**BEFORE THE DEPARTMENT OF TRANSPORTATION**  **WASHINGTON, D.C.**

--------------------------------------------- Joint Application of : : AMERICAN AIRLINES, INC. : and : DOT-OST-2010- JAPAN AIRLINES INTERNATIONAL CO., LTD. : 0034 : under 49 U.S.C. §§ 41308 and 41309 for : approval of and antitrust immunity for : alliance agreements :

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**[PUBLIC] RESPONSES OF AMERICAN AIRLINES, INC., AND JAPAN AIRLINES INTERNATIONAL CO., LTD. TO INTERROGATORIES** 

Communications with respect to this document should be sent to: For Japan Airlines : TSUTOMU ANDO Executive Officer – International Affairs Japan Airlines International Co., Ltd. 4-11, Higashi-shinagawa 2-chome, Shinagawa-ku Tokyo 140-8637, Japan

TORU MIZUNO Vice President – International Affairs Japan Airlines International Co., Ltd. 4-11, Higashi-shinagawa 2-chome, Shinagawa-ku Tokyo 140-8637, Japan

YUKI SAITO Director, Government Affairs Japan Airlines International Co., Ltd. 1330 Connecticut Ave., N.W. Washington, D.C. 20036 For American Airlines:

VIRASB VAHIDI Senior Vice President – Planning American Airlines, Inc. P.O. Box 619616, MD 5634 DFW Airport, Texas 75161

KENJI C. HASHIMOTO Vice President – Strategic Alliances American Airlines, Inc. P.O. Box 619616, MD 5635 DFW Airport, Texas 75261 WILLIAM K. RIS, JR. Senior Vice President – Government Affairs American Airlines, Inc. 1101 17 th Street, N.W. Washington, D.C. 20036WILLIAM KARAS CAROL GOSAIN Steptoe & Johnson LLP 1330 Connecticut Ave., N.W. Washington, D.C. 20036 (202) 429-6223 wkaras@steptoe.com cgosain@steptoe.com ROBERT A. WIRICK Director, Regulatory American Airlines, Inc. P.O. Box 619616, MD 5635 DFW Airport, Texas 75261 (817) 963-0394 robert.wirick@aa.com

W. BRUCE WARK Associate General Counsel JEFFREY A. OGAR Senior Attorney American Airlines, Inc. P.O. Box 619616, MD 5675 DFW Airport, Texas 75261 (817) 967-3458 jeff.ogar@aa.com CARL B. NELSON, JR. Associate General Counsel American Airlines, Inc. 1101 17 th Street, N.W. Washington, D.C. 20036 (202) 496-5647 carl.nelson@aa.com February 16, 2010BEFORE THE DEPARTMENT OF TRANSPORTATION WASHINGTON, D.C.

Joint Application of AMERICAN AIRLINES, INC. and 00T-OST-2010­ JAPAN AIRLINES INTERNATIONAL CO., LTD. 0034 under 49 U.S.C. §§ 41308 and 41309 for approval of and antitrust immunity for alliance agreements

[PUBLIC] RESPONSES OF AMERICAN AIRLINES, INC., AND JAPAN AIRLINES INTERNATIONAL CO., LTD. TO INTERROGATORIES

In prior antitrust immunity proceedings, the Department has requested
responses to interrogatories. American Airlines, Inc. and Japan Airlines International Co., Ltd. have reviewed the dockets in the U.S.-U.K. Alliance Case (00T-OST-2001-11029), SkyTeam (00T-OST-2004-19214), Star (00T-OST-2005­ 22922), SkyTeam II (00T-OST-2007-28644), Star II (00T-OST-2008-0234), and oneworld (00T-OST-2008-0252) in an effort to provide the Department with relevant information at the outset of this proceeding. We believe that our responses will facilitate swift approval of the Joint Application so that American and JAL may move expeditiously to implement their alliance agreements, including a Joint Business Agreement (JBA) , giving consumers significant new competitive service options and strengthening oneworld's ability to compete with the Star and SkyTeam global alliances.- 2 – **1. Describe the Joint Applicants’ strategic objectives in forming the Alliance Agreements, particularly addressing why immunity is sought**  **and is necessary to achieve those objectives. Provide complete details of cooperative activities that would require antitrust**  **immunity and the alliance’s plans for each (including, but not limited to, sales and marketing strategies, scheduling, capacity allocation**  **and management, pricing and revenue management).** American and JAL have entered into the proposed alliance in order to enhance their ability to compete in the global marketplace. International alliances are necessary to provide customers with improved products and services, as well as access to global markets. American and JAL are network carriers, and each believes its future depends on expanding and developing this role. To compete effectively in the transpacific market, the Joint Applicants must be positioned to challenge the proposed United/Continental/ ANA immunized alliance (pending in DOT-OST-2009-0350) and the immunized United/Asiana partnership (DOT-OST-2003-14202) within Star, as well as the strength of Delta in Japan and throughout the Pacific region which is bolstered by immunity between Delta and Korean Air (DOT-OST-2002-11842) within SkyTeam. Network competition is extremely important to American, which operates across the Pacific to Tokyo from four U.S. gateways (New York, Chicago, Dallas/Ft. Worth, and Los Angeles), but to just one other Asian destination (Shanghai, with Beijing slated for later this year). In order to maximize its ability to connect traffic to the rest of Asia seamlessly over Tokyo, and compete effectively against other alliances, American requires immunity with JAL.- 3 – For its part, JAL needs a U.S. partner with an extensive domestic network to remain competitive for traffic between the U.S. and Japan. Only a handful of U.S. domestic points can support direct service to Japan, and due to statutory restrictions on cabotage, JAL cannot operate between U.S. gateways and interior U.S. points. JAL needs antitrust immunity with American as its U.S. partner so it can compete effectively for transpacific traffic. The participation of American and JAL in the initial JBA (which may later be expanded to include other **one** world members) is an especially good fit, involving largely complementary end-to-end services, with only three nonstop overlap routes to Tokyo (New York-JFK, Chicago, and Los Angeles). Without antitrust immunity, effective integration between American and JAL is impossible for legal and commercial reasons. American and JAL anticipate engaging in all of the cooperative activities set forth in the Joint Application. **2. Provide a detailed description of plans to optimize services, traffic flows and revenues at all key alliance network hubs, particularly**  **focusing on existing overlaps on transpacific routes. Include a discussion of the criteria by which services, traffic and revenues**  **will be evaluated and optimized.** American and JAL will coordinate planning efforts in order to offer customers a wider choice of travel options at competitive prices, to optimize aircraft capacity and ground facilities, and to enhance connecting opportunities between their respective networks. This process will require that American and JAL jointly assess their U.S.-Japan schedules and connecting opportunities in order to build a core network alliance for theircustomers traveling between, and beyond and behind, their respective transpacific gateways in the U.S. and Japan.- 4 – The main elements of planned schedule coordination are as follows:

 Co-location of flights to the same destinations in the same airport terminals where possible (and where possible, increasing the number of opportunities to make connections to other services offered by the Joint Applicants without changing terminals);

 Retiming of flights to ensure that the Joint Applicants provide a complementary choice of schedules and reduced connection times; and

 Optimization of aircraft capacity, configurations, and schedules to better meet customer preferences and achieve efficiencies. American and JAL anticipate the consumer benefits from these changes to include improved choice of flights, increased seat availability on flights during peak hours, increased ability for the Joint Applicants to reduce prices and add services as a result of efficiencies, increased connecting traffic flows, and more connecting opportunities and convenient transfers. American and JAL will jointly develop revenue plans and forecasts for services on their networks. Coordination will enable the parties to better predict demand and reduce the need to hold seats back for sale in higher value inventories. This will permit more accurate booking practices and the possibility of offering more seats at lower fares. Additional information on the criteria for optimizing services, traffic flows, and revenues is set forth in documents to be submitted separately by the Joint Applicants (subject to confidential treatment under 14 CFR 302.12). **3. Specifically address plans for other one** world **partners and affiliates, as well as the proposed transatlantic immunized alliance pending in**  **DOT-OST-2008-0252.** The proposed American/JAL alliance includes two of **one** world’s transpacific members and will primarily affect transpacific markets. Although the American/JAL alliance will be an integral part of **one** world, it will not significantly influence operations of other **one** world members that do not- 5 – operate competing transpacific service. Unlike Star, which excludes US Airways from its immunized alliances, **one** world will not be faced with the problem of reconciling U.S.-Japan service by immunized and non-immunized member carriers. **one** world will therefore be better positioned to coordinate and rationalize U.S.-Japan service to the benefit of its member carriers and their passengers.

**one** world’s membership currently includes American, British Airways, Cathay Pacific, Finnair, Iberia, Japan Airlines, LAN, Malev, Mexicana, Qantas, and Royal Jordanian. American has separate antitrust immunity with Finnair (DOT-OST-2002- 12063) and with Lan/Lan Peru (DOT-OST-2004-19964), and on February 13, 2010, the Department tentatively approved joint antitrust immunity among American, British Airways, Iberia, Finnair, and Royal Jordanian by show-cause Order 2010-2-8 (DOT-OST-2008-0252). It is possible that as the AA/JAL JBA expands in geographic scope, other **one** world carriers could be included in a future application. In the case of the LAN carriers, this would become more feasible if the United States were able to reach open skies agreements with Argentina and Ecuador, allowing American to seek antitrust immunity with all four LAN affiliates. It is also possible that American and JAL could seek to include Qantas in a future application, as the U.S. and Australia now have an open skies agreement. Inclusion of Cathay Pacific will not be possible until the U.S.-Hong Kong market is fully liberalized. Likewise, inclusion of Mexicana is not presently possible. The U.S.-Mexico air transport agreement, although not highly restrictive, is not open skies, and thus prevents Mexicana from joining the immunized alliance at this time.- 6 – **4. Identify and describe all current codeshare and/or marketing alliance arrangements between American and JAL and non-one**  world **carriers, and all such arrangements that American and JAL are considering in the next**  **12 months that would impact transpacific traffic flows.**

**CODESHARE ARRANGEMENTS Parties**  **Description** AA/AS Domestic codeshare AA/BR Behind/beyond, gateway-to-gateway AA/CI Cargo/mail only AA/EI Cargo/mail only AA/EK Cargo/mail only AA/EY Behind/beyond, gateway-to-gateway AA/FJ Gateway-to-gateway AA/GF Behind/beyond, gateway-to-gateway AA/HA Inter-island codeshare AA/KU Cargo/mail only AA/LY Behind/beyond, gateway-to-gateway AA/MU Behind/beyond, gateway-to-gateway AA/SN Behind/beyond, gateway-to-gateway (ends 3/27/10) AA/SQ Cargo/mail only AA/VN Beyond gateway AA/2A Points beyond Frankfurt (train) AA/2C Points beyond Paris (train) AA/4M Points beyond Buenos Aires AA/9W Behind/beyond, gateway-to-gateway JL/AF Behind/beyond, gateway-to-gateway, domestic codeshare JL/AZ Gateway-to-gateway JL/CZ Gateway-to-gateway JL/EK Gateway-to-gateway, Japan domestic codeshare- 7 – JL/JQ Gateway-to-gateway JL/KE Gateway-to-gateway JL/KZ Cargo/mail only JL/LH Cargo/mail only JL/MU Gateway-to-gateway, China domestic codeshare JL/NZ Gateway-to-gateway JL/SQ Cargo/mail only JL/TG Gateway-to-gateway, domestic codeshare JL/TN Gateway-to-gateway JL/VN Gateway-to-gateway, Japan domestic codeshare **FREQUENT FLYER ALLIANCES Alliance**  **Description**

