BEFORE THE 

DEPARTMENT OF TRANSPORTATION 

WASHINGTON, D.C. 

-------------------------------------------- 

Joint Application of: : 

 : 

 AMERICAN AIRLINES, INC. : 

 BRITISH AIRWAYS PLC : 

 FINNAIR OYJ : 

 IBERIA LÍNEAS AÉREAS DE ESPAÑA, S.A. : DOT-OST-2008-0252 

 ROYAL JORDANIAN AIRLINES : 

 : 

under 49 USC 41308 and 41309 for approval : 

of and antitrust immunity for agreements : 

-------------------------------------------- 

JOINT APPLICANTS’ CONSOLIDATED ANSWER TO OBJECTIONS 

TO SHOW CAUSE ORDER 2010-2-8

For American Airlines: For British Airways: For Iberia: 

WILLIAM K. RIS, JR. 

Senior Vice President – 

 Government Affairs 

American Airlines, Inc. 

1101 17th Street, N.W. 

Washington, DC 20036 

VIRASB VAHIDI 

Senior Vice President – 

 Planning 

American Airlines, Inc. 

P.O. Box 619616, MD 5628 

DFW Airport, TX 75261 

KENJI C. HASHIMOTO 

Vice President – 

 Strategic Alliances 

American Airlines, Inc. 

P.O. Box 619616, MD 5635 

DFW Airport, TX 75261 

GARY KENNEDY 

Senior Vice President 

 & General Counsel 

R. BRUCE WARK 

Associate General Counsel 

JEFFREY A. OGAR 

Senior Attorney 

American Airlines, Inc. 

P.O. Box 619616, MD 5675 

DFW Airport, TX 75261 

(817) 967-3478 

jeff.ogar@aa.com 

CARL B. NELSON, JR. 

Associate General Counsel 

American Airlines, Inc. 

1101 17th Street, N.W. 

Washington, DC 20036 

TOM KING 

Executive Vice President - 

 External Relations 

British Airways Plc 

Rue Wiertz 50 

B-1050 Brussels, Belgium 

PAUL C. JASINSKI 

General Counsel, Americas 

JAMES B. BLANEY 

Senior Counsel, Americas 

British Airways Plc 

75-20 Astoria Boulevard 

Jackson Heights, NY 11370 

(347) 418-4250 

paul.jasinski@ba.com 

DARYL A. LIBOW 

Sullivan & Cromwell LLP 

1701 Pennsylvania Ave., N.W. 

Washington, DC 20006 

(202) 956-7500 

libowd@sullcrom.com 

DON H. HAINBACH 

Garofalo Goerlich Hainbach PC 

1200 New Hampshire Ave., N.W. 

Washington, DC 20036 

(202) 776-3970 

dhainbach@ggh-airlaw.com 

ELVIRA HERRERO 

Senior Vice President - 

 Int’l Relations & Alliances 

Iberia Líneas Aéreas de 

 España, S.A. 

Velazquez, 130 

28006 Madrid, Spain 

WILLIAM KARAS 

CAROL GOSAIN 

Steptoe & Johnson LLP 

1330 Connecticut Ave., N.W. 

Washington, DC 20036 

(202) 429-6223 

wkaras@steptoe.com 

For Finnair: 

SAMI SARELIUS 

Vice President & 

 General Counsel 

Finnair Oyj 

Tietotie 11 A 

FI-01053, Finland 

+358 (9) 818-4070 

sami.sarelius@finnair.fi 

For Royal Jordanian: 

MICHAEL J. HOLLAND 

Condon & Forsyth LLP 

7 Times Square 

New York, NY 10036 

(212) 490-9100 

mholland@condonlaw.com 

April 14, 2010 
BEFORE THE 

DEPARTMENT OF TRANSPORTATION 

WASHINGTON, D.C.

