2011-

11-16, at 5; see also 49 U.S.C. § 41308. “While the public interest determination

under both §§ 41309(b) and 41308(b) entails a comparison of anti-competitive
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effects and public benefits, the standard in section § 41308(b) . . . is higher.” 2011

Star ATI, DOT Order 2011-11-16, at 5; 2010 oneworld ATI, DOT Order 2010-7-8, at

8.

The Department’s established policy is to approve and grant immunity for

inter-carrier agreements if:

(1) the agreements do not eliminate or substantially reduce competition

and are not adverse to the public interest; and

(2) a grant of immunity is required by the public interest and for the

parties to proceed with the transaction.

2010 oneworld ATI, DOT Order 2010-7-8, at 8. As discussed in detail below, the

Joint Application clearly satisfies each of these criteria. Accordingly, the Department

should approve and grant antitrust immunity for the Alliance Agreements.

V. APPROVAL AND GRANT OF ANTITRUST IMMUNITY FOR THE

ALLIANCE AGREEMENTS WILL PRODUCE SUBSTANTIAL PUBLIC

BENEFITS AND BE IN THE PUBLIC INTEREST.

Air France and Air Tahiti Nui have entered into a bilateral Joint Venture in

order to expand and deepen their coordination, strengthen their transatlantic

services, expand and more fully develop their international networks, and exploit

synergies resulting from more complete integration. An immunized AF-TN Joint

Venture will also enhance Air Tahiti Nui’s ability to compete in the global

marketplace. This is a particularly important objective for Air Tahiti Nui given that it

is a relatively small carrier and not a member of any global alliance. The other

Alliance Agreements establish a solid framework for enhanced cooperation and

coordination between Air Tahiti Nui and each of the other Joint Applicants, which in
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turn will result in additional consumer and competitive benefits. Antitrust immunity is

essential, however, if the Joint Applicants are to implement the Alliance Agreements

and deliver the resulting public benefits to travelers.

The AF-TN Joint Venture Agreement in particular establishes the structure for

highly integrated commercial cooperation between Air Tahiti Nui and Air France:

 The AF-TN Joint Venture Agreement details Air France’s and Air Tahiti Nui’s

plans and objectives for future transatlantic integration between them.

 The AF-TN Joint Venture Agreement provides for a “common bottom line”

(with its revenues being shared between Air France and Air Tahiti Nui

according to a formula) and creates incentives to maximize benefits for

consumers and the Joint Venture as a whole. (Article 9)

 The business objectives of the Joint Venture are:

[confidential]

[end confidential]

 Air France and Air Tahiti Nui will jointly manage the Joint Venture,

[confidential]
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[end confidential]

A joint venture arrangement represents the deepest, most integrated form of

alliance cooperation, with the potential to create the greatest degree of public

benefits for consumers and communities. These public benefits cannot be achieved

through standard codesharing or other arms’-length arrangements, and the

Department has concluded that implementing joint venture integration requires the

umbrella of antitrust immunity.

The AF-TN Joint Venture Agreement will enable Air Tahiti Nui and Air France

to implement a common metal-neutral economic interest by sharing revenues from

coordinated foreign air transportation on the LAX–CDG trunk route. This
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arrangement will ensure that each carrier is fairly compensated for the value of its

respective service and contribution to the AF-TN Joint Venture as a whole and will

maximize each carrier’s incentive to pursue services, sales, and marketing initiatives

for the benefit of the Joint Venture. Having a common economic interest will also

empower the Joint Venture to benefit consumers significantly through greater service

options, the introduction of new flights, expanded availability of discount seats, lower

fares resulting from the elimination of incentives for each carrier to build in separate

profit markups on codeshare flights, reduced costs, improved elapsed times,

increased flight routings, and joint fare initiatives – benefits the Department has

recognized in the past.

“Northwest-KLM, the first transatlantic alliance with an integrated joint

venture, and the only for which long-term data are available, has been

associated with lower fares, increased capacity, and greater service

options for passengers. The data on subsequent immunized alliances

also suggest pro-consumer results, even before those alliances moved

towards deeper integration.” 2010 oneworld ATI, DOT Order 2010-2-8,

at 22.

A common bottom line for revenues prioritizes benefits to the proposed AFTN Joint Venture as a whole with each partner sharing in the fruits of that

cooperative effort. This is in contrast to non-immunized relationships where each

carrier strives to maximize its own economic self-interest and is unwilling to

disadvantage itself for the benefit of the other alliance or joint venture participants.

The closer cooperation made possible through the immunized AF-TN Joint Venture

removes the incentives for Air France and Air Tahiti Nui to act opportunistically in

ways which inure to the short-term financial benefit of one carrier but which reduce

the efficiency and consumer benefits of the bilateral transatlantic alliance as a whole.
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The AF-TN Joint Venture is the deepest level of integration possible, and the

Joint Venture Partners have concrete plans to utilize the requested immunized

authority. Although the proposed Joint Venture Agreement is a relatively new

development, Air France and Air Tahiti Nui have substantial prior experience as

partners. As detailed elsewhere in this Joint Application, the Joint Venture Partners

have had a codesharing relationship for more than a decade; they are culturally and

commercially linked; they provide vital services to the people of France and French

Polynesia; and their respective information technology and reservations systems are

currently readily compatible with each other without any need for changing

technology platforms in order to make these benefits a reality for consumers. With

this background, the Department has substantial certainty that the substantial

consumer benefits and efficiencies of the AF-TN Joint Venture highlighted in this

Joint Application will be realized soon after the requested antitrust immunity is

granted.

Antitrust immunity for the Alliance Agreements and the linkage to the existing

antitrust immunized SkyTeam TATL JV will produce the following substantial public

benefits:

 A broader and more fully optimized joint network;

 Substantial expansion of Air Tahiti Nui’s transatlantic and European

presence;

 Additional and expanded services on the LAX–CDG route;

 Substantial beyond-CDG codesharing resulting in new on-line citypairs, new paths, and improved elapsed travel times;
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 Improved connectivity and enhanced on-line service options between

Europe and Tahiti via LAX;

 Lower fares through the elimination of “double marginalization” pricing;

 A greater availability of discount seats through improved access to

expanded inventory;

 Enhanced fare and service competition against other alliances and

large carriers operating U.S.–Europe and U.S.–France services; and

 Cost savings from efficiencies realized as a result of the immunized

cooperation and coordination.

Antitrust immunity for the Alliance Agreements will offer expanded, more

convenient schedule options, improved, seamless service throughout a broader

international route network, expanded scope for each participant carrier’s frequent

flyer program, and broader “one-stop shopping” opportunities. See 2010 U.S.-Japan

Alliance Case, DOT Order 201010-4, at 14 (“We [DOT] have observed that product

quality improvements, expanded frequent flyer coordination, and other benefits arise

from immunized alliances in the transatlantic market . . . .”). In addition, the cost

benefits and efficiencies that can be achieved by the AF-TN Joint Venture will flow to

customers in the form of cost savings, harmonized superior service, increased

availability of lower fares, and augmented discount/incentive programs. These

consumer benefits closely mirror the benefits produced by other immunized joint

ventures and acknowledged by the Department.

A. The Immunized Alliance Agreements Will Enable the Joint

Applicants to Increase Service Over the LAX-CDG Joint Venture

Route and Expand Beyond-CDG Codesharing, Resulting in

Significantly Improved On-Line Service Options and Cost

Savings.
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Under the AF-TN Joint Venture Agreement, Air Tahiti Nui and Air France will

improve their service offerings. The AF-TN Joint Venture Agreement specifically

provides for joint coordination of scheduling, planning, and capacity on the LAX–

CDG route and of connectivity on beyond–CDG services:

[confidential]
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[end confidential]

The Alliance Agreements will enable the Joint Applicants to optimize

schedules and provide new travel options for consumers and communities, including

additional nonstop frequencies, improved time-of-day coverage on the LAX–CDG

route, and expanded beyond–CDG on-line services.

The substantial benefits of this expanded coordination and integration among

the Joint Applicants are otherwise unattainable in the absence of antitrust immunity.

The AF-TN Joint Venture allows for “metal neutrality,” which maximizes incentives

for the Joint Venture Partners to

(i) efficiently codeshare without restrictions,

(ii) agree on schedules that increase passenger convenience by adding new

flights or shifting flights to provide broader time-of-day coverage, and

(iii) route customers on city-pairs via the most efficient routing regardless of

which carrier operates the flight(s).

In addition, economies of density will arise as a result of the immunized coordination

and cooperation. Demand will increase due to the higher quality product created by

the antitrust-immunized AF-TN Joint Venture and the lower prices made possible

through lower costs. The increased traffic will enable the Joint Venture Partners to

(i) increase their load factors, (ii) increase frequencies (more weekly flights), (iii)

improve connectivity, and (iv) use fixed ground facilities and personnel more

efficiently.
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Indeed, the Department has repeatedly recognized that integrated

multinational airline alliances, such as the AF-TN Joint Venture, can produce

extensive consumer benefits12: “Antitrust immunity is well suited to enable carriers to

achieve merger-like efficiencies and deliver benefits that would not otherwise be

possible.” SkyTeam II ATI, DOT Order 2008-4-17 at 15. For example, the

Department has noted the beneficial impact of immunized alliances on service

levels, fares, and costs:

“Alliance-based networks are the principal driving force behind

transatlantic price reductions and traffic gains.” DOT Second Report, at

5-6.

“[W]e tentatively find that the following public benefits are likely [from

an immunized oneworld alliance]: (1) more options for travelers in

numerous transatlantic city pairs, based on the applicants’ ability . . . to

achieve fare combinability; (2) lower fares resulting from the reduction

in double marginalization on multi-segment itineraries; (3) volume

discounting . . .; (4) expanded access to discounted fares resulting

from coordinated inventory; (5) reduced costs through shared sales,

marketing, distribution, procurement, . . .” 2010 oneworld ATI, DOT

Order 2010-2-8, at 30.

“Generally speaking, a grant of antitrust immunity may enable airlines

to achieve merger-like synergies, boost capacity, and deliver lower

prices for some itineraries.” Delta/Virgin Blue/Pacific Blue, DOT Order

2011-5-8, at 13.

