PUBLI C VERSIO N BEFOR E TH E DEPARTMEN TO F TRANSPORTATIO N

WASHINGTON , D.C . Join t Applicatio n of AMERICA N AIRLINES , INC . BRITIS H AIRWAY S PL C FIN N AI R OYJ IBERI A LINEA S AEREA S D E ESPANA , S.A . ROYA L JORDANIA N AIRLINE S unde r4 9 U.S.C . § § 4130 8 an d 4130 9 fo r approva l ofan d antitrus t immunit y fo r allianc e agreemen t Docke t DOT-OST-2008-025 2

OBJECTIO N O F VIRGI N ATLANTI C AIRWAY S

T O ORDE R T O SHO WCAUS E Communication s wit h respec t t o thi s documen t shoul d b e directe d to : Jil l Brad y Genera l Counse l VIRGI N ATLANTI C AIRWAYS , LTD . Th e Office , Mano rRoya l Crawley , Wes t Susse xRH1 0 9N U Unite d Kingdo m Anit a M . Mosne r Soph yChe n HOLLAN D & KNIGH TLL P 209 9 Pennsylvani a Avenu e NW , Suit e 10 0 Washington , D C 20006-680 1 Phone : (202)419-260 4 Fax : (202 ) 955-556 4 Email : anita.mosner@hklaw.co m Email : sophy.chen@hklaw.co m Attorney s fo r VIRGI N ATLANTI C AIRWAY S LTD . Date : Marc h 30 , 201 0PUBLI C VERSIO N BEFOR E TH E DEPARTMEN TO F TRANSPORTATIO N

WASHINGTON , D.C . Join t Applicatio n of AMERICA N AIRLINES , INC . BRITIS H AIRWAY S PL C FINNAI R OYJ IBERI A LINEA S AEREA S D E ESPANA , S.A . ROYA L JORDANIA N AIRLINE S unde r4 9 U.S.C . § § 4130 8 an d 4130 9 fo r approva l ofan d antitrus t immunit y fo r allianc e agreemen t Docke t DOT-OST-2008-025 2

OBJECTIO N O F VIRGI N ATLANTI C AIRWAY S

T O ORDE R T O SHO WCAUS E I . INTRODUCTIO N AN D SUMMAR YO F ARGUMEN T O n Februar

y13 , 2010 , th e Departmen t issue d a n orde rwhic h conferre d tentativ e approva l an d antitrus t immunit yupo n variou s member s ofth e oneworl d alliance, an d upo n th e Join t Busines s Agreemen t ("JBA" ) betwee n America n Airlines , Britis h Airway s an d Iberia . Orde r2010-2-8 , "Sho wCaus e Order, " o r"SCO. " Virgi n Atlanti ci s submittin g thes e comment s o n bot h th e underlyin g decisio n b yth e Department t o confe rAT I upo n thi s patentl yanticompetitiv e arrangement , a s wel l a s th e (in)adequac yofth e condition s tha t hav e bee n propose d b yth e DO Tt o mitigat e th e sever e competitiv e an d consume r harm s threatene d b ythi s arrangement . Wha t i s mos t strikin g abou t th e Sho wCaus e Orde ri s th e disconnec t betwee n th e finding s mad e b yth e Departmen t abou t th e challengin g competitiv e condition s o n th e nonsto p overla p route s th e Join t Applicant s serv e betwee n th e Unite d State s an d Londo n Heathrow , an d th e determinatio n mad e b yDO Ttha t despit e th e persisten t an d significan t barrier s t o entrya t tha t airport , th e allianc e betwee n A Aan d BAi s someho wPUBLI C VERSIO N

consisten t wit h th e publi cinteres t an d shoul d b e approved . Fo rexample , th e Departmen t foun d tha t sever e slo t constraint s a t Londo n Heathro wcontinu e t o persist , SC O a t 24-25 , an d tha t BAan d AAwoul d hav e overwhelmin g share s i n certai n ke y overla p market s i fth e dea l wer e approved , id. a t 22-24 . Similarly , DO Tfoun d tha t connectin g service s operate d vi a othe rpoint s i n Continenta l Europ e woul d no t b e a n effectiv e for m ofcompetitiv e disciplin e upo n nonsto p U.S.-Londo n Heathro wservice s operate d b yth e Join t Applicants . Id. a t 16 . Despit e thes e finding s i n th e record , th e Departmen t conclude d nevertheles s tha t th e agreemen t woul d no t restric t competition . Id. a t 28-29 . Quit e simply , th e conclusion s tha t DO Tha s draw n i n th e Sho wCaus e Orde rcanno t b e reconcile d wit h th e recor d befor e it . Th e Sho wCaus e Orde rassert s tha t Ope n Skie s ha s bee n a game-change ran d tha t th e U.S.-Londo n Heathro wmarke t ha s change d materiall ysinc e thi s allianc e wa s las t proposed . Id. a t 12-13 . Unfortunately , th e recor d support s th e conclusio n tha t th e marke t (reflecte d b yshare s i n ke ymarkets ) ha s change d verylittle , see Virgi n Atlanti c Answe r(Ma y18 , 2009 ) ("V S Answe rI" ) a t 9-12 , an d tha t th e propose d combinatio n of th e tw o verylarges t competitor s i n th e U.S.-Londo n Heathro wmarke t continue s t o pos e a significan t threa t t o competition . Compoundin g th e troublesom e fac t tha t th e Department' s conclusion s ar e no t supporte d b yth e recor d i s tha t th e remedie s propose d b yth e Departmen t ar e bot h poorl ydefined an d fal l fa rshort ofwha t i s neede d t o eve n attemp t t o preserv e competitio n i n th e U.S.-Londo n Heathro wmarket , th e larges t an d mos t importan t transatlanti cmarket . Despit e th e fac t tha t th e marke t share s controlle d b yAAan d BAo n th e U.S.-Londo n Heathro woverla p route s ar e almos t entirel yunchange d sinc e 2001-200 2 (whe n thi s allianc e wa s las t proposed) , an d tha t slo t constraint s a t Londo n Heathro wcontinu e t o persis t an d wil l continu e t o persis t fo rth e foreseeabl e futur e (DO TPUBLI C VERSIO N itsel frecognize s tha t thi s concentration o fslot s "pose s th e greates t ris k ofhar m t o consumers, " SC O a t 25) , th e Departmen t nevertheles s ha s propose d tha t BAan d AAb e require d onl yt o dives t fou rdail yU.S.-Londo n Heathro wslo t pairs , a fa rcryfro m tha t necessaryt o offse t th e los s ofcompetitio n an d a fa rcryfro m th e sixtee n dail y U.S.-Londo n Heathro wslo t pair s th e Departmen t propose d t o b e diveste d b yth e Join t Applicant s i n 2002 . See Orde r2002-1-12 , Docke t No . OST-2001-1102 9 (Jan . 25 , 2002 ) ("200 2 Order") . Als o troublin g i s th e fac t tha t th e Departmen t woul d permi t th e Join t Applicant s t o leas e thes e slot s o n onl ya short-ter m basis , wit h n o clea rrigh t ofrenewal , agai n i n fla t contradictio n o fth e 200 2 decision . Indeed , th e propose d slo t remedie s ar e bot h vagu e an d ineffectual . A s wil l b e explaine d below , th e Departmen t ha s sai d littl e abou t th e amoun t tha t migh t b e charge d fo rthes e slots , an d wha t woul d happe n i fth e deman d fo rth e slo t lease s wer e t o excee d supply . Wil l th e Departmen t permi t th e Join t Applicant s (o rth e truste e the yappoint ) t o pic k an d choos e th e carrier s whic h wil l compet e agains t them , an d th e market s i n whic h thos e slot s migh t b e used ? Th e unreasonablenes s ofthi s prospec t shoul d b e clear . Th e utte rinadequac yo fth e propose d slo t remedie s i s no t th e sol e proble m wit h th e Sho wCaus e Order . I n it s revie wo fth e JBA , th e Departmen t determine d tha t severa l provision s o ftha t agreemen t retar d an d discourage , no t encourage , th e introductio n ofne wcapacit yi n th e market s covere d b yth e JBA . SC O a t 33 . Instea d of drawin g th e correc t inferenc e abou t th e JBA , whic h i s tha t i t reflect s th e clea rinten t o f AAan d B At o eac h loc k dow n thei rlarges t competito ran d sharpl ycontro l th e introductio n ofne wfare s an d capacit yi n th e market , th e Departmen t woul d merel yhav e th e Join t Applicant s tinke rwit h th e wordin g ofth e JB Awithou t receivin g an yassuranc e tha t thes e superficia l amendment s wil l hav e an ypractica l effec t o n th e actua l operatio nPUBLI C VERSIO N
o fth e alliance . Id. a t 37 . Th e Departmen t simpl ycanno t remed ywit h a Band-Ai d a gapin g hol e i n th e cas e propounde d b yth e Join t Applicants . Th e hol e i n th e cas e bein g advance d b yth e Join t Applicant s i s highl ymaterial . Th e consume rbenefit s cas e propounde d i n publi cb yth e Join t Applicant s i s predicate d o n th e argumen t tha t th e los s ofcompetitio n betwee n AAan d B Ao n th e U.S.-Londo n Heathro wroute s i s no t a n issue , becaus e unde rth e JB Ath e Join t Applicant s wil l hav e stron g incentive s t o expan d capacit yi n th e market . See, e.g., Join t Applicant s Motio n fo rLeav e t o Fil e an d Supplementa l Comment s (Sep . 8 , 2009 ) a t 7 ; Join t Applicant s Answe rt o DO J Motio n (Jan . 11 , 2010 ) a t 22 . However , a revie wo fth e privat e recor d i n thi s cas e JB Aa t 5- 6 (confidential) . A s Virgi n Atlanti cwil l explai n i n som e detai l below , th e Department' s conclusion s i n th e Sho wCaus e Orde rar e bot h unsubstantiate d an d incorrect , an d th e remedie s bein g propose d t o cur e thos e aspect s o fth e dea l tha t eve n DO Trecognize s t o b e anticompetitiv e ar e bot h paltryan d poorl yconceived . Accordingly , th e Departmen t shoul d no t mak e fina l th e tentativ e conclusion s se t fort h i n th e Sho wCaus e Order , an d shoul d instea d den yth e Application i n it s entirety . Alternatively , i fth e Departmen t wer e t o confe rapprova l upo n th e alliance , the n i t mus t conside rmor e carefull yth e sufficiency , mechanic s an d efficac yo fth e remedie s i t proposes , an d issu e a n amende d Sho w Caus e Orde rwhic h addresse s th e clea rdefect s ofOrde r2010-2- 8 an d demonstrate s ho wth e remedie s propose d wil l b e adequat e t o addres s th e sever e competitiv e an d consume rharm s threatene d b ythi s alliance . Intereste d partie s mus t the n b e give n th e opportunit yt o commen t o n thes e revise d tentativ e conclusions . I n a simila rvein ,PUBLI C VERSIO N