**one** world Agreement to provide accrual/redemption on each others network (except AA/BA on transatlantic flights) AA/AS/QX Agreement to provide accrual/redemption on each others network AA/EI Agreement to provide accrual/redemption on each others network AA/FJ Agreement to provide accrual/redemption on each others network AA/GF Agreement to provide accrual/redemption on each others network AA/HA Agreement to provide accrual/redemption on each others network AA/LY Agreement to provide accrual/redemption on each others network AA/SN Agreement to provide accrual/redemption on each others network AA/VN Agreement to provide accrual/redemption on each others network AA/4M Agreement to provide accrual/redemption on each others network AA/9W Agreement to provide accrual/redemption on each others network JL/AF Agreement to provide accrual/redemption on each others network JL/EK Agreement to provide accrual/redemption on each others network- 8 – JL/MU Agreement to provide accrual/redemption on each others network (except accrual on gateway-to-gateway)

**AIRLINE CODES** AA American Airlines AF Air France AS Alaska Airlines AZ Alitalia BR EVA Air CI China Airlines CZ China Southern EI Aer Lingus EK Emirates EY Etihad FJ Air Pacific GF Gulf Air HA Hawaiian Airlines JL Japan Airlines JQ Jetstar Airways KE Korean Air KU Kuwait Airlines KZ Nippon Cargo Airlines LH Lufthansa LY El Al MU China Eastern NZ Air New Zealand QX Horizon Air SN Brussels Airlines SQ Singapore Airlines- 9 – TG Thai Airways International

TN Air Tahiti Nui VN Vietnam Airlines 2A Deutsche Bahn 2C SNCF 4M Lan Argentina 9W Jet Airways (India)

**one** world American and JAL, together with nine other airlines, belong to a global marketing alliance under the brand “ **one** world.” The original members of the **one** world alliance, formed in February 1999, were American, British Airways, Canadian Airlines International (which withdrew after merging with Air Canada), Cathay Pacific, and Qantas. Finnair and Iberia joined soon thereafter, followed by Aer Lingus and Lan Chile in 2000. In April 2007,

**one** world underwent significant change, with JAL, Malev, and Royal Jordanian joining at the same time Aer Lingus voluntarily withdrew. Mexicana joined

**one** world in November 2009. Further detail on the development of oneworld may be found at www.oneworld.com

.

**one** world’s objectives are to provide customers with a high standard of interline and codeshare service on all flights operated by the member carriers, and to compete with other branded alliances such as Star and SkyTeam. To secure these objectives, the members have agreed to implement frequent flyer reciprocity and recognition, reciprocal lounge access, and other measures to make the international travel experience more convenient and seamless for customers.- 10 – In addition to adopting a global brand for use in tandem with their individual brands and promotional activities, the **one** world carriers also agreed to implement check-in systems to permit boarding passes to be issued on flights operated by other members, install signage at airports to direct passengers to their connecting flights, support ticket interchangeability, and improve system automation. The parties further agreed to enter into or continue codeshare, frequent flyer, and airport lounge access agreements on a bilateral basis, and to recognize common standards for determining and rewarding top tier frequent flyer customers. On the cost side, **one** world members have agreed to identify savings opportunities where legally allowed through measures such as common ground handling and joint purchasing, and to enhance efficiency by, for example, sharing office or ticket counter space where appropriate. **one** world has also jointly developed new products such as the **one** world Explorer ticket, which allows passengers to fly around the world using any **one** world carrier for a single fare. A description of other **one** world products and services, and other general information, can be found on its website at www.oneworld.com