“The likelihood that these proposed benefits [e.g., fare reductions,

more access to lower fares, and cost savings, etc.] will be realized is

12 See International Aviation Developments: Transatlantic Deregulation, The Alliance Network

Effect, U.S. Department of Transportation, Office of the Secretary (Oct. 2000), at 5 (“DOT Second

Report”), at 2-3, 5-6, 10 (emphasis in original); see also, e.g., DOT Orders 2008-5-32 (SkyTeam II

ATI); 2010-10-4 (ANA/CO/UA; AA/JAL); 2009-4-5 (CO/Star Alliance); 2010-2-8 (oneworld ATI); 2011-

6-9 (DL/Virgin Australia/Pacific Blue); 2006-12-17 (Star Alliance ATI); 2005-10-8 (American/Lan

Airlines/Lan Peru); 2005-1-23 (America West/Royal Jordanian); 2004-4-10 (American/SN Brussels);

2003-5-18 (United/Asiana); 2002-11-12 (American/SWISS); 2002-7-39 (American/Finnair); 2002-6-18

(Delta/Korean); 2002-4-4 (United/bmi); 2002-1-6 (Delta/Air France/Alitalia/Czech); 2001-5-1

(Continental/COPA); 2001-1-19 (United/Austrian); 1999-9-9 (American/Lan Chile).
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supported by both our [DOT’s] historical experience reviewing antitrust

immunity cases and several third-party studies of immunized alliances.

In a review of international airline cooperation between 1990 and 2000,

Whalen found that immunized alliances are associated with 50 percent

higher passenger volumes and 16 to 21 percent lower fares that [sic]

non-immunized alliances. Other studies have pointed to fare

reductions and welfare gains that occur when cooperating alliances

eliminate or reduce two separate mark-ups, or double marginalization,

on interline routes.” U.S.-Japan Alliance Case, DOT Order 2010-10-4,

at 13.

The Department has also acknowledged that antitrust immunity increases

carriers’ economic incentives to codeshare on a broader basis and to reduce their

interline fares. And, the Department has recognized these benefits are also

produced in the context of granting antitrust immunity to an alliance between two

foreign carriers: “The proposed alliance will allow the partners to broaden and

deepen their existing code-share arrangement to achieve greater operational

efficiencies and to continue the expansion of their route networks on a more

integrated and coordinated basis.” See SAS/Icelandair, DOT Order 2000-10-13, at

15. Moreover, unlike SAS/Icelandair, the Air France–Air Tahiti Nui cooperation

involves a joint venture which will allow for deeper, more integrated coordination

that will enable the carriers to optimize service and fare enhancements.

The immunized AF-TN Joint Venture will enable Air Tahiti Nui and Air

France to produce significant benefits, efficiencies, and cost savings by

incentivizing both partners to act in the collective interest of the Joint Venture, instead

of the individual interest of each carrier. Air France’s most important strategic assets

supporting the LAX-CDG route are its large beyond-CDG network, large frequent flyer

base, and corporate accounts with global market demands. Air Tahiti Nui is currently a
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very small carrier on the LAX-CDG route with no frequent flyer base and no significant

network behind LAX or in Europe. In the absence of antitrust immunity, Air France will

use its assets to benefit its own flights. The immunized Joint Venture, however,

eliminates the self-interest incentive, and will allow the carriers to create a broader

network, offer new flights, increase frequencies (supported by increased traffic

flows), provide their customers with optimized routings, itineraries, and time-of-day

coverage, and offer lower combined fares (since each AF-TN Joint Venture Partner

shares in the revenue generated by the other – rather than just its own metal

services).

The immunized AF-TN Joint Venture will increase frequencies and capacity

on the LAX–CDG trunk route. Under the Joint Venture, Air Tahiti Nui expects

[confidential]

[end confidential]

In addition, the immunized Joint Venture will provide enhanced time-of-day

coverage. For example, the current schedule for Air Tahiti Nui’s LAX–CDG flight

in July 2013 has an early afternoon LAX departure and a late morning CDG

departure.
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Current July 2013 Schedule (LAX–CDG) – Daily Flights

Departure Time – LAX Departure Time – CDG

TN 13:10 11:30

AF 15:45 10:30

AF 18:30 13:35

As can be seen, Air Tahiti Nui and Air France offer almost wingtip-towingtip morning departures from CDG (about an hour apart). Morning CDG

departures are considered prime-time departures. Neither carrier would

unilaterally remove itself from that time period based on its own self-interest.

However, as part of the immunized, metal-neutral AF-TN Joint Venture, the

carriers have the incentive to optimize schedules for the good of the Joint

Venture, which, in turn, benefits the traveling public, and thus [confidential]
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[end confidential]

Flight connections between the AF-TN Joint Venture Partners would also

be greatly enhanced as a result of co-locating and sharing their facilities at CDG

by moving Air Tahiti Nui from Terminal 2A to Terminal 2E/F. [Exhibit JA-6.] The

co-location and sharing of facilities at this large gateway airport will generate

substantial cost savings, facilitate seamless metal-neutral operations, and greatly

enhance the passenger experience and connectivity. In the absence of immunity

and the resulting increased traffic flows and enhanced connectivity from the

metal-neutral Joint Venture, there is no incentive to expend the requisite

resources and make the necessary investments to co-locate and share facilities.

As a result of the immunized AF-TN Joint Venture, Air France will also be

able to offer [confidential]

[end

confidential] And, Air Tahiti Nui’s ability to offer seamless, immunized

codesharing on beyond-CDG routes will result in substantial efficiencies and

savings when compared to operating such tag routes with its own aircraft and

crews.

The expanded codesharing and schedule coordination within the framework

of the AF-TN Joint Venture Agreement will enable the carriers to increase traffic

flows over their combined network, increase aircraft utilization, and more efficiently
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utilize airport/ground personnel and facilities, thereby reducing unit operating costs

and achieving economies of density superior to those achieved by carriers that

codeshare on a non-immunized basis. The higher load factors generated by “metalneutral” sales, increased connecting traffic flows, joint pricing, and inventory/revenue

management will also translate into a reduction in the Joint Venture Partners’

marginal operating costs; and the integration of transatlantic pricing functions should

result in a reduction in the Joint Applicants’ administrative costs. This, in turn, will

result in lower costs for passengers.

In addition, the AF-TN Joint Venture will enable Air Tahiti Nui to significantly

expand its network through expanded free-flow codesharing on LAX–CDG and

beyond–CDG flights operated by Air France. On this subject, the AF-TN Joint

Venture Agreement provides:

“Codesharing

LAX-CDG: In order to maximise passenger traffic and revenues

generated by the Joint Venture, [confidential]

[end

confidential]

BEYONDS: In order to enhance service options for the traveling public

[confidential]
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[end confidential]

With respect to new on-line service benefits, Air Tahiti Nui’s European

network will initially expand by up to confidential]

[end confidential].

In sum, the closer coordination made possible through the AF-TN Joint

Venture Agreement and the other Alliance Agreements will enable the Joint

Applicants (e.g., Air Tahiti Nui, Air France, Delta, KLM, Alitalia) to eliminate current

arms’-length negotiated restrictions on codesharing and expand reciprocal

codesharing on the LAX–CDG route. This expansion is particularly important for Air

Tahiti Nui because Air Tahiti Nui has a small presence across the Atlantic Ocean

and in Europe, and Paris is the only point in Europe that Air Tahiti Nui serves with its

own aircraft.
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Codesharing without antitrust immunity produces significantly fewer network

expansion and consumer benefits than an immunized, integrated alliance because

the incentives are carrier-centric rather than alliance-centric. In arms’-length, nonimmunized codeshare relationships, carriers limit codeshares on the basis of tit-fortat exchanges of benefits. However, the AF-TN Joint Venture Agreement

establishes incentives for each carrier to focus on maximizing benefits for the AF-TN

Joint Venture as a whole, not just for the individual carrier. In such a relationship,

winning the passenger’s booking for a trip on the LAX–CDG route is the priority,

regardless which carrier, in fact, transports the passenger on its transatlantic

itinerary. To this end, the AF-TN Joint Venture Agreement provides detailed

provisions, including formulas, for handling the Joint Venture’s financial settlements.

(Article 9) Approval of the Joint Venture and other Alliance Agreements will also

enable the Joint Applicants to coordinate schedules and connections in ways that

will result in improved on-line service options and benefits, improved (i.e., reduced)

elapsed travel times, additional flexible routings and travel paths for passengers, and

the more efficient use of their networks.

These are important and valuable benefits for consumers. Passengers value

frequent and convenient service because the availability of travel options increases

the likelihood that they will be able to find seats, discount fares, and timely service.

Furthermore, on connecting flights, passengers must be able to obtain seats on each

of the legs necessary to link the point-of-origin to the point-of-destination and in both

directions. By combining the Air France and Air Tahiti Nui networks, passengers will

be afforded more service options for mixing and matching outbound and return paths
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between the United States and Europe and between Europe and Tahiti. These

synergies will yield time savings, enhanced convenience, increased travel options,

and lower average fares. Indeed, the Department has acknowledged such benefits

in prior grants of antitrust immunity:

“This proposed expansion will increase international service options,

particularly for traffic to or from cities beyond and behind major

gateways. The alliance will enable the [Star Alliance] partners, for

example, to provide on-line service between points behind their

gateways in the United States and points beyond Warsaw, Lisbon, and

Zurich, among others.” 2007 Star ATI, DOT Order 2006-12-17, at 18.

B. The Immunized Alliance Agreements Will Eliminate Inefficient

“Multiple-Profit Markup” Pricing and Thereby Reduce Fares.

A grant of antitrust immunity will eliminate inherent inefficiencies to pricing

and enable the Joint Applicants to offer more attractive fares to consumers. Under

the AF-TN Joint Venture Agreement, the Joint Venture Partners will coordinate, to

the maximum practicable extent, pricing, fares, and inventory/yield management for

foreign air transportation involving transatlantic routings.

[confidential]
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[end confidential]

Under a typical, non-immunized codeshare between two carriers with each

operating separate legs, each carrier prices independently and charges its own profit

“markup” for its leg, i.e., double marginalization. But, with antitrust immunity and

especially with a common revenue bottom line under the AF-TN Joint Venture

Agreement, the carriers jointly price a fare without the separate profit markups and

thus offer lower fares. This deeper level of coordination and cooperation will involve

discussions among personnel from each carrier about transatlantic fares, pricing,

yield management, seat inventory allocation, discount programs for certain travelers,

promotional fare offerings, joint bids for large volume travelers, prorate agreements,
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wholesale net fares, uniformity for miscellaneous service charges, and the

integration of the corresponding revenue/inventory management systems.