intereste d partie s mus t b e provide d th e opportunit yt o revie wan d commen t upo n th e change s t o th e JB Atha t th e Join t Applicant s propos e befor e an ydecisio n i s mad e final . II . DISCUSSIO N Th e Department' s tentativ e approva l o fth e anticompetitiv e oneworl d allianc e i s internall yinconsisten t o n man ylevels . A s wil l b e show n below , th e Departmen t ha s determine d repeatedl ytha t man yo fth e condition s a t Heathro wtha t wer e problemati ci n 2001-200 2 continu e t o b e problemati ctoday , an d tha t th e combinatio n o fAmerica n an d B Ao n ke yU.S.-Londo n Heathro wroute s ma ycaus e significan t increase s i n marke t concentration . Despit e th e fac t tha t th e Departmen t "recognizefs ] Virgi n Atlantic' s concer n tha t th e larg e degre e ofoverla p betwee n America n an d Britis h Airway s bot h eliminate s competitio n an d limit s th e publi cbenefit s tha t ar e possibl e fro m th e alliance, " SC O a t 31 , DO Tha s se t asid e al l ofit s dissonanc e an d ha s tentativel ydetermine d tha t th e visio n ofa three-allianc e worl d woul d someho wjustif yapprova l o fthi s massivel y anticompetitiv e deal . Whil e Virgi n Atlanti ctoo k n o positio n o n th e tw o multi-carrie ralliance s tha t alread yhav e receive d ATI , th e notio n tha t approva l o fthi s dea l wil l restor e competitiv e "balance " t o th e marke t o rcreat e ne wconsume rchoic e i s completel yillusory . Havin g a worl d dominate d b ythre e larg e globa l alliance s doe s no t necessaril yresul t i n th e expansio n ofchoic e fo rtransatlanti ctravelers , an d i n particula rU.S.-U.K . passenger s wh o represen t mor e tha n a quarte ro fal l traffi cacros s th e Nort h Atlantic . I n tw o ofth e si xU.S.-Londo n Heathro woverla p market s a t issu e i n thi s case , Miam i an d Boston , Virgi n Atlanti c( a non-aligne d carrier ) i s th e sol e sourc e of competitio n t o th e BA/AA combin e fo rtraveler s i n th e loca l market , an d i n th e DFW-Londo n Heathro wmarket , ther e i s n o competitiv e alternativ e a t all . Ho wthi s ca n b e package d an d sol d a s a n "expansio n o fcompetitiv e an d consume rchoice " defie s al l credulity .PUBLI C VERSIO N A . Th e Recor d Clearl yDemonstrate s th e Continue d Threa t t o Competitio n Pose d b yth e Alliance . I n it s Sho wCaus e Order , th e Departmen t agree d wit h Virgi n Atlanti co n severa l ke ypoint s concernin g th e competitiv e har m threatene d b yth e allianc e i n th e U.S.-Londo n Heathro wmarket . Fo rexample , th e Departmen t agree d that , despit e th e Join t Applicants ' protestation s t o th e contrary , Londo n Heathro wremain s a separat e relevan t marke t fo rtime-sensitiv e traveler s betwee n th e Unite d State s an d London . Id. a t 19 . I n addition , th e Departmen t agree d tha t sever e slo t constraint s an d barrier s t o competitiv e entrypersis t a t Londo n Heathrow . Id. a t 24-25 . Th e Sho wCaus e Orde r als o describe s th e verysignifican t infrastructur e issue s (i.e., lac k o fsufficien t runwa y capacity ) a t Londo n Heathro wtha t constrai n competition . Id. Lookin g next a t th e specifi ccity-pairs , DO Tfoun d tha t AAan d BAwoul d hav e anticompetitiv e share s o n severa l ke yLondo n Heathro woverla p routes . Id. a t 22-23 . Fo rexample , DO Texpresse d concern s abou t th e effec t o fgoin g fro m thre e competitor s t o tw o competitor s i n th e Boston-Londo n Heathro wmarket . Id. DO Tconclude d tha t thi s woul d resul t i n oneworl d gainin g a 68 % shar e ofbooking s (openin g u p a 41 % ga p ove r Virgi n Atlantic , th e next larges t competitor) . Id. Th e lac k ofne wentryo n thi s route , combine d wit h th e lac k ofa suitabl e alternativ e hu b t o compet e effectivel ywit h Boston , reduce s consumers ' alternative s i fprice s ris e o rservic e qualit yfalls . Id. Als o consisten t wit h Virgi n Atlantic' s arguments , DO Tdetermine d tha t connectin g service s operate d vi a hub s i n Continenta l Europ e woul d no t disciplin e th e AA/B Acombine' s marke t powe ro n thes e routes . See

id. a t 16 . Indeed , DO Tendorse d verbati m Virgi n Atlantic' s vie wtha t "althoug h Heathro wattract s a robus t shar e o fconnectin g transatlanti ctraffi cfro m othe r majo rEuropea n hubs , th e convers e i s no t true. " Id. Inexplicably , however , th e Departmen t ha s propose d t o gran t AT I despit e clea ran d uncontroverte d evidenc e i n th e recor d tha t ther e wil l b e negativ e effect s i n th e overla p market s an d veryfewconstraint sPUBLI C VERSIO N