-------------------------------------------- 

Joint Application of: : 

 : 

 AMERICAN AIRLINES, INC. : 

 BRITISH AIRWAYS PLC : 

 FINNAIR OYJ : 

 IBERIA LÍNEAS AÉREAS DE ESPAÑA, S.A. : DOT-OST-2008-0252 

 ROYAL JORDANIAN AIRLINES : 

 : 

under 49 U.S.C. §§ 41308 and 41309 for : 

approval of and antitrust immunity for : 

alliance agreements : 

-------------------------------------------- 

JOINT APPLICANTS’ CONSOLIDATED ANSWER TO OBJECTIONS 

TO SHOW CAUSE ORDER 2010-2-8

 Two parties and one individual have raised objections to the 

Department’s Show Cause Order 2010-2-8: Virgin Atlantic, ITSA/ASTA, 

and Hubert Horan. Absolutely nothing new is raised in any of these 

objections; rather, each filer continues to advance arguments that are 

unsupported by facts and have been rejected in this and other immunity 

dockets. Accordingly, the Joint Applicants urge the Department to 

issue a final order consistent with the minor changes suggested in our 

Comments of March 30, 2010. 

 
- 2 - 

I. VIRGIN ATLANTIC 

Virgin’s motives for continuing its campaign against oneworld 

could not be more transparent. Virgin has already expressed its 

strong disrespect for the Department’s work in numerous media outlets. 

See, e.g., Sir Richard Branson slams US airline competition move, BBC, 

2/13/10 (stating that the “Department of Transportation has chosen to 

stick two fingers up at [DOJ],” and that “this draft decision is a 

real kick in the teeth”); see also Emily Gray, Branson opposes BA/AA, 

Global Competition Review, 4/13/10 (calling DG-Comp’s approach 

“fundamentally flawed and misguided” and “rather lazy”). While 

Virgin’s objections in the docket may be slightly less intemperate, 

they are no more credible. 

A. Impact On Competition 

1. Virgin Ignores The Secondary Market For Heathrow Slots 

Notwithstanding the Show Cause Order’s careful analysis of 

competition at Heathrow, Virgin continues to press the same points 

that the Department has already considered and rejected. For example, 

Virgin argues that “no new transatlantic services have been started 

using pool slots in recent years” (p. 8, emphasis added).1

 Of course, 

this omits the rest of the story. Virgin refuses to acknowledge that 

                                                           

1

 Virgin argues that “[t]he Department has placed too much emphasis on 

the introduction of Heathrow services that were formerly operated at 

Gatwick” (p. 10). But if (as Virgin has always argued) Heathrow and 

Gatwick are in separate relevant markets, then a shift from Gatwick to 

Heathrow is new entry in the Heathrow market and cannot be ignored. 

Conversely, if shifts from Gatwick should be disregarded, the only 

economic justification for doing so would be an admission that both 

airports are in the same relevant market. The Department has rightly 

rejected Virgin’s attempt to turn this proceeding into a game of 

“heads I win, tails you lose.” 
- 3 - 

five new entrants were able to launch more than a dozen new daily 

U.S.-Heathrow flights immediately after U.S.-EU Open Skies took 

effect, and that Virgin itself has acquired more Heathrow slots than 

it knows what to do with; indeed, Virgin is currently leasing out 

several of its Heathrow slots to other carriers for short-haul intraEU flights. 

In fact, Virgin all but denies the existence of a secondary 

market that has allowed it to double its Heathrow slot holdings in 

recent years, while making arguments that actually support the Joint 

Applicants’ case. For example, Virgin argues that bmi’s pool of 

Heathrow slots will not facilitate new entry on U.S.-London routes 

because “bmi will soon have just one long-haul aircraft in its fleet 

and is in the process of drawing down its Brussels and Amsterdam 

services to focus on providing slots to Lufthansa and its related 

airlines for their Heathrow flights” (p. 9, emphasis added). These 

“related airlines” include United and Continental – each of which 

operates U.S.-Heathrow service, and participates in the metal-neutral 

A++ joint venture with Lufthansa approved by the Department in Star II

(DOT-OST-2008-0234). The fact that bmi itself would not operate new 

U.S.-Heathrow flights is irrelevant to the Department’s analysis, 

because even Virgin admits that Star will. This is precisely the kind 

of new entry the Department contemplated in Order 2010-2-8. 

 
- 4 - 

Virgin’s arguments on the secondary market once again take ACL’s 

comments out of context. ACL stated that while “[t]he secondary 

market is not completely efficient . . . it proved successful in 

making slots available for new transatlantic services under EU-US Open 

Skies” (ACL Comments, p. 1). While Virgin contends that secondary 

trading opportunities have “been exhausted” (p. 10), ACL concluded 

that the constraint on new U.S.-Heathrow entry is “primarily a 

function of market demand” (ACL Comments, pp. 1-2). Thus ACL has 

confirmed both that: (1) slots are available for secondary trading; 

and (2) demand will determine the level of service that new entrants 

will launch. Accordingly, the Joint Applicants will be precluded from 

exercising market power on any U.S.-Heathrow route. 