. **6. Provide a list of all transpacific routes that American and JAL are currently serving and the international routes that each would serve**  **if the proposed alliance were approved and immunized. To the extent it impacts international operations, fully identify all of the**  **parties’ current codeshare and/or alliance arrangements, their route systems and any plans to alter such arrangements or alliances if the**  **proposed alliance were approved.** Lists of the transpacific routes operated by American and JAL are provided in Exhibit JA-11. The parties’ current codeshare and alliance arrangements with non-oneworld members are described in response to Interrogatory 5; copies of the underlying agreements will be included in our confidential submission under 14 CFR 302.12. Neither American nor JAL- 11 – currently has any definitive plans to alter such arrangements or alliances if the immunity application is granted, as finalizing the analysis required for such agreements will require antitrust immunity. **7. List all of the new city-pairs that would receive new online service as a result of the proposed alliance and provide estimates of the**  **number of passengers that would benefit from this new online service and how many of these passengers would originate in the U.S. Exclude**  **any city-pairs in which no new code is introduced as a result of the alliance due to an existing relationship with a non-one**  world **carrier.** See Exhibits JA-3, JA-4, and JA-5. **8. Provide a comparison of the Joint Applicants’ schedules before implementation of the proposed alliance with the planned schedules to**  **be implemented after approval of the proposed alliance (defined as the earliest date at which current alliance service plans are expected to**  **be fully realized). These schedules should include frequency, aircraft type and the number of seats per operation. In addition,**  **provide a summary of schedule, frequency and equipment changes that the Joint Applicants would expect to make within the first two years**  **of approval.** Absent antitrust immunity, American and JAL have not been able to coordinate schedule changes to be made after the proposed alliance is implemented. American and JAL may adjust their schedules in the future depending on market conditions and opportunities presented by the competitive environment. **9. Provide complete information describing the extent to which airport facilities (including, but not limited to, gates, parking stands,**  **counter space and ground-handling) are or will be made available to any U.S. airline desiring to begin or increase service at airports in**  **Japan.** To the best of the Joint Applicants’ knowledge, airport facilities such as gates, parking stands and counter space are generally available to U.S. airlines desiring to begin or increase service at Japanese airports. Ground-handling at Japanese airports is not regulated. Therefore, eachairline makes an independent choice whether to perform its own groundhandling or to contract out that function to another entity.- 12 – **10. Provide an assessment of commercially usable slots at Narita and Haneda for new transpacific service, particularly by SkyTeam and Star.**  The U.S.-Japan Open Skies Agreement will expand opportunities for U.S. carriers to begin or increase service between the United States and Japan. The Agreement will not only remove restrictions on U.S. carrier service to Japan but will also make additional slots available to U.S. carriers at Tokyo’s Narita Airport and re-open Tokyo’s Haneda Airport to scheduled international service by U.S. carriers. At the same time, substantial capacity increases are planned for the Tokyo metropolitan airports. Even under the existing bilateral regime between the U.S. and Japan, there are sufficient slots available at Tokyo’s Narita Airport to support any services that eligible U.S. carriers wish to operate. Every U.S. carrier that has been awarded frequencies to serve Japan has been able to obtain slots to serve Narita. Indeed, U.S. carriers are not currently using all of their slot holdings at Narita. For example, UPS and Polar Air Cargo have reportedly returned slots to the Narita slot coordinator. In addition, numerous slots allocated to U.S. carriers are currently being used by their Japanese codeshare partners. Slots and capacity at both Tokyo Narita and Tokyo Haneda Airports are expected to expand in the near future. The capacity at Tokyo Narita Airport will increase significantly in summer 2010. The departure and arrival slots will be boosted by 10% from 200,000 to 220,000. In addition, the Japanese government expects a further expansion of Narita. Narita International Airport Corporation has stated its intention eventually to increase slots at Narita to 300,000 through more efficient runway and ATC operations. At Haneda, which will be re-opened to international scheduled services, a fourth runway and a new international passenger terminal building are scheduled to open in October 2010. These expansions will significantly- 13

­ increase capacity at Haneda by 155,000 departures and arrivals per year eventually, out of which 30,000 slots will be allocated to long-haul international services during nighttime hours from the initial stage. Further, the U.S. and Japan have affirmed in the recently-signed Record of Discussions (ROD) that under the U.S.-Japan Open Skies Agreement "the administration of the international airports [such as Narita] will be conducted fairly, in accordance with lATA guidelines and existing administrative guidelines" and that "any additional slots for international services at Narita International Airport will be allocated in accordance with this principle." The ROD also provides that for each increase of 20,000 annual slots in the total number of slots made available at Narita, U.S. carriers will be entitled to a number of slots equal to three roundtrip daily flights (2,190 annual slots). Moreover, the ROD provides for U.S. carrier access to a proportional allocation of slots and rollover of unused slots to ensure their availability when needed. In addition, the 2009 Memorandum of Understanding initialed by the United States and Japan ensures that U.S. carriers will have access to slots

at Haneda after the fourth runway becomes operational in October 2010. U.S. carriers will have the opportunity to operate four daily scheduled combination roundtrip services between Haneda and the United States. The ROD notes that the U.S. and Japan may amend and relax these limits "on an expedited basis if operational or commercial considerations so justify." Specifically with respect to the applications pending before the Department for approval of and antitrust immunity for transpacific alliances, JAL and American, on the one hand, and All Nippon, United and Continental, on the other, will in summer 2010 have international slots at Narita Airport

. respectively), as shown 

# REDACTED

# REDACTED

- 14

­ in the below table. Delta also has substantial slot holdings at Narita which are significantly higher when combined with its immunized alliance partner, Korean Air



# REDACTED

11. Pl_s •• xpl.in and pzoovide the details**o~** any plans**~ozo** mu.1til.tezoal ooopezo.tion**~ollowift9** • gzoant**o~** ATZ. The Joint Applicants plan to cooperate in areas such as codesharing, frequent flyer programs, global route and schedule planning, sales, advertising and marketing, pricing and yield management, inventory and procurement, revenue allocation, ground handling, airport facilities and support services. The requested antitrust immunity will give American and JAL greater economic incentives to codeshare more extensively behind, beyond and between their respective gateways. Further, ,the Joint Applicants could engage in extensive joint corporate and agency dealingsl allowing the on.world immunized alliance to compete with the existing products offered by Star and SkyTeam. These benefits are similar to those already enjoyed by the existing immunized"alliances within Star and SkyTeam. 12 . pl.... descz:ib. the**speci~ic** public**ben.~i** ts