o n th e combine d marke t powe ro fAmerica n an d BAafte rimmunit yi s granted , placin g th e interest s ofth e travelin g publi ca t verysever e risk . Th e recor d clearl yshow s tha t thi s allianc e wil l reduc e competitio n o n route s betwee n th e Unite d State s an d Londo n Heathrow , whic h fac e uniqu e infrastructur e constraints . T o mak e matter s worse , A Aan d B Atogethe rwil l contro l nearl yhal fo fth e Heathro wslots . Thi s one-tw o punc h wil l rende rcompetitiv e entrya t Heathro wvirtuall y impossibl e an d ultimatel yreduc e schedule , frequenc yan d rout e option s fo rconsumer s an d increas e price . Withou t a doubt , AT I wil l allo wAAan d BA—alread yth e dominan t carrier s o n th e overla p routes—t o consolidat e thei rmarke t powe ran d quas h competition . 1 . Slot s a t Heathro wcontinu e t o b e bot h scarc e an d costly . DO Tha s squarel yagree d wit h Virgi n Atlanti ctha t Londo n Heathro wi s severel y slot-constrained , statin g tha t "[t]her e i s ampl e evidenc e i n th e recor d tha t Heathro wi s constrained, " id. a t 24 , an d other s tha t hav e commente d i n th e cas e hav e als o agree d wit h thi s finding . Fo rexample , BA ALimite d (Heathrow' s operator ) ha s stated , "Heathro wairport i s a t 99 % capacit yal l th e time. " V S Answe rI a t 1 9 (citatio n omitted) . I n addition , th e U.K . Competitio n Commissio n ha s said , "Heathro wi s characterise d b y capacit yconstraint s an d exces s demand. " Id. a t 19-2 0 (citatio n omitted) . AC L ha s mad e clea rtha t th e scheduling constraint s a t Heathro war e du e primaril yt o lac k o f adequat e runwa ycapacit yan d a n annua l ca p o n th e numbe ro ffligh t movement s (on e o f th e condition s place d o n BAA' s plannin g an d opening ofTermina l 5) . ACL/BA A Respons e (Jan . 28 , 2009 ) a t 3 . DOJ' s finding s confir m tha t sufficien t entryt o overcom e los t competitio n i s unlikel yi n th e overla p market s becaus e ofth e scarcit yofslots , particularl ya t Heathrow . DO J Comment s (Dec . 21 , 2009 ) a t 18 , 20-21 .PUBLI C VERSIO N A s a resul t ofth e airport' s capacit yconstraints , n o ne wtransatlanti cservice s hav e bee n starte d usin g poo l slot s i n recen t years . ACL/BA ARespons e a t 1 , 3 . Moreover , AC L doe s no t forese e a n improvemen t i n thi s situation , statin g i n th e record : "[T]her e wil l b e n o capacit yincreas e a t Heathro wt o facilitat e ne wtransatlanti cservice s befor e th e openin g ofa 3r d runwa yi n aroun d 2015-2020. " Id. a t 4 . Th e introductio n of competitiv e services , therefore , i s entirel yrelian t upo n airline s reallocatin g thei rexistin g Heathro wslot s t o transatlanti cservice , seekin g slot s fro m allianc e partner s o robtainin g slot s o n th e secondarymarket . Th e option s fo rcompetitiv e entrya t Londo n Heathro wbein g toute d b yth e Join t Applicant s ar e fa rles s robus t tha n advertised . Slot s shift s an d intra-allianc e transfer s unfairl ydiscriminat e i n favo ro fairline s tha t hav e larg e slo t holding s (lik e BAwhich , a s a resul t ofit s day s a s a state-sponsore d fla g carrier , hold s a lion' s share—41.5 % (V S Answe rI a t 2 5 fig.6.)—o fHeathro wslots ) o rtha t participat e i n globa l alliance s (whic h hav e substantia l Heathro wslo t holding s a s compare d t o airlines , suc h a s Virgi n Atlantic , tha t d o no t participat e i n a n alliance) . Moreover , th e Departmen t suggest s tha t tha t "slo t shuffling " migh t addres s th e scarcit yofslots , SC O a t 24 , bu t ignore s completel yth e importanc e ofhavin g th e righ t slots—slot s tha t ar e suitabl ytime d fo rtransatlanti c services—whic h ar e muc h harde rt o com e by . Th e Departmen t als o wholl yfail s t o recogniz e th e significan t opportunit ycost s involve d wit h reallocatin g slot s t o introduc e competitiv e transatlanti cservices . Thi s ca n b e done , ofcourse , onl yb yreducin g o rstoppin g servic e o n on e o rmor e othe rroutes , du e t o capacit yconstraint s a t Londo n Heathrow , bu t th e Sho wCaus e Orde rdoe s no t tak e int o accoun t thi s competitiv e harm . Th e Departmen t als o greatl yoverstate s th e likelihoo d o fcompetitiv e entry , citin g scenario s whic h rang e fro m th e unlikel yt o fanciful . O n th e fancifu l sid e ofth e spectrum ,PUBLI C VERSIO N DO Tposit s tha t bm i coul d us e th e slot s currentl yallocate d fo rit s Heathrow-Brussel s an d Heathrow-Amsterda m service s fo rtransatlanti cservices , id. a t 24 , ignorin g completel y th e fac t tha t bm i wil l soo n hav e jus t on e long-hau l aircraf t i n it s flee t an d i s i n th e proces s ofdrawin g dow n it s Brussel s an d Amsterda m service s t o focu s o n providin g slot s t o Lufthans a an d it s relate d airline s fo rthei rHeathro wflights . Fo rdetail s abou t bmi' s plan s t o en d long-hau l flying , se e http://www.flybmi.com/bmi/en-qb/about-us/information centre/press-releases/20091125.aspx . Also , bm i cease d it s servic e t o Brussel s o n January9t h an d shu t dow n it s Amsterda m rout e o n Marc h 27th . See "bm i Suspend s Services, " availabl e a t http://www.flybmi.com/trade/en-gb/press/trade news/200911251200.aspx . Clearly , bm i i s no t plannin g t o bee fu p it s transatlanti cflee t an d introduc e transatlanti cservice s t o compet e wit h AA/BA . A s t o SkyTeam , thos e airline s nee d thei rmornin g arriva l slot s a t Heathro wfo rexistin g short-hau l service s fro m Amsterdam , Pari s an d Milan , an d ar e i n n o positio n t o us e the m fo rtransatlanti cservice . Not e als o tha t slo t shufflin g i s eithe rno t a n optio n o rfail s t o solv e th e proble m fo rne w entrants . Th e las t optio n propounde d b yDO Ti n th e Sho wCaus e Order—obtainin g slot s o n th e secondarymarket—i s hardl ya solutio n a t all , sinc e slot s i n th e secondarymarke t tha t ar e suitabl e fo rtransatlanti cservic e ar e scarce . AC L report s tha t th e secondary marke t suffer s fro m lac k o fliquidity , ACL/BA AReport a t 1 , an d tha t it s experienc e wit h th e secondarymarke t ha s bee n "tha t ne wentran t airline s stil l nee d t o b e flexibl e abou t th e timin g ofslot s an d accep t commerciall ysuboptima i timings, " id. a t 2 . O n th e rar e occasion s whe n slot s becom e availabl e o n th e secondarymarket , the ycomman d astronomica l prices . See, e.g., V S Answe rI a t 2 1 (describin g th e $20 9 millio n pric e ta g Continenta l pai d t o obtai n jus t fou rdail yHeathro wslo t pairs) .PUBLI C VERSIO N 2 . Ther e i s littl e chanc e ofcompetitiv e entryi n th e U.S.-Londo n Heathro woverla p market s serve d b yBAan d AA . Th e Sho wCaus e Orde rcontain s veryinconsisten t observation s abou t competitio n a t Heathrow . O n th e on e hand , DO Tha s openl yacknowledge d tha t th e sever e infrastructur e constraint s a t Londo n Heathrow , combine d wit h th e fac t tha t B A an d America n wil l contro l nearl yhal fofth e slot s a t th e airport afte rthei rvirtua l merger , wil l mak e ne wentrya t Heathro w"eve n mor e difficult. " SC O a t 2-3 . DO J conclude d tha t n o trul yne wentrya t Heathro wha s occurre d sinc e Ope n Skies , an d therefor e th e Departmen t ha s n o reaso n t o assum e tha t futur e ne wentryi s likel yt o occur . See DO J Comment s a t 22 . Th e Departmen t ha s place d to o muc h emphasi s o n th e introductio n of Heathro wservice s tha t wer e formerl yoperate d a t Gatwick . SC O a t 12 . Whil e som e opportunitie s t o obtai n Heathro wslot s throug h secondarytradin g existe d immediatel y afte rOpe n Skies , th e recor d make s clea rtha t thi s optio n ha s bee n exhauste d a t thi s point . See