2. Virgin Downplays One-Stop Service Over U.S. Hubs 

Virgin argues that “BA and American will not face much market 

discipline from U.S. hubs either” (p. 12). As an example, Virgin 

cites connecting Miami-London traffic flowing over New York, and 

concludes that “BA and American will also dominate the New York-London 

market” (Id.). Yet the statistic Virgin cites – that “22% of all 

London Heathrow-Miami passengers who travel on a one-stop basis flew 

on the services of either American or British Airways” (p. 12) – means 

that 78% flew on other competitors. This hardly demonstrates the 

ineffectiveness of network competition over U.S. hubs to discipline 

pricing on U.S.-London routes. 

 
- 5 - 

B. Consumer Benefits 

1. The Joint Applicants Can Create New Connectivity 

Through Heathrow And Madrid

Virgin claims that the Joint Applicants have “overstated” the 

public benefits of the proposed alliance (p. 13), arguing that Star 

and SkyTeam “are centered at European hubs which permit new entry, 

whereas Heathrow is effectively closed to new competition” (pp. 13-

14). Yet the lion’s share of new transatlantic entry in recent years 

has not been at Frankfurt (where Star has a 80.5% share of U.S. 

traffic) or Amsterdam (where SkyTeam has 78.5% share of U.S. traffic), 

but at Heathrow. Given that Heathrow has attracted more new entry 

than every other European hub combined over the past several years, 

there is no reason to believe that the pro-competitive consumer 

benefits of the proposed alliance will be any less than those found in 

SkyTeam II or Star II. 

Virgin also argues that “Heathrow’s slot constraints make it 

impossible to add significant new transatlantic frequency without at 

the same time reducing short-haul frequencies, thereby reducing 

connecting feed” (p. 14). This ignores two facts: (1) capacity can be 

increased through upgauging and maximizing the utilization of existing 

slots; and (2) the addition of Iberia’s Madrid hub creates 

opportunities to fly through multiple European hubs as a part of a 

single oneworld itinerary. Far from being a “fiction” (p. 14), the 

need for such network integration in order for alliances to compete 

with each other is a fact well known by the Department. 

 
- 6 - 

2. Temporary Capacity Reductions Resulting From The 

Global Recession Are Not Evidence That The JBA Will 

Not Expand Its Transatlantic Network 

Virgin’s claims that “BA’s plans are to down-gauge and down-size 

its fleet rather than to grow it” are pure fabrication (Id.). In 

support, Virgin cites to one of its prior pleadings, which in turn 

cites to an even earlier filing, which finally cites to the original 

“evidence.” However, at the end of this scavenger hunt one finds that 

the actual materials cited fail to support Virgin’s argument, as the 

JBA participants each have plans for growth across the Atlantic. 

For example, the article Virgin cites discussing British Airways’ 

decision to push back deliveries of several A380 aircraft also states 

that British Airways has “12 A380s on order,” that “the first A380 is 

still expected to arrive in spring 2012,” and that “[a]ll of the fleet 

changes follow a review of BA’s business plan in ‘challenging economic 

conditions’” (David Kaminski-Morrow, British Airways pushes back A380 

deliveries by up to two years, Air Transport Intelligence News, 

7/3/09). 

There is nothing unusual about such plans – virtually every 

airline in the world has responded to the global economic recession by 

reducing capacity and deferring aircraft deliveries – including 

Virgin.2 Moreover, as the article makes clear, British Airways still 

expects to take delivery of all 12 A380s it ordered by fall 2016 

(Id.). British Airways has also ordered 24 B787 long-haul aircraft. 

                                                           

2

 See, e.g., David Robertson, As Virgin sheds jobs, chiefs enjoy 40% 

pay rises, The Times, 7/3/09 (noting that “Virgin also said this week 

that it would cut capacity by 7 per cent this winter because of 

falling demand”). 
- 7 - 

When the economy recovers, the JBA will allow American, British 

Airways and Iberia to grow. Without the JBA, oneworld will simply 

continue to lose ground to the larger and more integrated Star and 

SkyTeam alliances. 