With this enhanced cooperation, consumers, corporate travel departments,

and travel agents will enjoy an expanded availability of discount fares and incentive

programs. Such a result should not be surprising given the findings of the

Department and others that “[a]lliance-based networks are the principal driving force

behind transatlantic price reductions and traffic gains” (DOT Second Report, at 5)

and “Whalen found that immunized alliances are associated with . . . 16 to 21

percent lower fares that [sic] non-immunized alliances” (2010 U.S.-Japan Alliance

Case, DOT Order 2010-10-4, at 13).

Although Air France and Air Tahiti Nui are the only carriers providing nonstop

service between LAX and Paris, there is little risk of any adverse pricing impact on

that route. First, as discussed later, there is a vast array of one-stop and connecting

flights serving that route, which are used by almost one-half of all passengers

travelling between Los Angeles and Paris. Second, Air Tahiti Nui operates only

three times per week between LAX and CDG in the winter, and thus for almost 60%

of the time there is only one nonstop operator. In fact, Air Tahiti Nui currently

operates daily service on this trunk route for only two months of the year. (IATA

2012 Schedules, OAG.) Third, Air Tahiti Nui has never had an influence on the

pricing behavior on the LAX-CDG route because it is too small (0.1% U.S.-Europe,

0.9% U.S.-France), has no beyond-CDG connectivity, and has only a limited

frequent flyer program. [Exhibits JA-2, JA-3] Simply put, Air Tahiti Nui’s pricing

behavior on this route does not result in competitive responses from other carriers.
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The Joint Venture, however, will allow the carriers to maximize service and

efficiencies, which will increase the availability of discount fares and incentive

programs for the travelling public.

C. Immunity Will Enhance Efficiencies and Thereby Reduce Costs

Which Will Inure to the Benefit of Consumers.

1. Joint Marketing, Promotion, and Distribution.

The Alliance Agreements provide for closer cooperation among the Joint

Applicants in marketing, promotion, and distribution. This effort will entail the

coordination of their sales forces, commission/incentive programs for various

customer groups (e.g., travel agents, corporations, governments, consolidators, tour

operators, and other customer groups), joint marketing efforts and campaigns,

standardization of programs and contracts, expansion through coordination of

discount and incentive programs, enhanced coordination of frequent flyer programs,

and the integration of related systems. For example, the AF-TN Joint Venture

Agreement states:

[confidential]
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[end confidential] Consumers will gain substantial benefits from this marketing,

promotion, and distribution coordination.

2. Joint Procurement.

The Joint Applicants will coordinate and cooperate on joint procurement

activities, which will result in reduced costs. These activities may include (i)

volume/bulk purchasing, common specifications for goods/services, joint bidding,

joint negotiations with suppliers, the use of standardized contracts for

goods/services, and even the establishment of a joint procurement group, and (ii)

diverse areas of supply-and-demand such as general goods/services, maintenance

services, field station support, catering services, ground equipment acquisition and

sales, fuel, information technology, and courier services.
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In particular, the AF-TN Joint Venture Agreement provides that the Joint

Venture Partners [confidential]

[end confidential] The Multilateral Coordination Agreement also

provides that any two of the Joint Applicants may engage in cooperative programs

including joint purchasing. Joint procurement activities under the AF-TN Joint

Venture Agreement and the Bilateral Coordination Agreements will enable the

carriers to negotiate for better, lower-priced contracts with suppliers, and cost

reductions generally lead to price reductions for passengers.

3. Joint Development and Coordination of Accounting &

Information Systems and Data.

The Joint Venture Partners will coordinate efforts to implement compatible

information systems and accounting data. (Section 6.1.4 and Article 9) Coordination

in these areas will likewise assist in generating synergies and cost efficiencies,

which, in turn, will benefit the AF-TN Joint Venture, the other Joint Applicants, and

their travelers. To this point, the information technology and reservations systems

used by Air France and Air Tahiti Nui are currently readily compatible with each

other without any need for changing technology platforms in order to make these

benefits a reality for consumers.

VI. THE GRANT OF ANTITRUST IMMUNITY FOR THE ALLIANCE

AGREEMENTS WILL ENHANCE, NOT SUBSTANTIALLY REDUCE,

COMPETITION.

A grant of antitrust immunity for the Alliance Agreements will enhance interalliance and transatlantic competition in a number of ways. First, it will enable Air
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Tahiti Nui to gain a stronger presence in the transatlantic market and in Europe

generally, a critically important development for Air Tahiti Nui given its small

presence in this region. Second, it will enhance Air Tahiti Nui’s economic viability

and enable it to sustain and strengthen its presence in the transatlantic market and

funnel greater traffic flows over its non-immunized transpacific routes to sustain and

strengthen its competitive presence across the Pacific Ocean. Third, the AF-TN

Joint Venture Agreement and other Alliance Agreements will enable the Joint

Applicants to (i) implement additional nonstop flights between the U.S. and France,

and (ii) expand their respective networks by offering broader codesharing on the

LAX–CDG and beyond-CDG routes.

At the same time, the grant of antitrust immunity for the Alliance Agreements

will not substantially reduce competition. When the Department evaluates

applications for antitrust immunity, the Department applies “the Clayton Act test,

which is used to predict the competitive effects of a proposed merger,” and primarily

considers:

“whether a grant of antitrust immunity is likely to substantially reduce

competition and facilitate the exercise of market power – that is, to allow

the applicants to profitably charge supra-competitive prices or reduce

service or quality below competitive levels in any relevant market. . . .

[and] whether the alliance would significantly increase market

concentration in relevant markets, whether the alliance causes potential

competitive harm, and whether new entry into the market would be

timely, likely, and sufficient either to deter or to counteract the potential

competitive harm.” Delta/Virgin Blue/Pacific Blue, DOT Order 2011-5-8,

at 6-7 (footnote omitted).13

13 See also 2011 Star ATI, DOT Order 2011-11-16, at 5; 2010 oneworld ATI, DOT Order 2010-

2-8, at 11.
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The Department examines whether a proposed alliance would substantially reduce

competition in relevant markets, including the global, inter-alliance, U.S.-regional,

U.S. country-pair, and city-pair markets.

As a general principle, the addition of a small airline to an existing alliance

does not substantially reduce or eliminate competition. As the Department observed

in approving the addition of LOT and TAP (each far larger than Air Tahiti Nui) to the

immunized Star Alliance, “there is only a small risk of competitive harm where the

transaction involves small networks with limited nonstop service to the United

States.” 2007 Star ATI, DOT Order 2006-12-17, at 19. Here, Air Tahiti Nui has a

substantially smaller network and less U.S.–Europe service than LOT or TAP had.

Air Tahiti Nui’s immunized Joint Venture with Air France and immunized

coordination with the other SkyTeam Joint Applicants will enhance competition

among both alliances and airlines, not substantially reduce it.

A. Global Alliance Competition.

There are only three branded, global alliances: Star, oneworld, and SkyTeam

(of which Joint Applicants Air France, Delta, KLM, and Alitalia are immunized

members). Competition among them is intense, and the immunized cooperation of

Air Tahiti Nui with certain members of SkyTeam will only enhance this inter-alliance

competition.

In 2011, the Department granted antitrust immunity to a group of eleven Star

Alliance members. 2011 Star ATI, DOT Order 2011-11-16. The Star Alliance now

has more immunized airlines than any alliance in the world, and the nine-member

immunized Star Alliance encompasses seven European carriers (Lufthansa,
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Austrian, SAS, LOT, SWISS, TAP, Brussels Airlines) and two North American

carriers (United, Air Canada).14 The Star Alliance operates approximately 21,900

daily departures, serving 1,329 airports in 194 countries.15 The five-member

immunized oneworld Alliance has three European carriers (British Airways, Iberia

Airlines, Finnair), and the entire oneworld alliance operates approximately 8,672

daily departures, serving 823 destinations in 154 countries.16

Air Tahiti Nui is a small, unaligned airline that is not a member of an airline

alliance. It does not have antitrust immunity enabling it to coordinate and cooperate

with other airlines. In order to strengthen its competitive position, expand its market

presence across the Atlantic Ocean and in Europe, offer its passengers more

service options, and enhance passenger convenience, Air Tahiti Nui seeks to

participate in an immunized alliance. To that end, it has entered into the Joint

Venture with Air France concerning the LAX–CDG route and beyond-CDG

codesharing, the Multilateral Coordination Agreement, and Bilateral Cooperation

Agreements with the other Joint Applicants. A grant of antitrust immunity will enable

Air Tahiti Nui to compete more effectively in the global marketplace against the other

major alliances and larger, unaligned transatlantic carriers.

B. U.S.–Europe.

The U.S.–Europe air services market is intensely competitive under the EUU.S. “Open Skies” Agreement. Approximately 39 U.S. and foreign scheduled

14 Since that 2011 Star ATI Order, bmi was sold and ceased participating in the Star Alliance,

see DOT Order 2012-6-21, and Continental has merged with United.

15 See Star Alliance Website, Star Alliance Facts and Figures (November 2012), available

at http://www.staralliance.com/assets/doc/en/about/member-airlines/pdf/

Star%20Alliance%20Facts%20and%20Figures%20Nov%202012.pdf.

16 See oneworld Alliance Website, oneworld at a glance (January 2013 data), available at

http://www.oneworld.com/news-information/oneworld-fact-sheets/oneworld-at-a-glance/.
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passenger carriers provide scheduled passenger nonstop service between 29

airports in the United States and 51 airports in Europe. For the year ended February

2013, there were 32.7 million air passengers between the United States and

Europe.17 Air Tahiti Nui has a very small presence in the U.S.–Europe market. It

provides service on just a single transatlantic route (LAX–CDG) and accounts for just

0.1% (one-tenth of one percent) of the U.S.–Europe traffic. [Exhibit JA-2] In fact,

approximately 33 U.S. and foreign air carriers (not including Air France, Delta, KLM,

and Alitalia) have a larger share of the U.S.–Europe market.18

In granting antitrust immunity to the oneworld Alliance in 2010, the

Department reported that the immunized U.S. and European members of the Star

Alliance (plus Air New Zealand) would have a 31.7% nonstop on-board market share

in the U.S.-EU market19 post-transaction, followed by the immunized SkyTeam at

28.9%, oneworld at 22.3%, Virgin Atlantic at 7.1%, US Airways at 4.6%, and other

carriers accounting for the remaining 5.5%. See 2010 oneworld ATI, DOT Order

2010-2-8, at 14. The Department noted that there were then approximately 39

airlines in the nonstop scheduled U.S.–EU market and that “[n]o single airline has a

dominant share of nonstop passengers, indicating a generally competitive market.”