discussio n supra

Par t II.A.1 . Th e Sho wCaus e Orde rcorrectl yconclude s that , a t thi s time , barrier s t o entrya t Heathro wpersis t especiall y(an d critically ) fo rwell-time d slot s tha t ar e usabl e fo r transatlanti cservices . SC O a t 24 . Thi s i s importan t becaus e ne wentrymus t b e timely , likel yan d sufficien t eithe rt o dete ro rt o counterac t th e alliance' s abilit yt o exercis e marke t power . Id. a t 11 . Th e Departmen t correctl yrecognize d that , withou t sufficien t ne wentry , th e allianc e wil l hav e th e ru n o ftransatlanti cservice s a t Londo n Heathrow . See id. a t 25 . Combined , AAan d BAwil l hol d nearl yhal fofal l Heathro wslot s (includin g a larg e shar e usabl e fo rtransatlanti cservice) . Id. Virgi n Atlanti cagree s wholeheartedl ywit h th e Departmen t tha t th e stranglehol d BAan d America n hav e o n Heathro wslots , mor e tha n an yothe rfactor , wil l caus e th e greates t competitiv e an d consume rharm . Id. Imagin e then , Virgi n Atlantic' s disma ytha t th e Department' s respons e t o thi s grea t threa t wa s th e divestitur e o fa mer e fou rslo t 1 0PUBLI C VERSIO N

pairs . Thi s half-hearte d measur e doe s littl e t o addres s th e los t competitio n o rdamag e t o th e publi cinteres t threatene d b ythi s alliance . Moreover , th e Departmen t ha s propose d t o gran t AT I eve n thoug h th e recor d shows , an d th e Departmen t ha s found , tha t ne w entryo n som e ofth e overla p route s i s unlikely . Fo rexample , wit h respec t t o Dallas/Ft . Worth-Heathrow , th e Departmen t expect s n o ne wentry . Id. a t 23 . Wit h respec t t o Chicago-Heathrow , th e Departmen t fail s altogethe rt o acknowledg e evidenc e i n th e recor d tha t demonstrate s th e condition s o n thi s route—oneworl d dominanc e i n bot h th e point-to-poin t an d connectin g markets—mak e chance s ofne wentryhighl yunlikely . Th e Sho wCaus e Orde rmake s n o mentio n a t al l that , i n th e fac e ofa n immunize d AA/BA , Virgi n Atlanti cwoul d b e hard-presse d t o restor e year-roun d servic e o n it s Chicago-Heathro wrout e an d coul d ver ywel l b e force d t o withdra wth e servic e altogether . Virgi n Atlanti cRepl y(Jan . 20 , 2010 ) a t 8 . (Tha t woul d mak e Chicago-Heathro wa 3-to- 2 rathe rtha n a 4-to- 3 market. ) Virgi n Atlanti calread yha s adjuste d it s schedul e fo rthi s summer , s o tha t i t wil l operat e it s Chicago-Heathro wrout e onl yfo ra shortene d seaso n (Ma y2 7 t o Septembe r12) . Quit e simply , th e DOT' s ow n finding s regardin g th e likelihoo d ofcompetitiv e entryi n th e overla p market s d o no t support th e conclusion s draw n i n th e Sho wCaus e Order . I n a simila rvein , DO Trecognize s tha t approva l o fth e allianc e wil l creat e i n Ne w Yor k a chas m betwee n th e marke t share s enjoye d b yBAan d America n an d tha t ofit s next larges t competitor , Virgi n Atlantic . A s DO Tobserves , "Virgi n Atlanti cretain s it s second-plac e positio n i n th e market , bu t instea d ofa n eigh t poin t ga p .. . i t woul d the n fac e a 2 6 poin t ga p .. . i t coul d b e difficul t fo rcompetitor s t o matc h th e frequency , scheduling , hubbin g an d capacity-shar e advantage s o fth e oneworl d alliance. " SC O a t 23 .

1 1PUBLI C VERSIO N 3 . Service s operate d b yothe ralliance s vi a connectin g point s i n Continenta l Europ e offe rn o meaningfu l competitio n t o th e nonsto p overla p services . Heathro wi s uniqu e no t onl ybecaus e ofit s extraordinaryinfrastructur e constraints , bu t als o becaus e o fit s geographi clocation . Becaus e o fit s locatio n i n relatio n t o th e res t o

fEurope , connectin g service s vi a othe rEuropea n point s provid e n o meaningfu l competitio n t o th e nonsto p overla p services . V S Answe rI a t 8-9 . Th e Departmen t ha s agree d wit h thi s point . SC O a t 16 . Whil e man ytraveler s originatin g a t othe rEuropea n hub s connec t throug h Heathrow , veryfeworiginatin g i n London , o ra t Heathrow , connec t vi a anothe rEuropea n hub . V S Answe rI a t 8-9 . I n fact , i n th e airport pai rmarket s serve d directl yfro m Heathrow , onl y2 % ofHeathrow-U.S . passenger s trave l o n a n indirec t servic e vi a a thir d country . Id. Thus , connectin g service s ove rothe r Europea n point s wil l provid e n o meaningfu l competitio n t o th e allianc e a t Heathrow . Astoundingly , despit e agreein g wit h Virgi n Atlanti ctha t connectin g service s wil l no t reduc e th e threa t t o competitio n i n thi s case , th e Departmen t propose s t o gran t AT I t o th e alliance . Th e problem s create d b yth e lac k ofeffectiv e competitiv e disciplin e pose d b y connectin g service s operate d vi a Europ e ar e compounde d b yth e fac t tha t BAan d America n wil l no t fac e muc h marke t disciplin e fro m U.S . hub s either . Fo rexample , DO T attempt s t o discoun t th e sever e consume rhar m threatene d b yth e BA-America n stranglehol d a t Miami , notin g tha t man yMiam i passenger s choos e t o trave l t o Londo n vi a Ne wYork . SC O a t 23 . However , th e Departmen t fail s t o acknowledg e tha t BAan d America n wil l als o dominat e th e Ne wYork-Londo n Heathro wrout e onc e thi s allianc e i s approved . Accordin g t o 200 9 CAAsurve ydata , a t leas t 22 % o fal l Londo n Heathrow Miam i passenger s wh o trave l o n a one-sto p basi s fle wo n th e service s o feithe r America n o rBritis h Airways . Indeed , a s note d earlier , DO Tha s acknowledge d tha t i fth e

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allianc e wer e approved , "i t coul d b e difficul t fo rcompetitor s t o matc h th e frequency , scheduling , hubbin g an d capacity-shar e advantage s o fth e oneworl d alliance, " i n Ne w Yor k an d othe rke ymarkets . Id. a t 23 . B . Th e Departmen t Ignore d Critica l DO J Finding s abou t th e Ris k t o Consumer s Pose d b yth e Alliance . Th e Sho wCaus e Orde rpay s nothin g mor e tha n li p servic e t o th e concern s DO J ha s raise d abou t th e har m th e allianc e wil l caus e t o consume rwelfar e i n th e nonsto p overla p U.S.-Londo n Heathro wmarket s a t issu e i n thi s case . Ignorin g th e uniqu e condition s involve d i n thi s allianc e (i.e., extraordinarymarke t shar e an d limite d ne wentry a t Londo n Heathrow , an d lac k ofmeaningfu l competitio n fro m connectin g service s a t othe rEuropea n hubs) , th e Departmen t ha s conclude d tha t th e benefit s observe d i n othe r alliance s wil l materializ e here . DOJ , however , ha s mad e clea rtha t th e Applicant s hav e overstate d th e potentia l benefit s ofth e alliance , see DO J Comment s a t 23-28 , an d th e Join t Applicants ' ow n flee t plan s woul d indicat e tha t th e possibilit yfo rservic e growt h i s no t a s grea t a s stated . See Virgi n Atlanti cAnswe r(Sep . 17 , 2009 ) ("V S Answe rII" ) a t 5 . DO Tposit s tha t pas t alliances—suc h a s Northwest/KLM , SkyTea m an d Star — hav e yielde d pro-consume rresults . SC O a t 22 . Th e Sho wCaus e Orde rals o implie s tha t consume rbenefit s wil l gro wove rtim e a s AAan d B Atak e advantag e ofimmunit yt o deepe n th e integratio n o fthei rnetworks . Id. a t 2 2 (assertin g pas t experienc e wit h othe r immunize d alliances— e.g. , United/Lufthansa , Delta/Ai rFranc e an d Northwest/KLM—a s th e basi s fo rexpectin g oneworl d t o provid e ne wdirec t routes , increase d frequencies , greate rcapacit yo n hub-to-hu b an d othe rroute s linkin g th e airlines ' network s an d associate d increase s i n passenge rvolumes) . Th e recor d i n thi s case , however , i s completel ydevoi d ofan yevidenc e t o support thes e outcomes . A s a preliminarymatter , thi s allianc e i s quit e differen t i n natur e an d scop e fro m th e Sta ran d SkyTea m alliances , a s thos e alliance s ar e centere d a t Europea n hub s 1 3PUBLI C VERSIO N