3. Virgin Repeatedly Mischaracterizes The Department’s 

Tentative Findings On The Proposed Alliance’s Consumer 

Benefits 

Virgin claims that the Department “recognized that [the JBA] is 

in place so that BA and AA can ‘warehouse’ its largest competitor” (p. 

15). This is not true; rather, the Department had concerns about a 

limited number of provisions that it believed fell short of 

establishing “best efforts to achieve metal neutrality” (Order 2010-2-

8, p. 33). The Department asked the Joint Applicants to amend the 

JBA, which they have done, thus rendering Virgin’s point moot. 

Nonetheless, Virgin objects to this process, arguing that the 

Department should have “disapprov[ed] the application outright” (p. 

15). In other words, rather than engaging in a constructive process 

designed to maximize consumer benefits in the marketplace (as the 

Department and Joint Applicants have done), Virgin sees the “best” 

outcome as simply denying the Joint Application. In this way, Virgin 

seeks to avoid competition from oneworld. 

 
- 8 - 

C. Remedies 

1. The Department’s Proposed Slot Remedy Is More Than 

Adequate 

Not surprisingly, Virgin is also unsatisfied with the slot remedy 

imposed by the Department. Virgin admits that the proposed alliance 

will have less than half of Heathrow slots, yet expresses “dismay” 

that the Department is ordering divestiture of “only” four slot pairs 

(p. 11). By comparison, Star and SkyTeam have a significantly higher 

percentage of slots at Paris (CDG), Frankfurt and Amsterdam – airports 

like Heathrow where peak hour slots are not available from the pool. 

Yet the Department did not impose a slot remedy on either alliance. 

Likewise, a slot remedy is unnecessary here. 

Virgin argues that it does not “understand how the Department can 

determine that parties should only be requested to lease four daily 

pairs of Heathrow slots . . . when the Department determined that the 

divestiture of 16 daily pairs was required just a few years ago” (p. 

18). “A few years ago” was January 2002, more than six years before 

U.S.-EU Open Skies took effect in March 2008. Virgin ignores the fact 

that new entrants have already launched more than a dozen new flights 

with slots acquired through intra-alliance transfers and secondary 

trading – making the net new entry (including the proposed slot 

remedy) more than the 16 daily flights contemplated in 2002. This 

proves Virgin’s argument in the U.S.-UK Alliance Case - that it was 

“unlikely” that “airlines desiring to serve Heathrow will be able to 

secure slots from their alliance partners” (VS Answer, DOT-OST-2001-

11029, 12/17/01, p. 7) – was wrong then, and remains wrong today.
- 9 - 

The Joint Applicants will not recount all of the facts on a 

route-by-route basis for those city-pairs where the Department found 

no need for a remedy, as the record speaks for itself. We have shown 

Chicago-Heathrow to be unique as the only transatlantic route 

featuring competing alliance hubs on both ends (American and United at 

Chicago, British Airways and bmi at Heathrow). New York-London, which 

has seen tremendous new entry from Continental and Delta, will remain 

the single most competitive route across the Atlantic – and one on 

which Virgin operates more service than American does. 

Virgin’s complaints about the Boston-Heathrow remedy are based on 

a mischaracterization of the Show Cause Order. Virgin claims that 

“[t]he Department correctly notes that there is almost no likely 

competitive discipline to be placed on BA and American in this market” 

(p. 19). Not surprisingly, Virgin can point to no supporting 

quotation or citation, as the Department never said anything of the 

sort, but to the contrary stated that “[t]his proposed approach would 

serve the public interest because it addresses the lost competition, 

particularly where it is most acute, in the Boston-London market” 

(Order 2010-2-8, p. 26). 

Virgin also complains about competition on Dallas/Fort WorthHeathrow – a route it does not serve. The Joint Applicants have 

provided objective evidence that (1) the route has more capacity than 

local traffic due to the network integration made possible by each 

carrier’s hub; (2) alliances increase capacity on hub-to-hub routes 

when they are able to integrate their networks; and (3) connecting 

alternatives offer strong competitive discipline on the route. 
- 10 - 

2. The Slot Leasing Process Is Both Workable And Well 

Defined 

Virgin’s argument that the slot remedy “is inadequate . . . 

because the mechanics of the remedy may be unworkable” (p. 20) is 

belied by Virgin’s active involvement in remedy discussions between 

the Joint Applicants and the European Commission on the slot leasing 

process. We have previously submitted the publicly available remedy 

package being formally market tested by the European Commission, which 

takes account of Virgin’s arguments as reflected in the drafting. 