- such •• chanps in capac1 ty and schedul •• , enh.nced. code-.ha.z:ing I coat •• ViDg., and**.~~ici..DCi.s** deZ'iving**~zoOIA** .11iance integzo.tioD - that would be dizoectly enabled by DO!l' appzoov.l and iJIDani •• tion**o~** the pzooposed. ;-mniaed allianCII qz:eement:. (i .•. I tho •• public benefit:. that could- 15 – **not be achieved without antitrust immunity). For each public benefit described, explain why a grant of ATI is necessary in order for the**  **public benefit to be realized, the likelihood of achieving the public benefit following a grant of ATI, and the approximate time frame in**  **which the public benefit is likely to be realized following a grant of ATI.**  This discussion is provided in the Joint Application at pp. 10-25. In addition, in show-cause Order 2010-2-8, February 13, 2010, in the oneworld immunity docket, the Department recognized that a third strong global alliance is a public benefit. See p. 14 (“the proposed alliance will provide a third global network that can better discipline the fares andservices offered by the Star and SkyTeam alliances. The enhanced interalliance competition is beneficial for consumers across many markets, in particular the hundreds of transatlantic markets in which the applicants become more competitive as a direct result of the alliance. Travelers in those markets instantly gain new competitive options”) and p. 28 (“the proposed transaction facilitates a third strategic alliance. This too is a public benefit. oneworld will become more competitive in a number of markets, exerting increased competitive discipline on fares and services in those markets. Consumers getting a third viable option will enjoy more destinations, better connections, improved schedules, and better frequent flyer benefits. These benefits complement the annual surplus from price reductions and increased traffic on current interline routes”). Approval of ATI for American and JAL will produce similar public benefits. **13. Please describe (i) the purpose, scope, terms, and proposed timeline for implementing any planned joint ventures, revenue or benefit sharing**  **agreements, or other integrative arrangements under the proposed immunized alliance agreements, and (ii) the extent to which the**  **realization of any public benefits associated with the proposed agreements is contingent upon the implementation of such ventures,**  **agreements, or arrangements.**- 16 – This information is provided in the Joint Application at pp. 7-9, 16- 17, and 30-31, and in the relevant agreements, consisting of an alliance agreement and a joint business agreement. Absent the JBA, **one** world would be limited in its ability to compete with the far larger transpacific presence of (1) United (which operates a hub in Tokyo), United/Continental/ANA (antitrust immunity pending), United/Asiana (antitrust immunity in place), and Air China, Singapore Airlines, and Thai International (codesharing) within Star and (2) Delta (which operates a hub in Tokyo) and Delta/Korean (antitrust immunity in place) within SkyTeam. American and JAL will not implement the JBA absent antitrust immunity. **14. Please discuss how the Joint Applicants will manage conflicting interests and economic incentives with respect to capacity allocation,**  **scheduling pricing, revenue and inventory management (especially for connecting traffic), and sales and marketing strategies. Please**  **address the extent to which conflicts between these three overlapping but separate entities in each of these commercial areas will affect**  **the realization of any public benefits that would result from approval of the Joint Application.**  While the JBA is currently limited to American and JAL, the existence of additional immunized alliances within and outside **one** world will not reduce the consumer benefits that the JBA makes possible. American has managed separate bilateral immunized transatlantic alliances in the past, such as its prior immunized agreements with Swiss and Brussels Airlines (which were terminated after each was acquired by Lufthansa and became a member of Star), and its existing immunized alliance with Finnair. The Joint Applicants do not anticipate any conflicting interests or economic incentives between the proposed alliance here and other alliances that presently exist. Accordingly, American and JAL contemplate no negative impact on the public benefits that will occur as a result of approving the proposed alliance.- 17

­ 15. Please describe the impact of JAL's bankruptcy on its operations, JAL's recent management changes and restructuring, and the likely scope of operations by JAL in the near and long term as a result of these developments. In your answer, please indicate how these plans are likely to affect its alliance activities and commercial relationships with oneworld carriers and the proposed timeline for any changes.



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16. Please describe the sources of and estimate the value of any cost savings that the Joint Applicants will be able to achieve only if they are granted antitrust immunity.- 18 – This discussion is provided in the Joint Application at pp. 11, 14-18. American and JAL anticipate that significant cost savings will be realized following grant of antitrust immunity. **17. How does the JBA reconcile an independent firm’s intrinsic orientation to act purely in its own economic interest, and the express goal of**  **American and JAL in the JBA of aligning economic interests to achieve metal neutrality and deliver significant consumer benefits?**  This question probes whether the JBA’s method of allocating pricing and capacity functions will lead to individual decisions that are not in the collective best interest of the alliance and consumers. However, any such concerns will not be realized; in fact, the method of governance that the JBA participants have chosen is designed specifically to ensure that neither AA nor JAL has an incentive to focus on its independent self interest. This is because the JBA’s revenue sharing mechanism aligns each party’s interests toward growing the transpacific business to the greatest extent possible and on a metal-neutral basis. **18. Describe your plans for joint international product development as well as expectations for the improvement of each party’s product by**  **virtue of the alliance cooperation envisioned by the alliance agreement and the JBA.**  Because American and JAL currently lack antitrust immunity, it would have been legally imprudent and commercially impractical to discuss or develop specific plans for joint international product development. The parties generally anticipate that product differences will exist in the early days of the JBA. Over time, and as the **one** world brand matures, the JBA participants expect to harmonize and enhance their international services. What has not been decided at this point is the extent to which the parties will continue to offer different products across the different brands in the long run.- 19 – **19. Describe the steps you plan to take to achieve fare combinability under the JBA, and the estimated timeframe to complete the task.**  **Explain whether you plan to harmonize or map your CRS fare classes and revenue management buckets and provide existing documentation on the**  **harmonized fare and revenue management buckets, as well as proposed mapping of selling and booking classes based on their dollar value and**  **restrictions.** As members of **one** world, the JBA participants already have full fare class mapping. Thus, fare combinability will require only the addition of a rule in each carrier’s tariffs providing that all fares within the JBA’s scope are fully combinable. With metal neutrality, each carrier will have the incentive to make these rule changes. Fare combinability should be achievable within the same timeframe anticipated for implementing the JBA as a whole. **20. Given the structure of the JBA, which contemplates pooling revenues and certain limited costs, please explain:**  **(i) whether and to what extent the joint venture participants plan to include additional costs, beyond those itemized in Schedule 1 of**  **the JBA, in the arrangement in the future, and (ii) the benefits and detriments of pooling those other costs for the**  **participating airlines and consumers given economic, political, and contractual constraints faced by global airline alliances.**  The Joint Applicants have no current plans to include costs beyond those itemized in Schedule 1 of the JBA. However, it is possible that the JBA’s structure could be changed over time. To the extent those changes are significant enough to warrant notification to the Department, the Joint Applicants will do so. Full cost-sharing would add unnecessary complexity to the JBA, and is not necessary in order to achieve metal neutrality.- 20 – Moreover, by not sharing in the benefits of cost reduction, each party has an incentive to operate its flights as efficiently as possible (such as by acquiring and deploying more fuel efficient aircraft to the JBA). On the other hand, the JBA could eventually evolve from revenue sharing to profit sharing, depending on the parties’ experiences and other developments. **21. Describe your plans to cooperate in the transportation of cargo, including but not limited to the names of parties who intend to**  **cooperate and the scope of their planned cooperation.** While the JBA participants have no current plans to include cargo within the scope of the JBA, antitrust immunity between the Joint Applicants would facilitate potential integration of cargo activities. Absent antitrust immunity, the possibilities for joint cargo activity are limited. With antitrust immunity, potential joint cargo offerings could be further pursued. Initially, however, it seems likely that cargo cooperation will be less extensive than cooperation involving passenger traffic. **22. Describe the commercial considerations of including other oneworld members, especially Cathay Pacific and Qantas, in future iterations of**  **the JBA.** The JBA is necessary to create metal neutrality between American and JAL to counteract their inherent incentives to divert traffic – at the expense of overall network efficiency – to their individual transpacific services. Cathay Pacific’s inclusion in the proposed immunized alliance and JBA is not possible at this time in the absence of an open skies agreement between the U.S. and Hong Kong. Qantas’ inclusion in a future application for antitrust immunity and membership in the JBA is possible, although no agreements have been reached to do so. Across the Pacific, there are no overlaps between Qantas and American (nor could there be, as American lacks- 21 – the commercial ability to operate flights to Australia), and thus metal neutrality would exist even if Qantas were an immunized member of **one** world but not a participant in the JBA.