whic h permi t ne wentry , wherea s Heathro wi s effectivel yclose d t o ne wcompetition . DO Tignore s th e fac t tha t Heathrow' s slo t constraint s mak e i t impossibl e t o ad d significan t ne wtransatlanti cfrequenc ywithou t a t th e sam e tim e reducin g short-hau l frequencies , thereb yreducin g connectin g feed . See V S Answe rI I a t 3-4 . Withou t thi s connectin g feed , th e suppose d consume rbenefit s tha t AAan d BAclai m wil l materializ e ar e nothin g mor e tha n a fiction . I n addition , DO Tha s conclude d tha t th e allianc e wil l increas e capacit yi n orde rt o accommodat e connectin g passenger s an d thereb yprovid e consume rbenefit s i n th e for m ofcompetitiv e fare s fo rbot h loca l an d connectin g passengers . SC O a t 24 . Thi s conclusion , however , ignore s unrebutte d evidenc e i n th e recor d tha t show s BAintend s t o manag e capacit ydownward s i n th e comin g years . See V S Answe rI I a t 5 . Sinc e BA' s plan s ar e t o down-gaug e an d down-siz e it s flee t rathe rtha n t o gro wit , th e Departmen t ha s n o basi s fo rit s conclusio n tha t th e allianc e wil l produc e an yo fth e consume r benefit s fo rconnectin g passenger s tha t th e Join t Applicant s claim . Moreover , a s discusse d mor e full ybelow , ther e i s nothin g i n thi s recor d t o sho w tha t th e trac k

recor d ofSta ran d SkyTea m fo rcreatin g ne wtransatlanti ccapacit yi s i n an ywa yapplicabl e here . I n fact , th e recor d contain s evidence—i n th e for m ofprovision s th e JB A|^—tha t support s th e counterargument .

C . Th e Departmen t Correctl yRecognize d Som e o fth e Threat s t o Competitio n Pose d b yth e JBA . I n it s Answe rt o th e Join t Application , Virgi n Atlanti cnote d that , despit e th e claim s o fth e Join t Applicant s t o th e contrary , th e JB Adoe s no t creat e an ymeaningfu l incentiv e fo rth e partie s t o expan d capacit yo n route s covere d b yth e join t venture . V S Answe rI a t 72 . Indeed , Virgi n Atlanti cdemonstrate d tha t severa l ofth e provision s o fth e JB Acreate d precisel yth e opposit e incentive . Id. 

### 1 4PUBLI C VERSIO N Apparentl yth e Departmen t ha s agree d wit h th e basi cthrus t o fVirgi n Atlantic' s argument , an d ha s tentativel ydetermine d tha t th e "term s [ofth e JBA ] permi t a partne rt o ac t i n it s ow n economi cinterest , eve n i fi t mean s preventin g th e other s fro m bringin g ne wproduct s an d service s t o marke t i fther e i s a demand. " SC O a t 33 . Indeed , DO T goe s o n t o observ e tha t "th e recor d doe s no t ye t sho wtha t th e applicant s hav e aligne d thei reconomi cincentive s an d mad e thei rbes t effort s t o achiev e meta l neutrality.... " Id. Havin g gotte n th e firs t part ofth e analysi s right , an d havin g recognize d tha t thi s entir e arrangemen t i s i n plac e s o tha t B Aan d A Aca n "warehouse " it s larges t competitor , DO Tther e draw s th e precisel ywron g inferenc e fro m thes e findings . Th e correc t inferenc e t o b e draw n i s tha t th e agreemen t a s initiall ydrafte d reflect s th e clea rinten t t o rei n i n th e expansio n o fcapacit yan d contro l pricin g o n ke ytransatlanti croutes . Instead ofacknowledgin g th e parties ' tru e intention s an d disapprovin g th e applicatio n outright , th e Departmen t instea d ha s give n th e Join t Applicant s a "mulligan"—a n opportunit yt o alte rthei ragreemen t t o properl yalig n thei rcommercia l incentives . ("[W] e tentativel yfin d tha t i t i s necessaryfo rth e applicant s t o mak e change s t o th e JB At o eliminat e thes e concerns. " Id. a t 34. ) Wit h al l du e respect , th e rewrite s suggeste d b yth e Departmen t ar e aki n t o recommendin g tha t a Band-Ai d b e place d o n a gapin g wound . Whil e th e Departmen t woul d lik e t o se e th e partie s gover n thei rallianc e o n th e basi s of"consensus, " th e fac t i s tha t th e verystructur e o fthi s alliance , whic h i s define d b ya hig h degre e o foverla p betwee n heavil yentrenche d competitors , i s entirel ydifferen t fro m th e largel yend-to-en d agreement s tha t th e Departmen t previousl yha s reviewed . Moreover , whil e th e curren t

Department' s propose d requiremen t tha t th e partie s gover n b y"consensus " woul d


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appea rstil l t o giv e

I n a simila rvein , th e Departmen t ha s take n issu e wit h provision s o fth e JB A requir e ^^^^^^^^^^^^HHHHHHBHBI^^^^Hi^ l 

### not e th e H^^HI^^^^^^^^HHHHHiiliii^^^^ H SC O (confidential) . DO Tnote s tha t i f
Id. Whil e th e Department' s observatio n her e abou t th e operatio n ofth e JB Ai s entirel ycorrect , th e fi xt o thi s mos t fundamenta l proble m wit h th e JB Atha t DO Tpropose s i s entirel yinadequate . Merel yaskin g th e t o remov e reference s t o ^^HI^^Hil^^^^HHH^^^^^^^ H wi " no t suddenl yensur e tha t Britis h Airway s wil l permi t th e introductio n ofeithe rne w service s o rpric e discountin g unde ra ne w"consensus " governanc e structur e wher e al l
Give n th e fundamenta l natur e o fth e concern s raise d b yth e Departmen t here , an d th e fac t tha t th e natur e an d structur e ofth e JB Ai s absolutel ydispositiv e o fth e questio n whethe rthi s propose d allianc e wil l produc e an yallege d publi cbenefits , th e Departmen t mus t requir e th e Join t Applicant s t o re-submi t thei rrevise d JB Aunde rsea l an d giv e intereste d partie s th e opportunit yt o commen t o n th e propose d revisions , a s thes e material s wil l b e critica l t o an ydecisio n b yth e Departmen t t o chang e it s tentativ e vie wtha t th e JB Aactuall yinhibit s th e introductio n ofne wservice s an d th e growt h of capacit yo fHeathrow , whic h ar e th e factua l predicate s fo ral l o fth e allege d benefit s tha t th e Join t Applicant s assert wil l b e create d a s a resul t o fth e alliance .
1 6PUBLI C VERSIO N D . Th e Remedie s Propose d b yDO TAr e Clearl yInadequat e t o Counte rth e Sever e Consume rHar m Threatene d b yTh e Alliance . Th e Departmen t ha s propose d t o appl yonl ya singl e remed yi n thi s case , whic h i s th e requiremen t tha t th e Join t Applicant s mak e jus t fou rdail yU.S.-Londo n Heathro w slo t pair s availabl e fo rleas e b ycompetitors . Tw o pair s ofthes e slot s woul d b e earmarke d fo rservic e i n th e Boston-Londo n Heathro wmarket , an d jus t tw o pair s coul d b e use d a t othe rU.S . gateways . Fo rreason s tha t wil l b e explaine d below , th e remedie s propose d b yth e Departmen t ar e flatl yinadequat e t o remed yth e acknowledge d competitiv e an d consume rhar m tha t arise s fro m approva l o fthi s alliance . A s Virgi n Atlanti cargue d i n it s Answe rt o thi s application , th e Departmen t shoul d appl ya wide rspectru m o fremedie s i n thi s case , suc h a s th e requiremen t tha t Britis h Airway s no t unfairl yrestric t th e acces s of it s competitor s t o it s beyond-Heathro wnetwork , an d tha t check s b e place d o n it s considerabl e marke t powe rove rcorporat e customers . V S Answe rI a t 67 , 82 . Virgi n Atlanti ci s especiall ydisappointed , however , tha t th e Departmen t decline d t o follo wth e recommendatio n o fth e Departmen t ofJustic e t o carv e ou t fro m th e gran t ofimmunit y th e hub-to-hu b nonsto p overla p market s i n whic h competitiv e entryi s unlikely . Moreover , th e fac t tha t th e Departmen t ha s permitte d th e partie s t o enjo yimmunit yi n thes e market s eve n befor e the yimplemen t thei rjoin t ventur e agreemen t i s squarel ya t odd s wit h settle d precedent . Whil e Virgi n Atlanti ctoo k n o positio n o n th e Sta rAllianc e A+ + application , Virgi n Atlanti cnote s tha t DO Trefuse d t o releas e th e partie s i n tha t cas e fro m thei rcarve-out s unti l suc h tim e a s the yimplemente d thei rjoin t venture , Orde r 2009-7-10 , Docke t OST-2008-023 4 (Jul y10 , 2009) , a t 2 7 & app . An.18 , whic h i s inconsisten t wit h th e positio n th e Departmen t ha s take n here .