Virgin cannot contend that it has no idea how slot leasing would take 

place when it has been involved in those discussions from the very 

outset. 

Given the role Virgin played in drafting slot remedies in Europe, 

its “suggestions” for changing them in the United States are selfserving and disingenuous. It is hard to see how asking competitors to 

pay for the Joint Applicants’ assets creates an “unreasonable 

advantage” (p. 24); to the contrary, giving the assets away for free 

would create an unfair windfall for the recipients. Moreover, 

transferring grandfather rights would allow gamesmanship – where 

Virgin could take slots from the Joint Applicants, then re-task 

existing slots for other service, just as Virgin reallocated slots it 

had used for New York-Heathrow in order to launch additional HeathrowHong Kong frequencies. 

 

 
- 11 - 

3. Carve-Outs Would Be Inappropriate 

Virgin’s argument regarding carve-outs is without merit and adds 

nothing new. Virgin claims that “DOT refused to release the parties 

in [Star II] from their carve-outs until such time as they implemented 

their joint venture,” calling that “inconsistent with the position the 

Department has taken here (p. 17).” But those were pre-existing

carve-outs, and the Department did not impose carve-outs on new 

overlap routes that were included in the A++ joint venture. Since 

there is no existing AA/BA/IB antitrust immunity, there are no 

comparable pre-existing carve-outs. Moreover, since antitrust 

immunity is expressly conditioned on implementation of the JBA, the 

entire alliance would be effectively carved out if the joint venture 

does not go forward. In short, Virgin’s comments fail to make any 

case for altering the tentative findings set forth in the Show Cause 

Order. 

 
- 12 - 

II. ITSA/ASTA 

The objections filed by ITSA/ASTA3

 are completely lacking in 

merit. ITSA/ASTA point to the EU and DOJ as taking stronger stands on 

the proposed alliance than the Department, yet omit the obvious fact 

that neither proposed a carve-out remedy for distribution channels. 

ITSA/ASTA point to the Department’s findings regarding competition on 

city-pairs as justifying their arguments, ignoring that distribution 

takes place on a network basis and that the proposed remedies will 

cure even the limited city-pair impacts. Finally, ITSA/ASTA argue 

that the cumulative effect of alliances coupled with the unique nature 

of Heathrow justify a distribution remedy, which ignores the facts 

that oneworld will still be the smallest of the three alliances and 

that London will remain a uniquely competitive European hub. 

A. Neither The EU Nor DOJ Recommended Distribution Carve-outs 

ITSA/ASTA’s first argument is that the “European Commission last 

year opened formal antitrust investigations against the megaalliances” and that the Joint Applicants “offered . . . slots, as well 

as other structural remedies” (pp. 2-3). ITSA/ASTA take those facts 

to mean that their “concerns are real and that ATI, unremedied, would 

cause significant harm to travel agents” (p. 3). However, ITSA/ASTA 

fail to address the fact that the European Commission – which has 

recently completed the final stages of market testing proposed 

 

                                                           

3

 Interactive Travel Services Association and American Society of 

Travel Agents. 
- 13 - 

remedies – has not proposed any carve-outs for travel agents. Given 

that the EU remedies “exceed what the Department proposed to require” 

(Id.), but still omitted the carve-out sought by ITSA/ASTA, it is hard 

to see any basis for imposing them on this side of the Atlantic. 

ITSA/ASTA also point to concerns raised by DOJ and Members of 

Congress about the impact of alliances, citing “DOJ’s findings that 

ATI would cause significant concentration in important transatlantic 

markets” (p. 4). From that statement ITSA/ASTA jump to the conclusion 

that the Department should carve out distribution from its grant of 

antitrust immunity to the proposed alliance. In fact, DOJ saw no 

reason to argue for such a carve-out in its comments last December – 

explicitly finding no risk of “similar anticompetitive effects upon 

travel agents” (p. 4). 