**23. The Department understands that the Joint Applicants are seeking global antitrust immunity. Given the JBA’s scope, which is limited**  **to transpacific markets, describe: (i) the plans for future cooperation between and among all parties on**  **non-transpacific routings, and (ii) the consumer benefits attributable to antitrust immunity that**  **have been or will be created by cooperation on non-transpacific routings.**  Global antitrust immunity will enable American and JAL to engage in joint global corporate dealing, joint account management, and a more integrated approach to schedules and networks even outside the JBA’s scope. Unlike SkyTeam (which had more than one U.S. member prior to the Delta/ Northwest merger), or Star (which recently added Continental to a 10-way antitrust immunity that also includes United, US Airways, and Air Canada), there is only one North American carrier in the Joint Application here – American. That means that while global immunity for SkyTeam or Star has a potential impact on existing competition on U.S.-Asia, U.S.-Europe, and U.S.-South America routes, it would have no such effect once granted to

**one** world. While the JBA’s scope currently includes only transpacific flights between North America and Japan (plus behind/beyond sectors within North America and Asia), those flights are often integrated into more global itineraries. American and JAL plan to cooperate on such itineraries worldwide, and will have strong incentives to do so as the risk of diversion- 22 – beyond North America-Asia routes is less worrisome to the parties. As discussed above, where end-to-end coordination is contemplated, there is less risk of diversion and it is far easier for immunized alliances to cooperate optimally without the need for a metal neutral joint venture. **24. Explain what regulatory authority, if any, you believe is necessary to obtain from foreign countries to fully implement the alliance**  **agreements within the timeframe suggested in your application. In your answer, describe the nature of the regulatory process, its estimated**  **duration, and the extent to which the proposed alliance will be limited absent the foreign regulatory authority, for both broadening**  **coverage in the transatlantic markets, and serving markets to/from the rest of the world, particularly since global immunity is requested.**  Full implementation of the Alliance Agreements requires approval of and a grant of antitrust immunity for the Agreements by the Japanese Civil Aviation Bureau (including the consent of the Japanese Federal Trade Commission) under Articles 110 and 111 of the Japanese Civil Aviation Law. Before implementing the Alliance Agreements in any third country, the parties will determine what regulatory action, if any, needs to be taken with respect to such country. The Joint Applicants will only implement the Alliance Agreements in third countries to the extent that all necessary regulatory approvals have been obtained. **25. Given the tentatively approved immunized alliance of oneworld members in transatlantic markets, and the present existence of the American/**  **Lan Airlines/Lan Peru alliance, which would overlap with the proposed American/JAL alliance in U.S.-Europe and U.S.-South America markets,**  **describe your plans to manage traffic flows and pricing to/from Europe and South America.**  The proposed American/JAL alliance will not overlap with the proposed immunized alliance of **one** world members in transatlantic markets tentatively approved on February 13, 2010 by show-cause Order 2010-2-8, or with the American/Lan/Lan Peru alliance in U.S.-South America markets. The JBA includes traffic between the U.S. and Japan and beyond, not U.S.-Europe or U.S.-South America. Traffic flows to Europe and South America are not- 23 – within the JBA’s current scope. The carriers’ decisions to serve European and South American destinations from their hubs will continue to be made independently. However, antitrust immunity will allow coordination to maximize the efficient utilization of their respective hubs. Procedures to protect the unauthorized disclosure of competitively sensitive information between the proposed alliance and the AA/LA/LP alliance are already in place. The AA/LA/LP alliance compartmentalizes information to prevent spillover to competition between American and the two non-immunized LAN affiliates – Lan Argentina and Lan Ecuador. These and like procedures will prevent unauthorized disclosure of competitively sensitive information among American/JAL, the **one** world transatlantic immunized alliance, and LAN and its affiliates. **26. Provide each applicant’s estimated percentage of total revenue, total premium revenue from corporate and travel agency contracts, and total**  **premium revenue, in transatlantic markets and, specifically, in individual U.S.-UK airport-pairs, as well as an assessment of the**  **industry’s overall revenues in each of the aforementioned categories.** The parties have no accurate mechanism by which to estimate overall industry revenues generated by corporate and travel agency contracts. However, we are providing certain data for American and JAL below. **27. Describe the frequency of service needed in U.S.-Tokyo markets to obtain corporate and travel agency contracts. To what extent are**  **corporate and travel agency customers indifferent to Narita versus Haneda service from U.S. points of origin?**  There is no set level of service required in U.S.