1 7PUBLI C VERSIO N 1 . DOT' S Propose d Slo t Remed yLack s An yTeeth . Th e Departmen t ha s determine d tha t th e Join t Applicant s shoul d b e require d t o leas e fou rpair s ofslot s t o partie s whic h wis h t o initiat e o rexpan d servic e i n th e U.S.-Londo n Heathro wmarket . Tw o pair s ofslot s ar e earmarke d fo rservice s betwee n Bosto n an d Londo n Heathrow , an d tw o pair s ofslot s ca n b e use d i n an ymarke t a competito ro rprospectiv e competito rchooses . Th e onl yconstrain t o n thi s awar d i s tha t thes e slot s canno t b e lease d t o an ymembe rofth e oneworl d alliance . Th e slot s mayb e lease d fo ra ten-yea rter m an d mus t b e fo rtime s tha t ar e suitabl e fo rU.S.-Londo n Heathro wservices . SC O a t 27 . A s Virgi n Atlanti cha s observe d an d a s th e Departmen t ha s confirmed , acces s t o Londo n Heathro wremain s highl yconstrained . See discussio n supra

Part II.A.1 . Indeed , th e combine d BA/AAU.S.-Londo n Heathro wmarke t share s i n thi s cas e remai n virtuall yidentica l t o wher e the ywer e i n 200 2 (wel l befor e th e conclusio n o fth e U.S.-E U Ope n Skie s Agreement) , V S Answe rI a t 9-12 , whic h underscore s th e lac k offluidit yo f thi s critica l market . Give n th e almos t completel ystati cnatur e ofB Aan d AA' s shar e ofU.S.-Londo n Heathro woverla p markets , Virgi n Atlanti ci s unabl e t o understan d ho wth e Departmen t ca n determin e tha t th e partie s shoul d onl yb e requeste d t o leas e fou rdail ypair s of Heathro wslot s t o competitor s s o tha t the yca n marke t competin g service s t o alleviat e th e los s t o competitio n pose d b ythi s alliance , whe n th e Departmen t determine d tha t th e divestitur e of1 6 dail ypair s wa s require d jus t a fewyear s ago . See 200 2 Order . Th e numbe rofoverlappin g U.S.-Londo n Heathro wcit ypair s i s th e same , an d th e degre e of dominanc e o fAAan d BAo n thes e route s ha s eithe rremaine d stati co rgrown . V S Answe rI a t 9-12 . Ye t th e Departmen t woul d tur n a blin d ey e t o thes e conditions , an d offe ronl yth e bares t ofremedie s t o protec t th e consume rinterest .
1 8PUBLI C VERSIO N Th e propose d slo t remed yi s s o smal l a s t o b e virtuall ymeaningless . Th e Departmen t ha s determine d tha t tw o pair s ofslot s t o b e diveste d mus t b e use d fo r Boston-Londo n Heathro wservice , notin g tha t th e "[u]niqu e structural , geographi can d demographi cfactor s rais e competitiv e concern s i n thi s market. " SC O a t 23 . Th e Departmen t correctl ynote s tha t ther e i s almos t n o likel ycompetitiv e disciplin e t o b e place d o n BAan d America n i n thi s market . Give n thi s observation , Virgi n Atlanti ci s puzzle d wh yth e Departmen t the n ignore s th e fac t tha t B Aan d America n woul d togethe r offe rsj xdail yfrequencie s o n th e Boston-Londo n Heathro wroute , whic h woul d plac e an y carrie rwhic h entere d th e marke t wit h onl ytw o frequencie s a t a n automati can d sever e frequenc ydisadvantage . Ne wentrant s shoul d b e give n th e opportunit yt o compet e effectivel yagains t thei rentrenche d competitor s i fthe yar e t o hav e an ychanc e o f succes s a t all . I n a simila rvein , earmarkin g onl ytw o pair s o fslot s t o remed y"diffus e negativ e effect s i n th e remainin g U.S.-U.K . overla p markets, " id. a t 23 , beggar s belief , especiall y sinc e ther e ar e fiv e suc h market s othe rtha n Boston-Londo n Heathrow , whic h mean s tha t i n th e even t a ne wentran t carrie rwer e incline d t o compet e agains t th e BA-America n combin e i n al l ofthes e markets , i t woul d no t hav e th e slot s t o d o so . Moreover , makin g "onesie " slo t pair s availabl e fo rus e i n larg e market s i s no t muc h ofa remed ya t all , sinc e man yofthes e market s ar e quit e large , an d wil l b e serve d wit h multipl e dail yfrequencie s b yth e Join t Applicants . Indeed , DO Tseem s o n certai n level s t o recogniz e tha t som e ofth e har m threatene d b ythi s allianc e i s beyon d remedy . Fo rexample , DO Trecognize s tha t th e combine d BA/AAshar e o n th e Dallas-Londo n Heathro wwil l b e 100 % i fthi s allianc e i s approved , an d tha t ther e i s n o likelihoo d ofcompetitiv e entryi n thi s marke t i n th e absenc e ofhu b competitors . Id. Instea d ofdoin g th e prope rthin g an d carvin g thi s