B. ITSA/ASTA Fail To Meet Their Burden Of Proof 

ITSA/ASTA next argue that “the Department failed to explain why 

the anticompetitive levels of competition that it acknowledged would 

not harm travel agents even with its proposed remedies, and in relying 

on its Star decision it failed to consider the factual differences 

between the two cases” (p. 5). ITSA/ASTA ignore (1) the Department’s 

finding of no anticompetitive levels of concentration on an overall 

transatlantic U.S.-EU network basis (Order 2010-2-8, p. 14); (2) the 

fact that distribution takes place on a broad network – not a limited 

city-pair – basis; and thus (3) there could be no risk of 

anticompetitive harm for travel agents. 

 
- 14 - 

In addition, the Department concluded that “the proposed 

alliance, as remedied, will not substantially reduce competition or 

enhance market power” (p. 35) and that “the facts [with regard to 

travel agencies] are substantially the same” as those “in the recent 

Star Alliance case” (p. 34). While the Department did not restate 

verbatim its detailed rejection of ITSA/ASTA’s arguments in other 

dockets, that does not change the fact that “the Department considered 

the merits of the travel agents’ claim in detail” and found that they 

had “failed to prove” their case (Id.). 

C. The Proposed Alliance Creates No Cumulative Or Unique Harm 

1. Cumulative Harm 

ITSA/ASTA argue that “granting the oneworld application would 

increase the transatlantic HHI by 281 points to a final value of 

2,409” (p. 6). The Joint Applicants have already demonstrated that 

the use of HHI standards from the DOJ’s Merger Guidelines is not wellsuited for commercial aviation.4

 

ITSA/ASTA also misstate The Brattle Group’s previous alliance 

studies, claiming that they showed “the Department’s prior grants of 

ATI to airline alliances reduced consumer choice and raised fares, 

even at moderate concentration levels” (pp. 6-7). In reality, Brattle 

has repeatedly demonstrated that consumers will benefit from the 

interalliance competition that the proposed alliance creates. Thus 

the proposed alliance will – as the Department has found – create

network competition, generating significant consumer benefits. 

                                                           

4

 We also note that ITSA’s members operate in a far more concentrated 

industry, and that recent GDS mergers have led to significantly higher 

jumps in HHI. 
- 15 - 

Next, ITSA/ASTA argue that alliance “dominance would likely . . . 

undermine corporate users’ ability to manage travel costs” (p. 7). 

This ignores the fact that the proposed alliance is supported by 

hundreds of corporate buyers, including the Business Travel Coalition, 

which represents the business travel interests of major corporate 

buyers of air transport service, and the American Small Business 

Travelers Alliance, a national organization that serves small business 

travelers. 

ITSA/ASTA also mischaracterize DOJ’s comments in SkyTeam I (DOTOST-2004-1924) by making the following statement and citation on page 

7 of their objections: 

“By approving the oneworld application without 

the requested carve-out for travel distribution, 

the Department would invite an unacceptably high 

probability of anticompetitive harm coming to 

independent travel distributors, and then to 

consumers” [FN 30] 

“[FN 30] See Joint Application for Approval of 

and Antitrust Immunity for Alliance Agreements 

(SkyTeam), Comments of Dep’t of Justice, OST2004-19214, at 7 (Aug. 19, 2005) (objecting to 

ATI request that included ‘without limitation, 

programs designed to coordinate and reach 

agreements in the areas of sales . . . 

distribution programs, Internet distribution, 

travel agent programs, travel agent and GSA 

compensation’)” (emphasis added). 

This suggests that DOJ specifically objected to antitrust immunity for 

distribution in SkyTeam I, but that is simply not true. 

 
- 16 - 

The language cited in ITSA/ASTA’s objections comes from a block 

quote concerning the proposed alliance’s entire scope taken directly 

from the SkyTeam Coordination Agreement. However, DOJ’s concerns 

about competition in SkyTeam I were limited to domestic spillover 

between Delta and Northwest, and specifically excluded any concern 

over interalliance competition or “dominance” by an alliance far 

larger than the one proposed here: 

“The requested immunity is not likely to lessen 

competition on the transatlantic routes, but does 

threaten to reduce competition on related 

domestic routes” (DOJ Comments, DOT-OST-2004-

19214, 8/19/05, p. 2). 

To suggest that DOJ’s comments in SkyTeam I even remotely support 

ITSA/ASTA’s arguments in this case is plainly wrong. 

Even more troubling is the following quote: 

“The Department did not dispute that eliminating 

travel agents – ‘cutting out the middle man’ – 

would raise fares for consumers” (p. 8, citing 

Order 2010-2-8, pp. 34-35). 

