**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**  **: F**  **or 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 **one** world 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 **one** world 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, **one** world 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 **one** world.- 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/ASTA 3 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 **one** world 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 lastyear 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 **one** world application would increase the transatlantic HHI by 281 points to a final value of 2,409” (p. 6). The Joint Applicants have already demonstrated thatthe 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 **one** world 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 “ **one** world 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 **one** world’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 **one** world 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, **one** world 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 **one** world 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