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marke t ou t fro m th e gran t ofimmunity , th e Departmen t dismisse s out-of-han d th e threa t thi s monopol ypose s t o consumer s i n th e loca l DFW-Londo n Heathro wmarke t o n th e ground s tha t th e marke t i s relativel ysmal l an d consumer s hav e multipl e connectin g options . Id. Th e statut e doe s no t hav e a de minimis exceptio n t o it s definitio n of consume rharm . Virgi n Atlanti cals o disagree s wit h th e Department' s vie wtha t th e smal l numbe r ofslot s i t propose s t o mak e availabl e wil l b e sufficien t t o remed y"diffuse " competitiv e har m i n othe rmarket s tha t i t ha s noted . Fo rexample , Virgi n Atlanti cface s th e threa t of competin g agains t a stron g American-B Aduopol yno t onl yi n Boston , bu t als o i n Miami , wher e Virgi n Atlanti cwoul d b e offerin g onl ya singl e frequenc yi n thi s hub-to-hu b marke t agains t th e thre e dail yfrequencie s operate d b yB Aan d American . Moreover , Virgi n disagree s wit h DOT' S apparen t vie wtha t th e Chicago-Londo n Heathro wmarke t i s no t unde rcompetitiv e threat . A s Virgi n Atlanti cpreviousl yha s noted , i t n o longe ri s a year-roun d competito ri n thi s ke ymarket , havin g foun d i t verydifficul t t o compet e i n a marke t wit h mega-hub s a t eac h en d ofth e route . Virgi n Atlanti cRepl ya t 7-8 . Thus , i f th e de facto merge rwil l b e approved , ther e wil l b e a n effectiv e duopol yi n thi s marke t tha t Virgi n Atlanti csimpl ycanno t challenge . Th e slo t remed ypropose d b yDO Ti s inadequat e no t onl ybecaus e i t fail s t o mak e a sufficien t numbe ro fslot s availabl e t o would-b e o ractua l competitors , bu t als o becaus e th e mechanic s o fth e remed ymayals o b e unworkable . Whils t th e Departmen t appear s t o indicat e tha t som e thir d part ymayb e appointe d t o assis t i n th e administratio n ofth e slo t remedy , SC O a t 27 , th e rol e thi s individua l wil l pla yi s fa rfro m clear . Fo r example , wha t woul d happe n i fdeman d fo rth e slot s tha t ma yb e use d a t an ygatewa y wer e t o excee d supply ? Fo rexample , ifthre e carrier s eac h wer e t o see k a t leas t a pai r ofthes e slots, ho wwoul d th e truste e decid e t o allocate thes e slots ? Woul d thes e slot s
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b e allocate d o n a first-com e first-serve d basis , b e awarde d t o th e highes t bidder , o rwil l som e othe rtyp e ofcriteri a b e applied ? Woul d thes e slot s b e merel yfunctionall yusabl e o rwoul d the yb e commerciall yviabl e t o compet e wit h th e service s ofBAan d American ? Wil l America n an d B Ab e awar e ofth e market s fo rwhic h thes e slot s ma yb e used , an d wil l the yb e permitte d t o influenc e th e trustee' s decision ? A s th e foregoin g question s shoul d hel p t o mak e clear , th e propose d remed yi s bot h poorl ydefine d an d raise s a verymateria l ris k tha t th e publi cinteres t wil l b e compromised . Simpl yput , th e Department , no t B Aan d America n (o rthei rappointee) , shoul d determin e th e part ytha t woul d creat e th e larges t publi cbenefit s throug h th e us e o fthes e slots . Alon g simila rlines , wha t i fdeman d fo rslot s t o serv e Bosto n wer e t o excee d supply ? Ther e ar e furthe rproblem s wit h th e propose d slo t remedies . Althoug h DO Tsay s tha t th e slot s tha t ar e mad e availabl e fo rleas e shoul d b e fo r"time s usabl e fo r transatlanti cservices, " id. a t 24 , th e Departmen t mad e n o effort t o defin e thi s term . A s Virgi n Atlanti cha s note d i n it s pleading s t o th e Department , th e windo wo ftim e fo ra commerciall yattractiv e an d viabl e U.S.-Heathro wservic e i s rathe rnarrow , wit h financia l performanc e o fth e route s declinin g a s flight s ar e move d of ftha t peak . See, e.g., V S Answe rI a t 21-24 . Virgi n Atlanti ci s trouble d b yth e possibl e distinctio n betwee n slo t timing s tha t ar e merel yfunctiona l an d thos e whic h ar e commerciall ydesirable . Virgi n Atlantic' s concer n o n thi s scor e ar e supporte d b yth e DO J comment s file d i n thi s case . DO J expressl ynote d tha t "Heathro warriva l slot s i n th e 6-1 0 a m windo w ar e veryimportan t fo rattractin g hig h yiel d busines s traffic , particularl yfo rth e Eas t Coas t markets. " DO J Comment s a t 2 1 n.58 . I n Virgi n Atlantic' s view , th e critica l windo wi s eve n narrower . Accordingly , Virgi n Atlanti cwoul d urg e tha t slot s mad e availabl e b y

2 1PUBLI C VERSIO N Britis h Airway s an d America n b e i n th e pre-8-2 0 a.m . perio d an d i n th e slo t hou r requeste d b yth e applicant . Anothe rquestio n triggere d b yth e Sho wCaus e Orde rgoe s t o th e adequac yof th e leasin g remed yitself , an d th e amoun t tha t th e Join t Applicant s ma ycharg e fo rsuc h leases . Virgi n Atlantic' s vie wi s tha t a short-ter m leas e ofHeathro wslot s i s n o remed ya t all . Slot s shoul d b e diveste d withou t compensation . Th e introductio n of ne w transatlanti croute s o rfrequencie s involve s cost s an d risk s tha t ar e sufficientl yhig h t o cal l int o questio n whethe rth e servic e coul d b e profitabl e befor e th e expiratio n o f th e leas e term . Th e Sho wCaus e Orde ri s silen t o n th e questio n a s t o whethe rthes e lease s mus t b e renewe d upo n th e expiratio n ofthei rinitia l term . Recently , i n respons e t o a petitio n b yDelt a an d U S Airway s t o exchang e slot s a t th e highl yconstraine d Washingto n Reaga n Nationa l (DCA ) an d LaGuardi a (LGA ) Airports , th e Federa l Aviatio n Administratio n determine d tha t th e airline s woul d hav e t o dispos e o f1 4 pair s ofslot s a t DC Aan d 2 0 pair s o fslot s a t LGA , i n orde rt o remed yth e anticompetitiv e effect s o fthei rrequest . 7 5 Fed . Reg . 7306 , 730 7 (Feb . 18 , 2010) . Th e FA Adetermine d tha t complet e divestiture , a s oppose d t o mer e leasing , wa s necessary i n orde rt o b e a n effectiv e remed yagains t th e dominanc e of th e carrier s a t thos e airports . Id. a t 7310 . I t i s unclea rwh yrelativel yshort-ter m leasin g o fslot s i s a sufficien t remed yi n thi s proceeding , whe n th e FA Aha s determine d tha t onl ycomplet e divestitur e ofslot s i s appropriat e t o counte ra simila rcompetitiv e threa t elsewhere . DO Tseem s t o justif yit s relianc e o n leasin g i n it s apparen t expectatio n tha t carrier s wil l b e abl e t o adjus t thei rLH R slo t portfolio s ove rtime . SC O a t 27 . Thi s expectatio n i s misguided . Give n tha t a ne wrunwa ya t Heathro wwil l no t b e buil t b y202 0 (th e likel yexpiratio n dat e o f a potentia l leas e term) , slot s wil l continu e t o remai n very scarc e fo rth e foreseeabl e future , whic h mean s tha t th e abilit yt o fin d acceptabl e
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replacemen t slot s fo rleas e o rpurchas e i s b yn o mean s assured . Give n thi s reality , migh t a carrie rb e reluctan t t o mak e th e hug e investmen t associate d wit h mountin g a ne wservic e t o Heathro wwhe n i t know s i t migh t b e vulnerabl e t o losin g thos e slot s jus t whe n it s investmen t i s beginnin g t o bea rfruit ? Th e Departmen t mus t addres s thi s clea r deficiency . Likewise , th e Sho wCaus e Orde ri s conspicuousl ysilen t o n th e pric e tha t th e Join t Applicant s migh t deman d fo rthei rleas e fo rslot s t o thir d parties . Virgi n Atlanti c strongl yobject s t o th e requiremen t tha t an yquantu m ofcompensatio n fo rthes e slot s b e pai d a t all . (Afte rall , thi s wa s no t th e cas e i n th e 200 2 Order. ) Puttin g tha t aside , Virgi n Atlanti cals o i s concerne d abou t th e amoun t ofcompensatio n t o b e demande d fo rsuc h leasehol d interests . Whils t th e Departmen t state s generall ytha t "w e expec t th e compensatio n t o b e a t suc h a leve l s o a s t o attrac t prospectiv e ne wentrant s b ylowerin g th e barrier s t o entrybelo wwher e the yar e today, " tha t standar d i s veryvagu e an d doe s no t provid e muc h guidanc e t o th e part ywh o wil l b e charge d wit h administerin g th e slo t remedy , o rt o th e partie s seekin g t o leas e suc h slots . I n addition , thi s remed yi s plainl y inequitable , a s i t create s th e opportunit yfo ra windfal l rewar d t o Join t Applicants . No t onl ywoul d a competin g carrie rhav e t o bea rth e massiv e cost s an d risk s associate d wit h startin g ne wservice , bu t i t woul d als o hav e t o pa ycompensatio n t o th e carrier s whos e dominanc e ha s create d th e competitiv e an d consume rhar m i n th e firs t place . Whils t Virgi n Atlanti cstrongl ybelieve s tha t thi s Applicatio n shoul d b e disapprove d outright , th e Departmen t simpl ycanno t implemen t th e slo t remed ya s propose d i n th e Sho wCaus e Order . I n additio n t o makin g mor e slot s available , followin g ar e som e minimu m step s t o mitigat e th e deficiencie s of th e propose d remedy :