In fact, the phrase “cutting out the middle man” appears nowhere in 

Order 2010-2-8, despite the fact that ITSA/ASTA’s use of quotation 

marks suggests that it does. Nor can the Joint Applicants find any 

statement by the Department that “eliminating travel agents . . . 

would raise fares for consumers.” While the Department does note that 

“reductions in travel agent commissions” have occurred over time, it 

specifically finds that ITSA/ASTA failed to provide any relationship 

between that “structural change[] to the travel industry” and 

antitrust immunity (Order 2010-2-8, p. 34). 

 
- 17 - 

2. Unique Harm 

ITSA/ASTA claim that “oneworld dominates the New York-London 

market” (p. 10). But after the proposed alliance receives final 

approval, the Joint Applicants will still account for less than half

of all New York-London bookings, and consumers will have more nonstop 

choices on that route than any other European route from New York – 

Star (Continental), SkyTeam (Delta), Virgin Atlantic, and Fifth 

Freedom carriers to be specific. We agree that London is “unique” (p. 

5) in that it is uniquely competitive and will remain as such. The 

Department should reject ITSA/ASTA’s objections here just as it did in 

Star II (DOT-OST-2008-0234).

III. HUBERT HORAN 

A. Mr. Horan Draws False Conclusions Of Consumer Harm From 

Fatally Flawed Fare Data 

The final objector to the Show Cause Order is Hubert Horan, who 

has recently begun filing comments in antitrust immunity dockets 

arguing that alliances are bad for consumers. Yet the evidence Mr. 

Horan cites, “Form 41 Pax Revenue/E[n]planement – Index” data (p. 2), 

is completely unconvincing. The fare data relied upon in antitrust 

immunity proceedings typically comes from the O&D Survey or internal 

carrier sources. In contrast, Form 41 data is rife with 

methodological inconsistencies from the submitting carriers, making it 

unreliable to use for any meaningful purpose. Moreover, looking at 

passenger revenue per enplanement fails to adjust for variables such 

as stage length and proration across segments. 

 
- 18 - 

Furthermore, even if the “pattern” (id.) Mr. Horan has identified 

is real, the proposed alliance is the solution to that problem. As 

The Brattle Group found beginning in 2004, the absence of effective 

interalliance competition given oneworld’s lack of meaningful 

integration had allowed Star and SkyTeam to grow without being forced 

to deliver the full benefits of transatlantic Open Skies agreements. 

Far from creating “[e]xtreme concentration” (p. 4), the proposed 

alliance will create balanced competition – something consumers have 

needed for many years. 

Mr. Horan also argues that “Market Power due to consolidation has 

allowed North Atlantic carriers to significantly raise fares, despite 

capacity growth that would have driven fares down under normal 

competitive conditions” (p. 3). It is elementary economic theory that 

cartels do not raise prices by increasing capacity. In fact, when 

price and output increase, that is typically a sign of increased 

demand, not anticompetitive behavior. In this case, the creation of 

integrated network service spawned new demand on tens of thousands of 

smaller behind/beyond O&Ds, thus driving capacity expansion.

Perhaps most bizarre is Mr. Horan’s argument that “[b]ecause of 

the basic economics of the network airlines none of the three large 

collusive alliances will have any ability to seriously challenge the 

other two” (p. 4). Yet it is basic airline economics that even a 

handful of competitors of comparable size can create an extremely 

competitive environment. It is today’s unbalanced world - where only 

two of the three alliances have been allowed to integrate – that has 

denied oneworld the ability to seriously challenge Star and SkyTeam. 
- 19 - 

B. Mr. Horan’s Criticisms Regarding The Public Benefits Of The 

Proposed Alliance Are Not Well Founded 

Mr. Horan next attacks the fundamental premise behind immunized 

alliances – specifically, that an integrated transatlantic network can 

price more efficiently than two separate ones. In doing so, he 

dismisses a line of peer-reviewed studies conducted by several 

economists, including a recognized aviation expert at the U.S. 

Department of Justice (p. 8). Mr. Horan provides absolutely no basis 

for rejecting the conclusion that an integrated network can optimize 

schedules and capacity in order to maximize consumer welfare. 