2010 oneworld ATI, DOT Order 2010-2-8, at 13.

More recent data indicate that the Star Alliance accounts for approximately

40.7% of the U.S.–Europe market, with the SkyTeam Alliance and oneworld

accounting for about 26.0% and 20.5%, respectively, and unaffiliated carriers

17 MIDT Data, YE February 2013.

18 MIDT Data, YE February 2013.

19 The Department included Norway and Switzerland traffic in this “EU” data. See 2010

oneworld ATI, DOT Order 2010-2-8, at 14 n.42.
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representing the remaining 12.8%.20 Air Tahiti Nui’s immunized Joint Venture with

Air France and immunized coordination/cooperation with Delta, KLM, and Alitalia

would not materially alter U.S.-Europe market shares or the competitive balance

among alliances and unaligned carriers. The Star Alliance would still be

substantially larger than SkyTeam and oneworld, and oneworld would retain

basically the same market share as before. Focusing solely on the AF-TN Joint

Venture, the Joint Venture Partners would together account for only about 5.1% of

the U.S.–Europe market, less than non-immunized Star Alliance member US

Airways at 5.7%.21 Moreover, the intense competition in the transatlantic

marketplace will continue as airlines and alliances (i) compete for passengers on

fares, service, schedules, and routings, and (ii) take advantage of the EU-U.S.

“Open Skies” Agreement whereby U.S. and EU carriers are able to fly from any EU

country to the United States, regardless of which specific EU country is the foreign

carrier’s homeland (e.g., Open Skies – a member of oneworld and a U.K. carrier –

flies nonstop from Paris to the United States; and Lufthansa, a member of the Star

Alliance, could fly nonstop from Paris to New York as well if it desired).

In addition, many of the carriers serving the U.S.–Europe market operate from

hubs in their homelands or from hubs of their immunized alliance partners, and

support their nonstop services by offering codeshare connections behind and

beyond their gateways to even more destinations. For example, the Star Alliance

transports transatlantic passengers over United’s hubs in Chicago, Washington,

Denver, San Francisco, and New York, Air Canada’s hubs in Toronto and Montreal,

20 MIDT Data, YE February 2013.

21 MIDT Data, YE February 2013.
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Lufthansa’s hubs at Frankfurt and Munich, SWISS’ hub at Zurich, SAS’ hub at

Copenhagen, TAP’s hub at Lisbon, LOT’s hub at Warsaw, and Brussels Airlines’ hub

at Brussels, among others. Oneworld carries transatlantic passengers over

American’s hubs in Chicago, Dallas/Ft. Worth, Miami, and New York, British Airways’

hub at London, Finnair’s hub at Helsinki, and Iberia’s hub at Madrid, among others.

In short, passengers flying on these alliances have options to travel to, from, and via

a large number of gateways on each side of the Atlantic Ocean.

Air Tahiti Nui, however, has no hub in the U.S. or Europe, nor does it currently

offer behind/beyond-Paris codesharing connections. It is a very small transatlantic

carrier (with a single transatlantic route and a 0.1% U.S.–Europe market share),

[Exhibits JA-2, JA-4], and it does not participate in any alliance, much less an

immunized one. Accordingly, a grant of immunity here will not materially change the

U.S.–Europe competitive landscape.

The AF-TN Joint Venture seeks to address Air Tahiti Nui’s situation. It will

enable Air Tahiti Nui to expand its LAX–CDG and beyond-CDG services, and

improve connectivity for traffic between Europe and Tahiti via LAX. This will

strengthen the ability of Air Tahiti Nui to compete more vigorously in the transatlantic

market and expand its presence in behind- and beyond-gateway U.S.-Europe citypairs. Thus, the Joint Venture will provide more consumers access to the

competitive benefits generated by vigorous transatlantic competition among

alliances and network carriers and will substantially bolster Air Tahiti Nui’s vital role

in connecting France with French Polynesia via Los Angeles and supporting French

Polynesia’s critically important tourism industry.
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C. Country-Pairs.

The United States currently has “Open Skies” agreements with each

homeland of the European Joint Applicants: (i) EU-U.S. “Open Skies” Agreement

covering France (Air France), the Netherlands (KLM), and Italy (Alitalia); and (ii)

U.S.-France “Open Skies” Agreement, as amended, covering French Polynesia (Air

Tahiti Nui). The AF-TN Joint Venture and immunized coordination/cooperation with

the other Joint Applicants will not materially reduce or eliminate competition in any

relevant transatlantic country-pairs.

(i) U.S.-France. There are about 46 daily nonstop flights offered by 9

carriers between the United States and France. In addition to the nonstop services

offered by Air Tahiti Nui, Air France, and Delta, the following carriers operate

competitive nonstop flights between the United States and France: oneworld

members American and Open Skies (8 daily nonstop flights), Star Alliance members

United and US Airways (7 daily nonstop flights), and XL Airways France.22

European and U.S. carriers from the Star and oneworld Alliances also offer

substantial competitive one-stop connecting service over their European and U.S.

gateways (e.g., Frankfurt, Zurich, London, Madrid, Munich, New York, Chicago,

Dallas/Ft. Worth, Houston) to various destinations in France. And, immunized Star

Alliance carrier, Air Canada, offers substantial one-stop options from the United

States to France via its Toronto and Montreal gateways. In the 2007 Star ATI

proceeding, the Department recognized the competitive discipline resulting from

22 If the American–US Airways merger is completed, AA and US together would operate eight

daily departures to France from seven cities in the United States.

See http://newamericanarriving.com/customers/more-flights/;

see also http://newamericanarriving.com/customers/international-benefits/

(last reviewed February 14, 2013).
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connecting services operated by other alliances and carriers across the Atlantic

Ocean to continental Europe: “For the large majority of travelers, the carriers

offering U.S.-Switzerland connecting services, such as the European members of

SkyTeam and oneworld, should discipline the fares and service offered by the

nonstop [Star Alliance] carriers.” 2007 Star ATI, DOT Order 2006-12-17, at 12.

Furthermore, as noted above, the EU-U.S. “Open Skies” Agreement permits EU and

U.S. carriers to commence new or additional service between the United States and

France at any time as they see fit. Simply put, there are significant nonstop, onestop, on-line, and interline services between the United States and France;

competition is flourishing; and market entry is wide open.

For the year ended February 2013, there were more than 3.22 million

passengers traveling between the United States and France.23 The SkyTeam

Alliance accounted for approximately 43.5% of the U.S.-France market, with the Star

and oneworld Alliances accounting for about 26.5% and 21.4%, respectively.24 For

its part, Air Tahiti Nui had less than 1% of the U.S.–France market [Exhibit JA-3] and

1.2% of the U.S.–Paris market.25 And, 11 other carriers (excluding Air France, Delta,

and KLM) had larger shares of the U.S.-France market than Air Tahiti Nui did.26

Thus, the immunized Joint Venture with Air France and coordinated activities with

the other Joint Applicants would result in a de minimis share increase for them in the

U.S.–France market.

23 MIDT Data, YE February 2013.

24 MIDT Data, YE February 2013.

25 MIDT Data, YE February 2013.

26 MIDT Data, YE February 2013.
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Indeed, even at a combined market share of about 44% for the Joint

Applicants in the U.S.-France market, that is less than other homeland market

shares of applicant-carriers for antitrust immunity in other cases. To this point, the

Department has previously determined that large country-pair market shares do not

mean that a market is uncompetitive, particularly where open entry (as in this case)

permits other competitors and alliances to offer nonstop and on-line options. For

example, when the Department granted antitrust immunity to SkyTeam, it

emphasized:

“[T]he proposed Delta-Air France-Alitalia-CSA alliance will have a large

share of the U.S.-Czech Republic/France/Italy markets. Nonetheless,

considering the competitive nonstop service offered and the openmarket conditions, we tentatively find that the proposed alliance will not

allow the Joint Applicants to charge supra-competitive prices or to

reduce service below competitive levels in these three country-tocountry markets.” SkyTeam I ATI, DOT Order 2001-12-18, at 13.

That same determination applies with even greater force here. Given the availability

of competitive nonstop, on-line, and interline service and the unrestricted

opportunities to increase service under the EU-U.S. “Open Skies” Agreement, the

“Joint Applicants will not be able to impose and sustain supra-competitive prices or

reduce service below current competitive levels in the above U.S.-country pairs. . . .

[I]t is likely that the services of the proposed alliance will be effectively disciplined by

competition provided by other airline and alliance networks.” 2007 Star ATI, DOT

Order 2006-12-17, at 13.

(ii) U.S.-Netherlands; U.S.-Italy.

Air Tahiti Nui does not operate any nonstop service between the United

States, on the one hand, and the Netherlands or Italy, on the other hand. Indeed, Air
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Tahiti Nui does not serve these countries at all. Accordingly, neither Air Tahiti Nui’s

immunized Joint Venture with Air France nor its immunized cooperation/coordination

with the other Joint Applicants will lead to any reduction, elimination or overlap of

nonstop service in either of these country-pairs.

D. City-Pairs.

Air Tahiti Nui’s transatlantic service does not overlap with any nonstop service

of Delta, KLM or Alitalia. Air France and Air Tahiti Nui provide overlapping nonstop

transatlantic service on only one nonstop route, LAX–CDG, far fewer than were

involved in the oneworld and U.S.-Japan Alliance cases for antitrust immunity. The

oneworld carriers had eight nonstop overlapping transatlantic routes when the

Department granted oneworld antitrust immunity. 2010 oneworld ATI, DOT Order

2010-2-8, at 21 (Table 5) (DFW/BOS/ORD/MIA/LAX/NYC-London, MIA-Madrid,

NYC-Paris). The Star Alliance carriers had six nonstop overlapping U.S.–Tokyo

routes when the Department granted ANA, United, and Continental antitrust

immunity, and the oneworld Alliance carriers had three nonstop overlapping U.S.–

Tokyo routes when the Department granted American and Japan Airlines antitrust

immunity. 2010 U.S.-Japan Alliance Case, DOT 2010-10-4, at 9 (Table 3) (Star:

WAS, CHI, SFO, HNL, NYC, LAX; oneworld: CHI, NYC, LAX).