• Slot s wit h grandfathe rright s shoul d b e diveste d b yth e Join t Applicant s withou t compensation . Compensatio n woul d disincentiviz e carrier s fro m applyin g fo rslots , an d America n an d BAshoul d no t b e place d a t a n 2 3PUBLI C VERSIO N unreasonabl e advantag e b ycompetin g agains t carrier s whic h ha d t o engag e i n a "biddin g war " i n orde rt o d o so . • Slot s shoul d b e diveste d completely , a s leasing—especiall yshort-ter m leasing , a s DO Tha s proposed—woul d no t b e sufficien t becaus e o f th e significan t risk s an d cost s involve d i n launchin g competitiv e service . • Th e proces s an d procedure s fo rselectin g a ne wentran t o rexpande d competitio n fro m a n existin g operato rt o receiv e diveste d slot s shoul d b e transparen t an d ope n t o al l non-oneworl d airlines . • Th e proces s shoul d follo wa stric t notification , applicatio n an d decisio n procedure . Th e identit yo fth e applican t an d th e route(s ) o n whic h the yar e applyin g fo rslot s shoul d remai n anonymous . Otherwise , BA/AA/I B woul d hav e a longe rtim e t o conside rit s competitiv e reaction , an d coul d potentiall y choos e t o releas e slot s leas t usefu l t o th e specifi ccompetito ro n a specifi c route . • Whe n allocatin g right s o n capacit yconstraine d routes , th e purpos e ofth e proces s shoul d b e t o ensur e tha t a scarc e essentia l resourc e i s allocate d i n th e mos t pro-competitiv e way . T o achiev e a competitiv e outcome , th e criteri a fo ran ydecisio n o n th e recipient s o fth e slot s shoul d includ e th e fitnes s (financia l an d operational ) ofth e propose d operators , thei rexistin g competitivenes s agains t th e partie s i n area s suc h a s frequency , capacity , product , service , distribution , abilit yt o compet e fo rtime-sensitiv e travelers an d thei rabilit yt o introduc e ne wservice s i n a n acceptabl e timeframe . III . CONCLUSIO N Th e Departmen t ha s propose d t o approv e a n agreemen t whic h threaten s sever e competitiv e an d consume rharm . Althoug h on e ofth e primaryjustification s give n fo rthi s decisio n i s tha t i t i s neede d t o preserv e "parity " amongs t th e variou s multicarrie rairlin e alliances , th e fac t i s tha t approva l o fthi s dea l wil l distort competition , no t restor e it . Ther e ar e critica l distinction s betwee n thi s allianc e an d thos e whic h hav e precede d it . Non e ofth e othe rallianc e case s centere d aroun d a n airpor t whic h i s close d t o ne wgrowth . Whils t DO Tan d DO J reac h differen t conclusion s abou t th e alliance , the y agre e o n a t leas t on e thing—tha t entrya t Heathro wca n b e verydifficul t an d costly . A s DO J observed , "[e]ntry[i n certai n overlappin g U.S.-Londo n Heathro wroutes ] i s unlikel y becaus e slot s a t Heathrow—th e mos t attractive Londo n airport fo ra potentia l entrant ar e difficul t t o obtain. " DO J Comment s a t 18 . Similarly , DO Tha s determine d tha t "[t]her e i s ampl e evidenc e i n th e recor d tha t Heathro wi s constrained. " SC O a t 24 . Thi s
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overwhelmin g barrie rt o entrywa s no t a facto ri n eithe rth e Sta ro rSkyTea m applications . I n th e even t th e Departmen t wer e t o adop t th e vie wtha t approva l o fthi s allianc e i s require d o n aeropolitica l grounds , o ro n th e basi s tha t allianc e consolidatio n i s someho w"inevitable, " an d mus t b e fostered , i t shoul d com e ou t an d sa yso . DO T shoul d the n appl yit s ne wpolic yevenhandedl yt o al l futur e application s tha t mayfollo w thi s one . Whils t i t i s no t clea rtha t thi s positio n ha s previousl ybee n supporte d unde rth e relevan t statutes , a t leas t everyon e ca n b e clea rabou t th e rule s ofth e roa d movin g forward . Th e Departmen t ha s a statutorymandat e no t t o maintai n "parity " amongs t alliances , bu t t o preserv e competitio n an d approv e onl ythos e alliance s whic h provid e tangibl e an d importan t publi cbenefits . Whil e th e Join t Applicant s mayargu e t o th e contrary , thi s dea l create s fe w(i fany ) ofthos e benefits , an d th e threatene d har m t o consumer s i s quit e clear . Indeed , th e JBA—th e verycor e ofthi s alliance—wa s designe d no t t o incentiviz e th e expansio n o fcapacit yan d th e offerin g ofdiscoun t fares , bu t t o tightl yclam p suc h activities . Give n th e verynature ofthi s deal , th e Join t Application mus t b e denied . However , i n th e even t th e Departmen t wer e t o issu e a n approva l o fthi s Application , i t mus t strengthe n dramaticall yth e remedie s impose d t o mitigat e th e sever e threa t t o consumer s pose d b ythi s alliance .

2 5PUBLI C VERSIO N / Reswectfiill ysubmitted , / / Anit a M . Mosne r Soph yChe n HOLLAN D & KNIGH TLL P 209 9 Pennsylvani a Avenu e NW , Suit e 10 0 Washington , D C 20006-680 1 Phone:(202)419-260 4 Fax : (202 ) 955-556 4 Email : anita.mosner@hklaw.co m Email : sophy.chen@hklaw.co m Attorney s fo r VIRGI N ATLANTI C AIRWAY S LTD .

2 6PUBLI C VERSIO N CERTIFICAT E O F SERVIC E I hereb ycertif ytha t I hav e thi s dat e serve d th e foregoin g documen t o n th e person s identifie d belo wb ycausin g a cop yt o b e sen t b yelectroni cmail . anbird@fedex.co m andrew.forman@cwt.co m aserranzan a @ geclaw.co m benjamin.slocum@usairways.co m bill@mietuslaw.co m bkeiner@crowell.co m blabow@omm.co m bob.kneisley@wnco.co m bruce.rabinovitz@wilmerhale.co m byerlyjr@state.go v carl.nelso n @ aa.co m cdonley@ssd.co m cgosain@steptoe.co m cjsimpson@zsrlaw.co m cwilson@omm.co m david.heffernan@wilmerhale.co m d fisher ® kelleydrye.co m dhainbach@ggh-airlaw.co m diarmuid.ryan@hammonds.co m dkirstein@yklaw.co m donna.kooperstei n @ usdoj.go v dvaugha n @ kelleydrye.co m dwight.moore@ustranscom.mi l ebailey@wileyrein.co m efaberman@wileyrein.co m gmurphy@crowell.co m howard_kass@usairways.co m james.garzia@apgnet.co m jashetaylor@gibsondunn.co m jeff.ogar@aa.co m jeffrey.manley@united.co m jennifer.trock@pillsburylaw.co m jhill@dlalaw.co m jill.ptacek@usdoj.go v jim.ballough@faa.go v jrichardson@johnlrichardson.co m julie.oettinger@united.co m jyoung@yklaw.co m karine.faden@freshfields.co m kevin.montgomery@polaraircargo.co m konstantinos.adamantopoulo s @ hammonds.co m kquinn@pillsburylaw.co m lacht e r@ starpow e r. ne t leslie.abbott@wnco.co m lhalloway@crowell.co m libowd@sullcrom.co m mamaila@airfrance.f r mchopra@jamhoff.co m mcmillin@woa.co m mgerchick@gerchickmurphy.co m mgoldman@sgbdc.co m mholland@condonlaw.co m mroller® rollerbauer.co m mrosia@crowell.co m msinick@ssd.co m npeterson@wileyrein.co m paul.jasinsk i @ ba.co m paul.yde@freshfields.co m peter.irvine@dot.go v pmurphy@gerchickmurphy.co m pmurphy@lopmurphy.co m prrizzi@hhlaw.co m pruden@asta.or g rbkeiner@crowell.co m rclayman@geclaw.co m recohn@hhlaw.co m rick.rule@cwt.co m robert.land@jetblue.co m rsilverberg@sgbdc.co m russell.bailey@alpa.or g sametta.c.barnett@delta.co m sami.sarelius@finnair.f i sascha.vanderbelle n @ delta.co m scott.mcclai n @ delta.co m sllunsford@fedex.co m thomas.bolling@coair.co m tmuris@omm.co m todd.homan@dot.go v wkara s @ steptoe.co m

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