-Tokyo markets in order to compete for corporate and travel agency contracts. Many large agencies and corporate customers are focused on global networks – making the number of frequencies much less relevant. Even for U.S.-Japan focused customers, the number varies by city-pair. Depending on the size of the local market and connectivity on both ends of the route, just one frequency- 24 – per day might be supported. Even in the denser local markets where multiple frequencies can be operated – like New York, Los Angeles and Chicago – competition for corporate and agency business will remain intense even after the proposed alliance is approved, as consumers will still have far more options to Tokyo from those cities than they do to Star and SkyTeam hubs in Europe. **28. Provide detailed discussion of the following: (i) Whether your interline traffic with airlines that are not part of**  **the oneworld alliance has declined over the past three years, and, if so, the extent to which such declines are**  **attributable to less favorable prorate terms for airlines that are not part of**  **the oneworld alliance; (ii) How the terms of your interline agreements with airlines that are**  **not members of the oneworld alliance have changed over the past three years when compared with your interline agreements with**  **airlines that are members of the oneworld alliance; (iii)**  **Whether you plan either to reduce the number of airlines that are not part of the oneworld alliance with which you maintain**  **interline agreements, or otherwise to reduce (either contractually or through inventory availability) the numbers of**  **passengers you carry on an interline basis with airlines that are not part of the oneworld alliance given the growth and capacity**  **agreements presented in the Joint Business Agreement (Section 3.3, pages 5-6); and** **(iv) Whether any changes to your interline practices and policies vis à-vis carriers that are not part of the oneworld alliance are**  **contemplated.** (i) American : In approving the Air France/KLM merger, the European Commission relied upon interline traffic to provide a “competitive constraint” on the immunized alliance duopoly that currently exists between Star and SkyTeam. After that merger was approved – and just days after filing for antitrust immunity with Delta, Northwest, KLM, Alitalia and CSA in 2004 – Air France began systematically eliminating interline competition from non-SkyTeam carriers. Specifically, Air France restricted inventory availability to American and other non-SkyTeam carriers while imposing- 25 – discriminatory prorate terms. As a result, American’s interline traffic on Air France went down 90% year-over-year. American has not reciprocated in kind.

JAL : JAL has not experienced any significant discriminatory interline practices from non- **one** world carriers over the past three years and has maintained prorate agreements and interline practices with non- **one** world carriers comparable to the agreements in place prior to 2007. There has been a natural shift in passenger traffic between JAL and **one** world carriers which can be attributed to favorable inventory access, favorable prorate agreements and general passenger benefits of the alliance. While JAL believes that restricted inventory availability from some carriers may have contributed to the decline in non- **one** world traffic, we do not believe that JAL was a target of any specific discrimination. Between 2007 and 2008, the overall flow between JAL and all interline partners decreased by 4%; during the same period, interline flow increased by 4% between JAL and **one** world partners and decreased by 7% between JAL and non- **one** world partners. The most recent results for 2009 (APR-OCT) must be looked at in conjunction with JAL’s overall traffic results. JAL’s premium passenger demand, which has a high interline requirement, decreased by approximately 35% during this period. Indeed the overall interline flow between JAL and all carriers reduced by 33%. Significantly, the flow between JAL and

**one** world carriers decreased by only 5%, while flow between JAL and non**one** world carriers decreased by 45%. JAL does not attribute these fluctuations to any changes in the terms or conditions of the interline agreements that we have with non- **one** world airlines, but rather to a natural polarization towards the favorable conditions within the **one** world alliance.- 26 – (ii) American : American has not signed many new interline agreements over the past three years, focusing instead upon improving the quality of what is delivered in its existing agreements, including a conversion of such agreements from paper to electronic ticketing. American has amended its agreements to require affirmation of IATA standards on the involuntary rerouting of passengers, and participation in one of the two industry clearinghouses. American has also required interline partners to support automation features that facilitate improved accuracy and efficiencies in the interline accounting process. This includes an option to charge fees for inaccurate or incomplete data feeds, or the use of shortcut forms to reroute passengers (rather than preparing new automated tickets). These changes are all intended to help reduce American’s processing costs. American has also begun requiring periodic review of some interline agreements to ensure that the parties are using best practices, rather than simply having evergreen agreements that tend to become outdated and drive up

costs.