No. of Overlapping

Nonstop City-Pair Routes

DOT Order

2010 oneworld ATI 8 2010-2-8

2010 U.S.-Japan Alliance (UA/ANA - Star) 6 2010-10-4

2010 U.S.-Japan Alliance (AA/JAL - oneworld) 3 2010-10-4

2012 TN, AF, and other Joint Applicants 1
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Furthermore, the LAX-CDG route is not really going from two competitors to

one competitor since Air Tahiti Nui (i) operates less than daily service between LAX

and CDG for 10 months of the year, (ii) has only 3 weekly winter season flights, and

(iii) has no influence on the pricing behavior of other carriers because it is too small

(0.1% U.S.-Europe share, 0.9% U.S.-France share), has no beyond-CDG

connectivity, and has no global frequent flyer program. [Exhibits JA-2, JA-3, JA-4]

Moreover, there is a vast array of one-stop service options on other carriers

and alliances between these two cities which will provide strong competitive

discipline on the route. Indeed, approximately 45% of the O&D traffic between LAX

and Paris uses other than nonstop services.27 [Exhibit JA-5] Thus, the AF-TN Joint

Venture and Air Tahiti Nui’s immunized coordination with the Joint Applicants will

face strong competition for passengers in this market from every major transatlantic

carrier via a variety of competing hubs, including, inter alia, United (Newark,

Washington, Chicago, Houston, San Francisco), American (Chicago, Dallas, Miami,

New York), US Airways (Philadelphia), Lufthansa (Frankfurt, Munich), British

Airways (London), SWISS (Zurich), and Air Canada (Toronto, Montreal). Each of

these carrier/hub combinations has nonstop service to/from Paris and to/from LAX.

As the Department stated in SkyTeam II ATI, “high market shares . . .

overstate the influence of competitors offering nonstop services. For a large majority

of travelers, other carriers or alliances offer connecting services that discipline the

fares and services offered by nonstop carriers.” DOT Order 2008-4-17, at 12. The

Department has also noted that “even if a transaction creates a partnership with a

27 MIDT Data, YE February 2013.
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preponderant market share, the transaction would not substantially reduce competition

if competitors have free and open access to the marketplace.” United/Air New

Zealand, DOT Order 2001-3-4, at 12. In this case, the EU-U.S. “Open Skies”

Agreement ensures such open access between the United States and France.

Notably, the Department has granted antitrust immunity where the number of

nonstop competitors would decrease from two to one, where the percentage of

passengers using connecting service was far less than here, and where the alliance

carriers’ market shares were far higher than here. For example, in the 2010

oneworld ATI case, the number of nonstop competitors in the Dallas/Ft. Worth–

London market was reduced from two to one, with a resulting post-transaction

market share of 82.9% for the immunized carriers. 2010 oneworld ATI, DOT Order

2010-2-8, at 21 (Table 5). By contrast, the Air Tahiti Nui-Air France market share in

the LAX–Paris market would be approximately 56.7%, and the Joint Applicants’

combined market share would be 59.8%.28 In the DFW-London situation, the

Department noted that “travelers in the Dallas/Ft. Worth–London markets have

multiple connecting options. As shown in the data, a relatively large percentage of

passengers connect within the Dallas/Ft. Worth–London city pair.” 2010 oneworld

ATI, DOT Order 2010-2-8, at 23. “As DFW pointed out in its reply, the connecting

services available in the nonstop overlap markets discipline the fares charged for

nonstop service.” 2010 oneworld ATI, DOT Order 2010-7-8, at 9. In that case, only

27% of the local O&D traffic used connecting service on the route. 2010 oneworld

ATI, DOT Order 2010-2-8, at 21 (Table 5) & DOT Order 2010-7-8, at 9

28 MIDT Data, YE February 2013.
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(“approximately one-quarter of the passengers already use connecting services in

the overall [Dallas/Ft. Worth–London] city-pair”). Here, almost half of the traffic

between LAX and Paris uses connecting service.

In the U.S.-Japan Alliance Case, Washington–Tokyo was an overlap market

for ANA and United where the number of competitors would be reduced from two to

one as a result of the immunized alliance. 2010 U.S.-Japan Alliance Case, DOT

Order 2010-10-4, at 9 (Table 3). The Department did not find that fact dispositive,

however:

“While the Washington-Tokyo nonstop market would become even

more concentrated on a nonstop basis than Chicago-Tokyo, there are

other competitive factors that merit consideration. . . . The Star

applicants note that over 30 percent of Washington-Tokyo local

passengers choose connecting service, despite two current nonstop

service options. This portion . . . indicates the competitive pressure of

connecting service. . . . Post-transaction, two competitors to

immunized Star would offer connecting service in the WashingtonTokyo market, giving passengers ample opportunity for competitive

options should nonstop fares be increased.” 2010 U.S.-Japan Alliance

Case, DOT Order 2010-10-4, at 11-12.

A much higher proportion of O&D traffic between LAX and Paris uses connecting

service, demonstrating the effectiveness of connecting service as a viable and

disciplining alternative for travel between LAX and Paris.

In summary, the Department has previously granted antitrust immunity to

alliances where the number of competitors on an overlapping route would decrease

from two to one and where the percentage of connecting traffic was much lower than

LAX-Paris.
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Overlapping N/S Route

Decreasing From 2 to 1

% of O&D Pax

Who Connect or

Use Other Than

Nonstop Service

2010 oneworld ATI DFW-LHR 27%

2010 U.S. Japan Alliance (UA/ANA) WAS-NRT 30%

2012 AF, TN, and other Joint Applicants LAX-Paris 45%

Given these facts, the Joint Applicants submit that there should be no carveout from the grant of antitrust immunity. Any carve-out would create unnecessary

inefficiencies that could impede the Joint Venture Partners’ ability to realize fully the

substantial integrative efficiencies and public benefits of that Agreement. As the

Department stated in SkyTeam II ATI: “carve outs could undermine the

effectiveness of the . . . JV and jeopardize the public benefits.” DOT Order 2008-4-

17, at 10. And, it reaffirmed that point in 2010 oneworld ATI: “In short, we have

concluded that the disadvantages of carve-outs outweigh the advantages in markets

where there is joint venture cooperation. We find that this conclusion applies to the

facts of this case as well.” DOT Order 2010-7-8, at 21. Indeed, any carve-out on the

LAX–CDG trunk route would completely eviscerate the benefits of the AF-TN Joint

Venture given that this route is key to the Joint Venture.

E. There Is No Risk Of “Spillover” Between Immunized and NonImmunized Activities, Routes or Carriers.

The antitrust immunity requested in the Joint Application will cover only

foreign air transportation via transatlantic routings between the United States and

Europe, principally involving the LAX-CDG trunk route and beyond-CDG routes. The

requested immunity would not cover the LAX-Tahiti route on which Air Tahiti Nui

currently codeshares on an arms’-length basis separately with both Air France and
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American Airlines. This situation, however, will not present any risk of spillover of

confidential competitive information between immunized and non-immunized

activities, routes or carriers. In fact, the Department has granted antitrust immunity

in similar situations.

Having immunized and non-immunized sectors is analogous to the situations

where the Department has imposed segment “carve-outs” from a grant of antitrust

immunity. For example, the Department has granted antitrust immunity to alliances

subject to carve-outs from the immunity for certain nonstop routes and fare

categories without imposing special conditions to address any hypothetical spillover

between the immunized and non-immunized segments. See, e.g., SkyTeam I ATI,

DOT Order 2002-1-6, at 6 & Appx. A (immunity did not extend to pricing, inventory or

yield management coordination, or revenue pooling [“PIYMCRP”] with respect to

unrestricted coach-class fares or business/first class fares for local U.S. point-of-sale

passengers flying nonstop between Atlanta/Cincinnati and Paris);

American/LanChile, DOT Order 1999-9-9, at 21 and Appx. A (immunity did not

extend to PIYMCRP with respect to unrestricted coach-class fares or business/first

class fares for local U.S. point-of-sale passengers flying nonstop between Miami and

Santiago); United/Air Canada, DOT Order 1997-9-21, at 18 & Appx. A (immunity did

not extend to PIYMCRP with respect to local U.S. point-of-sale passengers flying

nonstop between Chicago/Toronto and San Francisco/Toronto). The affected

airlines in those cases were able effectively to manage those carve-outs, and so too

would Air France and Air Tahiti Nui be able to manage the immunized and nonimmunized segments without running afoul of the antitrust laws. Indeed, in this
Joint Application

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case, the demarcation line (between what is and is not immunized) is even clearer

than in the cited immunity carve-out situations, in which the same route had

immunized and non-immunized elements. Air France and Air Tahiti Nui will engage

in immunized coordination only with respect to LAX-CDG-Europe services. Air

France and Air Tahiti Nui will not coordinate or exchange any competitively sensitive

information related to any U.S-Tahiti routings, nor will Air Tahiti Nui share any

competitively sensitive information with American Airlines.

Similarly, the Department granted antitrust immunity for an SAS-Icelandair

alliance without any special conditions to address hypothetical spillover even though

(i) SAS was also a member of a separate immunized alliance with United and

Lufthansa (see DOT Order 1996-11-1), (ii) there was no plan for Icelandair to join

that 3-carrier immunized group, and (iii) SAS and Icelandair did not plan to

coordinate their alliance services with Lufthansa and United. SAS/Icelandair, DOT

Order 2000-10-13, at 2 n.1, 16-17.

In the present Joint Application, the scope of the requested antitrust immunity

is limited to foreign air transportation via a transatlantic routing and expressly

excludes foreign air transportation between French Polynesia and the United States.

As in these other cases, the carriers will be able to segregate activities and

compartmentalize information exchanges to avoid spillover between the immunized

and non-immunized activities, routes or carriers.