Simply observing the interaction between American and British 

Airways as non-immunized alliance partners conclusively demonstrates 

this fact. Because the two carriers cannot share revenue on 

transatlantic segments, they have failed to cooperate on connecting 

itineraries in any meaningful way. Instead of providing a seamless 

product, oneworld offers limited codesharing, a massive gap in 

frequent flyer reciprocity, and nearly no fare combinability. For Mr. 

Horan to deny that the proposed alliance will remedy these 

deficiencies and create consumer benefits, given his self-proclaimed 

status as “the person who developed the very first integrated alliance 

network . . . that became the model for every subsequent North 

Atlantic alliance network” (p. 10), is strange indeed. 

 
- 20 - 

Mr. Horan also argues that the Joint Applicants’ plans to 

increase transatlantic flying are “vague” and “purely speculative” (p. 

12). For example, he claims that “there is no evidence to suggest a 

high probability” that the Joint Applicants will “utilize the Madrid 

hub to boost traffic and work around the constraints at Heathrow” 

(Id.). This ignores American’s recent launch of nonstop service 

between Dallas/Fort Worth and Madrid – an exceedingly small local O&D 

that could not support a daily nonstop absent the ability to operate 

an integrated oneworld network. Mr. Horan provides no basis for 

changing the Department’s Show Cause Order.

CONCLUSION 

The Joint Applicants applaud the Department’s Show Cause Order 

and commitment to moving this case forward to a final conclusion. We 

urge the Department to reject the attempts to further obstruct the 

creation of new interalliance competition that Virgin, ITSA/ASTA and 

Mr. Horan have filed, and to promptly issue the Final Order. 

Respectfully submitted, 

 

CARL B. NELSON, JR. PAUL C. JASINSKI 

Associate General Counsel General Counsel, Americas 

R. BRUCE WARK JAMES B. BLANEY 

Associate General Counsel Senior Counsel, Americas 

JEFFREY A. OGAR British Airways plc 

Senior Attorney 

American Airlines, Inc. DARYL A. LIBOW 

 Sullivan & Cromwell LLP 

ROGER W. FONES DON H. HAINBACH 

Morrison & Foerster LLP Garafalo Goerlich Hainbach PC 

ANDREW B. STEINBERG Attorneys for British Airways 

Jones Day 

Attorneys for American Airlines 
- 21 - 

 

WILLIAM KARAS SAMI SARELIUS 

CAROL GOSAIN Vice President & General Counsel 

Steptoe & Johnson LLP Finnair Oyj 

Attorneys for Iberia 

 

 

MICHAEL J. HOLLAND 

Condon & Forsyth LLP 

Attorneys for Royal Jordanian 

April 14, 2010 
CERTIFICATE OF SERVICE

 

 I hereby certify that I have this day served the foregoing 

document by email on the following persons: 

 

sascha.vanderbellen@delta.com jhill@dlalaw.com 

scott.mcclain@delta.com bill@mietuslaw.com 

sametta.c.barnett@delta.com mgoldman@sgbdc.com 

kquinn@pillsburywinthrop.com rsilverberg@sgbdc.com 

bkeiner@crowell.com dhainbach@ggh-airlaw.com 

mrosia@crowell.com mcmillin@woa.com 

bruce.rabinovitz@wilmerhale.com eskraft@jamhoff.com 

jeffrey.manley@united.com dpdean@jamhoff.com 

bob.kneisley@wnco.com dkirstein@yklaw.com 

robert.land@jetblue.com jyoung@yklaw.com 

msinick@ssd.com donna.kooperstein@usdoj.gov 

cdonley@ssd.com dwight.moore@ustranscom.mil 

gbleopard@fedex.com jim.ballough@faa.gov 

dvaughan@kelleydrye.com byerlyjr@state.gov 

kevin.montgomery@polaraircargo.com recohn@hhlaw.com 

jrichardson@johnlrichardson.com cjsimpson@zsrlaw.com 

lhalloway@crowell.com pmurphy@lopmurphy.com 

efaberman@wileyrein.com lachter@starpower.net 

mroller@rollerbauer.com anita.mosner@hklaw.com 

howard.kass@usairways.com rpommer@atlasair.com 

benjamin.slocum@usairways.com gmurphy@crowell.com 

sophy.chen@hklaw.com russell.bailey@alpa.org 

david.heffernan@wilmerhale.com 

 

 _______________________________ 

 JEFFREY A. OGAR 

April 14, 2010