JAL : There has been very little change to the terms of the interline agreements JAL has with non- **one** world members over the past three years. The only significant change has been the adoption of 100% E-Ticketing in BSPmarkets worldwide and a dramatic increase in the number of interline ETicket agreements during this period. (iii) American : American is seeking to increase – not reduce – the number of interline agreements that it has with non- **one** world carriers. While American began limiting its participation in these agreements in 2001 in an effort to reduce costs, improved automation has made it more commercially viable to enter into and maintain these agreements.- 27 –

JAL: JAL has no plans to reduce the number of active non- **one** worldagreements, or to change the conditions or inventory accessibility to non**one** world carriers. We would expect that new agreements will be concluded in line with changing commercial requirements. It is however necessary to mention that JAL has approximately 170 Interline Traffic agreements, of which approximately 70 agreements do not have E-Ticket capability. The combined interline volume of these 70 carriers is less than 0.3% of JAL’s interline traffic. These agreements are currently maintained with paper tickets issued at the JAL ticketing offices as a service for the extremely small number of passengers that continue to use these carriers’ services. JAL anticipates that E-Ticketing solutions will be developed with a smallnumber of these carriers in the next 2-3 years; however, as the cost of ETicketing development far exceeds the revenue that can be expected, JAL would anticipate that nearly all of these agreements will gradually become redundant and will eventually be terminated when paper tickets are no longer supported by any airline. (iv) The Joint Applicants do not contemplate any commercial changes to their interline practices with non- **one** world carriers. Unlike Star and SkyTeam, which have policies forbidding or discouraging their members from engaging in codesharing or FFP relationships with current and prospective members of other alliances without approval of the other carriers, **one** world carriers frequently engage in such relationships, which are important to interlining. As **one** world improves the integration of its network, an increasing number of passengers will be attracted from Star and SkyTeam. However, the Joint Applicants anticipate a reduction in interlining with Star and SkyTeam carriers as those alliances continue to discourage or- 28 – exclude interlining outside their own networks. **one** world’s goal is not to preclude joint marketing relationships outside the alliance to the extent that they are consistent with its goals. American : American is currently working to improve the accuracy and availability of information shown to airline users of the SHARES CRS (Continental, US Airways, Virgin Atlantic and others). American is also working to streamline the procedures used for involuntary rerouting of customers – both within **one** world and with other interline partners. American intends to review the policies and procedures used for passengers who purchase separate tickets for through carriage, rather than buying and presenting a single interline ticket. Further, American is reviewing ways to make consistent baggage fee collection possible on interline itineraries. Finally, American intends to create a more effective tool to screen bookings for the inclusion of a downline carrier with which American has no interline relationship.

JAL : JAL anticipates that there will be an improvement in codeshare agreements between JAL and non- **one** world interline partners with a gradual migration from the remaining block-space agreements towards free-flow agreements, which are considered more efficient and economic. JAL intends to increase the number of non- **one** world interline partners participating inDirect Access level reservations, which will increase the number of non**one** world carriers available for sale on JAL’s public internet site. Furthermore, JAL aims to continue improving the automation of the passenger interline experience with developments such as Web-Checkin by PC or cell phone, cell phone boarding passes and expanded Web-based functions, all of which will include interline sectors of non- **one** world and **one** world carriers.- 29 – Additionally, JAL is working on the development and introduction of the Electronic Miscellaneous Document (EMD), which will replace the current paper Excess Baggage Tickets as well as handwritten MCO’s. Potentially the EMD can also be used for Web-based reissues or Optional Services in the future. It is anticipated that the EMD will be available for interline transactions with all EMD capable airlines within the next two years. **29. Discuss any labor effects of the proposed alliance, and whether, how, and to what extent employees of the applicant airlines will**  **be integrated. In particular, state whether the transaction or a similar type of transaction has been the subject of recent collective**  **bargaining discussions between American and its unions. Provide a discussion of whether both union and non-union employees adversely**  **affected by the alliance would be compensated or otherwise protected.** American believes that the transaction raises no significant labor issues. American and JAL will remain independent. No significant impact on unionized employees is anticipated under the alliance and coordination agreements. The applicants believe that the long-term impact of the transaction will be positive for all existing employees for new job creation. **30. Describe any effect of granting the Joint Application on American’s Civil Reserve Air Fleet (CRAF) commitments.**  The alliance agreements between American and JAL will have no impact on American’s CRAF commitments.

### - 30

­ Respectfully submitted,

# c!:!,!~4 R. BRUCE WARK JEFFREY A. aGAR American Airlines, Inc. 

# 'Willi". 

# /(/,40**IA~** WILLIAM KARAS CAROL GOSAIN Steptoe & 

### Johnson LLP Counsel for Japan Airlines International Co., Ltd.

February 16, 2010

.. _---- --- ---- ---- --­CERTIFICATE OF SERVICE

I certify that I have this day served the foregoing document by on the following persons: sascha.vanderbellen@delta.com scott.mcclain@delta.com sametta.c.barnett@delta.com kquinn@pillsburywinthrop.com bkeiner@crowell.com mrosia@crowell.com bruce.rabinovitz@wilrnerhale.com jeffrey.manley@united.com bob.kneisley@wnco.com robert.land@jetblue.com msinick@ssd.com cdonley@ssd.com anbird@fedex.com dvaughan@kelleydrye.com kevin.rnontgornery@polaraircargo.com jrichardson@johnlrichardson.com Ihalloway@crowell.com efaberrnan@wileyrein.com mroller@rollerbauer.com howard.kass@usairways.com benjarnin.slocurn@usairways.com sophy.chen@hklaw.com

February 16, 2010 jhill@dlalaw.com bill@mietuslaw.com rngoldman@sgbdc.com rsilverberg@sgbdc.com dhainbach@ggh-airlaw.com mcmillin@woa.com rnchopra@jamhoff.com russell.bailey@alpa.org dkirstein@yklaw.com jyoung@yklaw.com donna.kooperstein@usdoj.gov dwight.rnoore@ustranscorn.mil jirn.ballough@faa.gov byerlyjr@state.gov recohn@hhlaw.com simpson@zsrlaw.com pmurphy@loprnurphy.com lachter@starpower.net anita.mosner@hklaw.com rpomrner@atlasair.com gmurphy@crowell.com