Despite the compelling precedent discussed above, Air France and Air Tahiti

Nui have decided to eliminate any possible concern about hypothetical spillover by

entering into Antitrust Compliance Protocols. The Antitrust Compliance Protocols
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will govern the conduct of all Air France and Air Tahiti Nui personnel responsible for

any coordination between Air France and Air Tahiti Nui that may occur pursuant to

the grant of immunity. [See Appendix D.] The Antitrust Compliance Protocols will

ensure that the integration of Air France’s and Air Tahiti Nui’s foreign air

transportation via transatlantic routings will not result in any spillover of

competitively-sensitive information relating to transpacific routes or improper

coordination with respect to their non-immunized foreign air transportation. The

Antitrust Compliance Protocols prohibit the exchange of data and information

related to transpacific routings, thereby preventing spillover from immunized

transatlantic activities to non-immunized activities. In effect, the Antitrust

Compliance Protocols permit the exchange of competitively sensitive information

and coordination relating only to foreign air transportation via transatlantic

routings but prohibit such activities with respect to transpacific and other air

transportation. [confidential]
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[end confidential] The Antitrust Compliance Protocols

provide clear direction to the employees of both carriers concerning the scope of

permissible coordination, limit the kinds of information that can be exchanged,

and ensure that such direction and limitations will be properly communicated to

employees.

The Antitrust Compliance Protocols also govern the kinds of data and

information that will be exchanged between the Joint Venture Partners. By

prohibiting the exchange of data and information related to non-transatlantic

routings, the Antitrust Compliance Protocols will prevent spillover from transatlantic

to transpacific markets. The Antitrust Compliance Protocols permit the exchange of

only certain kinds of non-public, competitively sensitive data and information relating

only to transatlantic operations between the Joint Venture Partners. Conversely, the

Antitrust Compliance Protocols prohibit the exchange of data and information

relating to transpacific routings.

By limiting the kinds of data and information that may be exchanged only to

data and information related solely to transatlantic routings, there should be no

concern about which employees will be participating in the Joint Venture or what

their other responsibilities for the company may include. Using the analogy of a

“clean room”, it does not matter who has access to the data or what their jobs are, if

there is no competitively sensitive information to which anyone should be denied

access. Thus, the Antitrust Compliance Protocols explicitly prohibit agreements,
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discussion or exchange of competitively sensitive information regarding pricing,

inventory availability, and entry into or exit from transpacific segments.

Even though the “clean room” concept should alleviate any concerns about

who has access to the data and information, the Antitrust Compliance Protocols go

even further and contain an additional level of protection. Thus, the Antitrust

Compliance Protocols limit the number of persons from Air France and Air Tahiti Nui

who have access to the data and information, confine discussions of the data and

information only to those persons, and establish requirements for annual compliance

training to assure that those persons have a complete understanding of the

prohibitions contained in the Antitrust Compliance Protocols. In particular, Subpart II

of the Antitrust Compliance Protocols specifies that the carriers will compile specific

lists of employees to be involved in AF-TN Joint Venture activities, limit

communications relating to the AF-TN Joint Venture only to these listed employees,

provide those employees with annual antitrust compliance training including specific

training to ensure compliance with the Antitrust Compliance Protocols, and certify

distribution of the Compliance Protocols on an annual basis to each management

employee of Air France and Air Tahiti Nui with responsibilities for any coordination

between the carriers pursuant to the requested immunity. Again, since there will be

no competitively sensitive information involving transpacific routings, any

hypothetical risk of spillover is eliminated.

In terms of the structure and process contemplated for the AF-TN Joint

Venture, the AF-TN Joint Venture Agreement is set forth in Appendix A to the Joint
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Application. It provides for the establishment of a Steering Committee and working

groups to coordinate Joint Venture activities in various subject matter areas.

As reflected in the Agreement, the working groups are assigned specific

subject matter areas. Since the Agreement has not been implemented, the Joint

Applicants have not yet identified and designated their members for each of these

working groups. However, it is anticipated that the members would include

appropriate Senior Vice-President, Vice-President and/or Director (or equivalent)

level management personnel with responsibilities for the subject matters in question.

The Joint Venture Partners also anticipate that other employees with responsibility

for alliance activities would be involved in AF-TN Joint Venture activities. Thus, for

example, international network planners with responsibility for transatlantic markets

would be involved in AF-TN Joint Venture network planning activities; pricing

analysts with responsibility for transatlantic markets would be involved in Joint

Venture pricing activities; sales and marketing employees with responsibility for

transatlantic markets would be responsible for Joint Venture sales and marketing

activities; and so forth.

As discussed above, given the “clean room” approach of the Antitrust

Compliance Protocols, the fact that some participants in AF-TN Joint Venture

activities may have responsibility in markets without immunity should not be of

concern because the Antitrust Compliance Protocols will ensure that no

competitively-sensitive information relating to such markets will be exchanged or

considered in AF-TN Joint Venture discussions.
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VII. THE EXTENSIVE BENEFITS FLOWING FROM THE PROPOSED

ALLIANCE CANNOT BE ACHIEVED WITHOUT ANTITRUST IMMUNITY.

The Joint Applicants will not implement the Alliance Agreements without

antitrust immunity. Although Air France and Air Tahiti Nui have already agreed to

some of the most important components of the Joint Venture relationship, including

the fundamental governance structure, the geographic and market scope of the Joint

Venture, and the process for determining each carrier’s contribution to the Joint

Venture, the Joint Venture Partners cannot complete their negotiations of certain

components of their Joint Venture relationship or implement the Joint Venture

without exchanging confidential and highly sensitive transatlantic segment

information and competitive data. The AF-TN Joint Venture Agreement expressly

provides for coordinated scheduling, yield management, inventory allocation, and

pricing, joint purchasing, joint decision-making on new routes, and revenue sharing.

(See generally AF-TN Joint Venture Agreement) These are precisely the types of

activities for which antitrust immunity is required. To proceed with such activities

absent antitrust immunity would be an open invitation for lawsuits (regardless of

whether there was any basis for them), given the widely recognized risk of private

antitrust litigation.29 Indeed, the Department itself has acknowledged that the

cooperation and integration benefits from such agreements cannot be attained

without immunity:

29 Airlines have had to defend themselves in multiple lawsuits driven by plaintiffs’ counsel

involving antitrust claims, regardless of the lack of merit. See, e.g., In re Northwest Airlines Corp.

Antitrust Litig., 208 F.R.D. 174 (E.D. Mich.), review denied, 310 F.3d 953 (6th Cir. 2002), cert. denied,

539 U.S. 904 (2003); In re Airline Ticket Commission Antitrust Litig., 268 F.3d 619 (8th Cir. 2001). The

risk of antitrust litigation remains a significant concern.
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“These second-stage commercial agreements, such as the [JV

Agreement], involve revenue and benefit-sharing arrangements that

create a greater risk of antitrust litigation and potential antitrust liability,

even though we have tentatively found that the alliance expansion will

not substantially reduce competition. . . . [I]t would be impractical for

[the Joint Applicants] to proceed with plans to integrate [all of the Joint

Applicants] into these agreements absent a further grant of immunity.”

2007 Star ATI, DOT Order 2006-12-17, at 17.

“The specific terms of the 4-way JV, with its emphasis on a common

bottom line, create a greater risk or antitrust litigations.” SkyTeam II

ATI, DOT Order 2008-4-17, at 14.

Moreover, the Joint Applicants need the antitrust immunity to encompass the

Bilateral Cooperation Agreements and Multilateral Coordination Agreement in order

to implement these other agreements among the carriers and achieve the additional

benefits and efficiency resulting from them. Antitrust immunity for the Multilateral

Coordination Agreement is needed to avoid the potential immunity gap between the

two joint ventures and to allow for coordination activities necessary for the efficient

operation of the two joint ventures. Air France will be coordinating with Air Tahiti Nui

on the Los Angeles-Paris route under the AF-TN Joint Venture Agreement. Air

France will also be coordinating with Delta, KLM and Alitalia on U.S.-EU routes

under the SkyTeam Joint Venture Agreement. In addition, [confidential]

[end confidential] Coordination

between the two joint ventures will support the realization of additional consumer

benefits. The Alliance Agreements are a broad but highly integrated package of

cooperative programs, activities, and products that must be implemented on a
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comprehensive basis in order to realize the full range of contemplated benefits and

efficiencies. Piecemeal implementation of the Alliance Agreements is not

commercially viable.

Simply put, the Joint Applicants are unwilling to take this next step without

antitrust immunity because they cannot do so without creating an unacceptable risk

of exposure under the antitrust laws. Therefore, if immunity is denied here, the

biggest losers will be travelers, shippers, and communities using transatlantic

services who would not be able to enjoy the substantial public interest and

competition benefits of the AF-TN Joint Venture Agreement, the Bilateral

Cooperation Agreements, and the Multilateral Coordination Agreement.

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CERTIFICATE OF SERVICE

I hereby certify that a copy of the foregoing Joint Application has been served

this 15th day of April 2013, upon the following addresses:

francis.heil@aa.com

robert.wirick@aa.com

howard.kass@usairways.com

benjamin.slocum@usairways.com

thomas.bolling@united.com

dan.weiss@united.com

todd.homan@dot.gov

peter.irvine@dot.gov

reese.davidson@dot.gov

bob.goldner@dot.gov

paul.gretch@dot.gov

esta.rosenberg@dot.gov

urskr@state.gov

gmlindsey@lawa.org

info@airlineinfo.com

Jonathan Echmalian

EXHIBIT JA-2: AIR TAHITI NUI’s U.S.–EUROPE MARKET SHARE IS ONLY ONE-TENTH OF 1%

Source: MIDT Data, YE 02/2013

DL, 15.0%

UA, 14.0%

BA, 11.0%

Others, 7.7% LH, 10.1%

AA, 7.3%

US, 5.7%

VS, 5.5%

AF, 5.0%

LX, 2.8%

KL, 2.6%

AZ, 2.1%

IB, 1.8%

TK, 1.7%

SK, 1.7%

LY, 1.6%

AC, 1.2% AB, 1.2%

EI, 1.1% CO, 0.6%

TN, 0.1%
EXHIBIT JA-3: AIR TAHITI NUI’s U.S.–FRANCE MARKET SHARE IS LESS THAN 1.0%

Source: MIDT Data, YE 02/2013

AF, 29.5%

AA, 12.7%

DL, 12.0%

UA, 10.7%

Others, 8.1%

BA, 7.2%

US, 5.2%

LH, 4.9%

LX, 2.1%

AC, 1.9%

KL, 1.5%

IB, 1.4%

FI, 1.1%

TN, 0.9%

CO, 0.5%

AZ, 0.2%
EXHIBIT JA-4: AIR TAHITI NUI’s ROUTE NETWORK IS VERY LIMITED, SERVING ONLY FOUR

CITIES WITH ITS OWN AIRCRAFT FROM TAHITI

Source: Air Tahiti Nui Website
EXHIBIT JA-5: APPROXIMATELY 45% OF LAX-PARIS TRAFFIC USES

OTHER THAN NONSTOP SERVICE

Nonstop

55%

Connecting/Indirect/

Other than Nonstop,

45%

Nonstop

Connecting/Indirect/

Other than Nonstop

Source: MIDT Data, YE 02/2013

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Appendix A

THE ALLIANCE AGREEMENTS

 AF-TN Joint Venture Agreement

 AF-TN “Free Flow” Codeshare Agreement

 Multilateral Coordination Agreement

 Bilateral Cooperation Agreements between Air Tahiti Nui, on the one

hand, and Air France, KLM, Delta, and Alitalia, on the other hand.

[Confidential Treatment Requested under 14 C.F.R. § 302.12 for the

AF-TN Joint Venture Agreement and AF-TN Codeshare Agreement]


























































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Appendix B

ADDITIONAL DOCUMENTS AND INFORMATION

To expedite the Department’s consideration of this Joint Application, the Joint

Applicants are providing the Department with additional information and documents

typically requested by the Department for purposes of evaluating applications for

antitrust immunity.

A. Document Production and Responses to Interrogatories.

The Joint Venture Partners are concurrently submitting – with corresponding

motions for confidential treatment – internal corporate documents of senior executives

from CY 2012 discussing coordination with, or otherwise relating to any alliance or

arrangement between or among, Air Tahiti Nui, on the one hand, and the other Joint

Applicants, on the other hand.

Appendix C to the Joint Application provides written responses to interrogatories

comparable to those in other antitrust immunity proceedings.

B. Transatlantic Routes and Services.

The transatlantic routes of the Joint Applicants between the United States and

Europe are set forth in Attachment B-1 to this Appendix B. The Joint Applicants have

no other immediate plans to make service or equipment changes as a result of receiving

immunity for the AF-TN Joint Venture and other Alliance Agreements, other than the

expansion of services discussed in the Joint Application. The Joint Applicants may

make service and/or equipment changes in the future, provided that they have received

immunity and are able to discuss the coordination of such services.
Appendix B

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C. Codeshare Partners.

The current codeshare partners of each Joint Applicant are published in the

OAG.

D. Origin Destination Traffic Data.

These data are discussed in Appendix C, Response to Interrogatory No. 6, and

provided as Attachment B-2 to this Appendix B.

E. The SkyTeam Alliance.

Delta, Air France, KLM, Alitalia, and Czech Airlines (“CSA”) have received

antitrust immunity for alliance agreements. See DOT Order 2008-5-32, amended by

DOT Order 2009-6-26. Korean Air Lines, a SkyTeam Alliance member, has antitrust

immunity for alliance agreements with Delta, Air France, Alitalia, and CSA. See DOT

Order 2002-6-18. CSA and Korean Air Lines are not part of this Joint Application.

Aeroflot Russian Airlines, Aerolineas Argentinas, Aeromexico, Air Europa, China

Airlines, China Eastern, China Southern, Kenya Airways, MEA Airlines, Saudia Airlines,

TAROM Airlines, Vietnam Airlines, and Xiamen Air are non-immunized members of the

SkyTeam Alliance. If antitrust immunity is granted here, the Joint Applicants’

relationships with these non-immunized SkyTeam members will continue to be

managed on an independent, arms’-length basis, just as they have been in the past.

There will be no changes in the relations between the Joint Applicants and these nonimmunized SkyTeam members as a result of an award of antitrust immunity in this

proceeding.
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F. Other Antitrust-Immunized Relationships.

Delta, Air France, KLM, Alitalia, and CSA have antitrust immunity for alliance

agreements, and Delta, Air France, KLM, and Alitalia are members of the immunized

SkyTeam TATL JV. See DOT Order 2008-5-32, amended by DOT Order 2009-6-26.

CSA is not part of this Joint Application.

Delta, Air France, Alitalia, CSA, and Korean Air have antitrust immunity which

they have held since 2002. See DOT Order 2002-6-18. Korean Air is not part of this

Joint Application.

Delta also has antitrust immunity with Virgin Australia, V Australia, Pacific Blue

Airlines (NZ), and Pacific Blue Airlines (Australia). See DOT Order 2011-6-9. None of

the Virgin Australia and Pacific Blue carriers are part of this Joint Application.

G. Exchange of Equity or Ownership Interests.

The arrangement proposed in this Joint Application does not involve any

additional cross-ownership among the Joint Applicants.

H. Airlines Serving LAX and CDG.

The U.S. and foreign passenger airlines that operate scheduled service at LAX

and at CDG are published in the OAG.

I. Competitive Access to Paris–CDG and Related Facilities.

Information about such access is discussed in Appendix C, Response to

Interrogatory No. 7.

J. Labor Issues.

The transaction and resulting immunized AF-TN Joint Venture and

cooperation/coordination with the other Joint Applicants raises no significant labor
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issues. Other than Air France and KLM, the Joint Applicants will remain independent

carriers. Indeed, the Joint Applicants believe that the long-term impact of the

transaction will be positive for all existing employees, and no significant impact on

unionized employees is anticipated under the AF-TN Joint Venture Agreement or other

Alliance Agreements.

K. Civil Reserve Air Fleet Commitments.

Granting this Joint Application for antitrust immunity will have no impact on

Delta’s CRAF commitments.

L. Computer Reservations Systems.

The grant of antitrust immunity here should also cover the coordination of (1) the

presentation and sale of the carriers’ airline services in CRS’s and (2) the operations of

their respective international reservations system. Under longstanding Department

precedent, the scope of immunity covers coordination of CRS activities. See DOT Order

1993-1-11, at 15-16. The Joint Applicants recognize, however, that the immunity will

not extend to the Joint Applicants’ management of any interest they may now, or in the

future, have in an individual CRS. See DOT Order 1998-10-20, at 18.

M. Duration of Approval and Immunity.

The Joint Applicants request that the Department approve, and grant antitrust

immunity for, the Alliance Agreements for a period of at least five years, subject to

review of the Alliance Agreements in five years.

N. Conditions.

In addition to the CRS-related condition above, the Joint Applicants will accept

the standard conditions that the Department has attached to previous grants of antitrust
Appendix B

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immunity relating to: (a) non-participation in certain IATA-related tariff coordination

activities; (b) O&D survey data reporting requirements; (c) operation under a common

brand or common name; and (d) the submission for prior review of subsequent

subsidiary agreements implementing the Alliance Agreements. See, e.g., DOT Orders

2002-1-6, 2011-6-9.
ATTACHMENT B-1: NONSTOP TRANSATLANTIC SERVICES

JV Year Yr 12-13 IATA Season

Frequencies TypicalWeek

Airline NDOD July December

AF ATLCDG 14 14

BOSCDG 14 7

CDGCUN 4

CDGDTW 7 7

CDGIAD 14 7

CDGIAH 7 7

CDGJFK 35 28

CDGLAX 15 10

CDGMCO 3

CDGMEX 14 7

CDGMIA 7 6

CDGORD 7

CDGSFO 14 7

CDGYUL 20 14

CDGYYZ 7 7

LAXPPT 3 3

Total AF 181 128

KL AMSATL 7 7

AMSDEL 7 7

AMSDFW 5

AMSIAD 10 7

AMSIAH 7 7

AMSJFK 14 14

AMSLAX 10 7

AMSMEX 7 7

AMSORD 7 5

AMSSFO 7 5

AMSYUL 7 7

AMSYVR 7 5

AMSYYC 7 5

AMSYYZ 14 7

Total KL 116 90

AZ BOSFCO 7 5

EWRFCO 7

FCOJFK 14 14

FCOLAX 7

FCOMIA 7 6

FCOORD 5

FCOYYZ 7 6

JFKMXP 6 4

MIAMXP 3 3

Total AZ 63 38
DL AGPJFK

6

AMSATL 21 12

AMSBOM77

AMSBOS 147

AMSDTW 28 21

AMSEWR75

AMSJFK77

AMSMEM4

AMSMSP 21 14

AMSPDX75

AMSSEA 137

ARNJFK7

ATHJFK7

ATLBCN7

ATLBRU75

ATLCDG77

ATLDUB75

ATLDUS75

ATLFCO77

ATLFRA77

ATLLHR 18 14

ATLMAD75

ATLMAN75

ATLMUC77

ATLMXP6

ATLSTR75

ATLVCE5

ATLZRH75

BCNJFK75

BOSLHR77

BRUJFK77

CDGCVG77

CDGDTW75

CDGJFK77

CDGMSP77

CDGORD4

CDGPHL7

CDGPIT5

CDGSEA76

CDGSLC75

CPHJFK7

DTWFCO7

DTWFRA77

DTWLHR 107

DUBJFK77

FCOJFK 14

FRAJFK77
ISTJFK 7

JFKKEF 5

JFKLHR 21 21

JFKMAD 7 5

JFKMXP 7 7

JFKNCE 7 4

JFKPRG 7

JFKPSA 4

JFKSNN 7

JFKSVO 7 7

JFKVCE 7 5

JFKVLC 4

JFKZRH 7

LHRMSP 7 7

Total DL 500 306

TOTAL - ALL 860 562
Appendix B

ATTACHMENT B-2

(MIDT Traffic Data)

[Confidential Treatment Requested under 14 C.F.R. § 302.12]
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Appendix C

RESPONSES TO DOT’S PRIOR ATI INTERROGATORIES

1. Please describe (i) what criteria will be used to determine the markets in

which You will codeshare, (ii) whether the four digit flight number limitation and

number of potential codesharing partners involved will limit the Joint

Applicants' potential codesharing and, if so, how the Joint Applicants will

allocate flight numbers.

(i) Air France and Air Tahiti Nui intend to determine, coordinate, and

prioritize new codesharing markets in order to optimize benefits for the traveling public

based on several considerations such as traffic growth potential, revenue growth

potential, and the extent to which it can expand and extend their on-line networks.

Codesharing on the principal trunk route between LAX and CDG will be the top

priority, as will codesharing on certain beyond-CDG routes. As part of the AF-TN Joint

Venture, Air France and Air Tahiti Nui will expand their codesharing on the LAX–CDG

route. Air France and Air Tahiti Nui have also identified several beyond-CDG routes

for codesharing to be implemented as part of their immunized coordination and

cooperation:

[confidential]
Appendix C

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[end confidential]

These beyond-CDG codeshare segments will substantially expand Air Tahiti Nui’s

presence in Europe and will improve the Joint Venture Partners’ connectivity from

Europe to Tahiti via LAX. In addition, subject to appropriate regulatory and third-party

approvals and the antitrust immunity requested here, [confidential]

[end

confidential]

(ii) The Joint Applicants do not believe that codesharing services resulting

from antitrust immunity, cooperation, and coordination with Air Tahiti Nui will face a

lack of available four-digit flight numbers in the foreseeable future. With its relatively

limited flight operations, Air Tahiti Nui does not currently use a significant number of

flight numbers. In any event, none of the Joint Applicants are on the verge of

exhausting the full complement of 9,999 four-digit flight numbers, so this is not a

practical constraint on the anticipated expanded codesharing the Joint Applicants

would implement following the grant of antitrust immunity sought herein.

2. Explain what changes You would make to Your transatlantic capacity after

the DOT decision on the Joint Application is made.

Potential changes to capacity on the LAX-CDG route are discussed in the

Joint Application.
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3. Describe the sources of, and estimate the value of, any cost savings that

You will be able to achieve only if You were granted ATI (i.e., that could not be

achieved without ATI).

With the antitrust immunity sought here, Air Tahiti Nui and Air France will be

able to garner efficiencies and additional cost savings from the expanded and

deeper integration made possible by the Joint Venture which, in turn, can be passed

on to passengers. For example, joint procurement activities under the Joint Venture

Agreement and the Bilateral Coordination Agreement could enable Air Tahiti Nui to

negotiate for better, lower-priced contracts with suppliers.30 The enhanced

harmonization of in-flight and airport products, marketing efforts, information

technology, and frequent flyer programs will also drive costs lower, as will the colocation and sharing of facilities at select airports (absent the immunity necessary to

implement long-term metal neutrality, there would be no real incentive to co-locate

and share facilities). It is difficult to forecast precisely the exact amount of cost

savings that will be produced through the improved integrative efficiencies enabled

by the AF-TN Joint Venture and coordination/cooperation with the other Joint

Applicants.

The immunized AF-TN Joint Venture will enable Air France to offer

[confidential]

[end confidential] The AF-TN Joint Venture will also enable Air Tahiti Nui to offer

30 While certain forms of joint purchasing may be theoretically available in the absence of

antitrust immunity, the Joint Applicants are unlikely to enter into such collaborations absent the depth

and continuity of relationships that form as a result of antitrust immunity.
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seamless, immunized codesharing on [confidential] [end

confidential] without having to incur the costs of operating such tag routes with its

own aircraft and crews.

4. Explain specifically what consumer benefits that will result from the

Alliance/Joint Venture cannot be achieved without antitrust immunity. For

each type of consumer benefit noted, please describe how the Joint Applicants

are currently cooperating in that, and how that cooperation would change if

You were granted ATI.

See Discussion in Joint Application, Parts V, VI, and VII.

5. Please discuss the anticipated effects of the Alliance/Joint Venture on

your interline agreements and level of interline traffic with carriers that are not

part of the Alliance/Joint Venture.

Approval of, and antitrust immunity for, the AF-TN Joint Venture Agreement

and other Alliance Agreements is not expected to have a material effect on the

terms of interline agreements or level of interline traffic carried by the Joint

Applicants. Each of the Joint Applicants maintains interline agreements with a host

of non-SkyTeam carriers, and none of the Joint Applicants have any plans to change

those agreements on the basis of a grant of antitrust immunity in this proceeding.

6. Origin Destination Traffic Data. Using MIDT data for the most recent 12-

month period available, provide directional net passenger bookings for all

Tahitian origin and destination airport pair markets for all airlines and all U.S.-toEurope origin and destination airport pair markets that Air Tahiti Nui provided

service in for the period. Include the following data elements:

Field 1: Trip Originating Airport

Field 2: Booked Point of Sale Country Code

Field 3: Airport Path and Marketing Carrier Designator String by Leg
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Example: A Paris–Los Angeles–Papeete directional trip with segments marketed

by TN, AF respectively would be reported as “CDG TN LAX AF PPT”. Use a “//” to

represent the marketing carrier on any ARNK (Arrival Not Known) segments.

Field 4: Volume of Net Bookings

Include an explanation of the trip break methodology used to create directional

trips from itinerary data.

These data have been submitted on CD, see Attachment B-2 to Appendix B of

the Joint Application.31

[confidential]

[end confidential]

7. Describe the extent to which airport facilities, including gates and slots, are

available to U.S.-flag carriers that want to begin or increase service to the

countries affected by the Joint Venture/Alliance.

Airport facilities, including necessary facilities, are generally available at Paris

(CDG) for other U.S.-flag carriers seeking to begin or expand service at this gateway

city. There may, of course, be some congestion at peak hours, as at all busy

international airports. However, the Joint Applicants are unaware of any U.S.-flag

carrier wishing to launch service that has not been able to do so because of access

constraints at CDG.

31 The Joint Applicants have requested confidential treatment for the entire MIDT data set

being submitted. The Joint Applicants do not object to the Department’s public use of MIDT data in

summary form in its decision, but the Joint Applicants are constrained from publishing the full

content of the MIDT database purchased from a commercial vendor.
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8. Describe (i) the current state of cooperation between and among the Joint

Applicants for passenger and cargo traffic, and (ii) how and to what extent cargo

will be included in the Joint Venture/Alliance.

(i) Air France and Air Tahiti Nui have had a longstanding blocked-space

codeshare agreement that encompasses flights between Paris and Los Angeles

and between Los Angeles and Papeete, Tahiti, as well as a Special Prorate

Agreement. With the proposed Joint Venture, there will be a new AF-TN

arrangement providing for codesharing on a free-flow basis on the Los Angeles

and Paris segment and to beyond–CDG points. Delta and Air Tahiti Nui have a

limited frequent flyer relationship whereby Delta SkyMiles can be redeemed (but

not accrued) on Air Tahiti and a Special Prorate Agreement.

Air France, Delta, KLM, and Alitalia are members of the immunized SkyTeam

Alliance and participate in the SkyTeam TATL JV.

(ii) The AF-TN Joint Venture does not encompass coordination with respect

to cargo.

9. Explain what relation the Joint Applicants will have with any other partner

carrier that offers transpacific services (e.g., (i) Delta’s ATI with Virgin Australia

and Pacific Blue; (ii) Korean Air, which is not a member of the TATL JV), if the

Joint Application is approved.

The relationships between the Joint Applicants and current partners that offer

transpacific services will not change after the Department rules on the Joint Application.

Delta also has antitrust immunity with Virgin Australia, V Australia, and Pacific Blue

Airlines (NZ/Aust.). See DOT Order 2011-6-9. None of the Virgin Australia or Pacific

Blue carriers are part of this Joint Application, and nothing will change as a result of a

grant of antitrust immunity here. The same is true for Korean Air Lines, which has an
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immunized alliance with Delta, Air France, Alitalia, and CSA. See DOT Order 2002-6-

18. China Airlines and China Southern are non-immunized SkyTeam Alliance members

operating transpacific services and engage in codesharing with certain of the Joint

Applicants. None of these other carriers are a party to this Joint Application, nor will any

participate in the antitrust immunity here.

10. Origin Destination Fare Data. For all itineraries that Air Tahiti Nui

participates in, all itineraries involving Tahiti that touch a U.S. or European point.

If possible, use O&D data representing an internal 100% census of itineraries

meeting the above criteria. Data should be submitted on a quarterly basis for the

most recent year ended period for which data are available. Provide all

information for any itinerary that was begun during the periods described above

irrespective of when the full itinerary was completed.

Provide the itinerary in an origin-destination (by direction of travel) format,

referred to as “market directional.” Provide the number of (1) passengers, (2)

market fare, (3) purchase class, (4) period, (5) airport sequence, (6) operating

carrier code sequence, (7) change in operating carrier flag, (8) ticketing/marketing

carrier code sequence, (9) change in ticketing/marketing carrier flag, (10) origin,

(11) destination, (12) number of market coupons, (13) sequence number of each

market directional that makes a full itinerary, (14) total distance flown (all

kilometers converted to miles), (15) distance between the origin and destination

(all kilometers converted to miles), (16) unique itinerary identifier, (17) oneway/round-trip itinerary identifier, (18) reporting carrier, and a (19) full itinerary

online identifier. Fares must include all taxes, fees, and applicable surcharges

(particularly any fuel surcharges paid). Provide the passenger counts

summarized by the unique combination of period, flight sequence,

ticketing/marketing carrier sequence, operating carrier sequence, reporting

carrier, directional market fare, one-way/round-trip itinerary identifier, full

itinerary online identifier, and purchase class value.

For itineraries that include a segment provided by ground transportation, note the

ground segment as ‘—‘ in the “tkcarriergroup” and “opcarriergroup” variables.

Provide a description of the methodologies used to determine market directional

trip breaks within itineraries and the prorate for assigning the market directional

fare from the full itinerary fare. The purchase class values should provide detail
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that allows for the evaluation of a given itinerary’s level of service purchased.

The classes should be broken down by both Restricted and Unrestricted fares

sold in First Class, Business Class, Premium Economy, and Economy cabins.

Provide the data electronically as a comma separated value (CSV) or other

delimited text file format. If a format other than CSV is selected to provide the

meta-data detail necessary to allow for the loading of the data into a relational

database environment. A sample format is below:

ItinIDM

ktSeq

M

ktCou

pons

PeriodOriginDestAirportGrou

p

T

k

CarrierC

hange

T

k

CarrierGrou

p

O

p

CarrierC

hange

O

p

CarrierGrou

p

R

P

Carrier

PassengersM

ktFare

M

ktMilesFlow

n

NonStop

Miles

Itinin_Rou

n

dtrip

Itin_O

nline

p

urchase_class

1 1 2

2012

1 PPT CDG

PPT:LAX:C

DG 0 TN:TN 1 TN:AF TN 5 900 9765 9765 1 0 ?

The Department already has this information from Air France. Air Tahiti Nui is

separately submitting to the Department its information in response to this request,

under a request for confidential treatment of the data.

* * *
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Appendix D

ANTITRUST COMPLIANCE PROTOCOLS

[Confidential Treatment Requested under 14 C.F.R. § 302.12]