August!18,!2011

Susan!Kurland

Assistant Secretary for Aviation and International Affairs

U.S.!Department!of!Transportation

1200!New!Jersey!Ave,!SE

Washington,!DC!20590

RE:!!Joint!Motion!of!Air!Canada,!Austrian,!British!Midland,!Continental,!Lufthansa,!

LOT,!SAS,!Swiss,!TAP!and!United,!Docket!DOTQOSTQ2008Q0234!–!Public!

Comment!Submission

Dear!Ms.!Kurland,

I!write!on!behalf!of!UNITE!HERE!to!submit!a!public!comment!in!the!scheduled!

proceeding!under!Docket!DOTQOSTQ2008Q0234!regarding!the!inclusion!of!Brussels!

Airlines!in!the!immunized!Star!Alliance!and!A++!joint!venture.

We!are!concerned!about!the!Joint!Motion!and!will!detail!our!issues!below!in!the!

following!areas:

• Demonstration!of!public!benefit

• Precedent!for!expansion!of!immunized!group

• Existing!regulatory!concerns

• Lack!of!information!in!the!public!domain

Demonstration+of+Public+Benefit

In!order!to!grant!antitrust!immunity!to!airlines,!the!law!requires!the!Department!of!

Transportation!to!determine!that!the!“exemption!is!required'by!the!public!interest.”1!!

We!believe!the!Brussels!Airlines!case!falls!short.

Regulatory'Background

The!Department!of!Justice!has!voiced!concern!over!the!level!of!proof!airlines!have!

provided!that!the!benefits!they!claim!require!immunity.!!In!the!DOJ’s!public!

comment!on!the!2009!Star!Alliance!immunity!case,!included!in!this!Docket,!the!DOJ!

wrote!“a!grant!of!antitrust!immunity!does!not!turn!on!‘the!subjective!desire!of!the!

parties!to!avoid!antitrust!litigation.’”2!!The!DOJ!noted!that!airline!alliances!had!

realized!consumer!benefits!without!immunity,3!and!concluded!that!the!applicants!in!

that!case!had!“not!justified!their!extraordinary!immunity!request.”4

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 1!DOT!Order!2009Q7Q10!at!3,!citing!49!U.S.C.!§!41308(b). 2!DOJ!Comments!on!Show!Cause!Order!in!Docket!DOTQOSTQ2008Q0234!at!33. 3!DOJ!Comments!on!Show!Cause!Order!in!Docket!DOTQOSTQ2008Q0234!at!33Q36. 4!DOJ!Comments!on!Show!Cause!Order!in!Docket!DOTQOSTQ2008Q0234!at!43.
Other!studies!have!echoed!questions!on!the!necessity!of!antitrust!immunity!to!

realize!consumer!benefits.!Volodymyr!Bilotkach!and!Kai!Huscherlrath!concluded,!

“The!frequently!postulated!lower!prices!due!to!the!removal!of!double!

marginalization!following!antitrust!immunity!are!not!obvious!from!the!theoretical!

point!of!view,!and!can!be!realized!in!a!partnership!without!such!immunity.”5!!

Similarly,!economists!at!the!Department!of!Justice!Economic!Analysis!Group!noted!

in!2011,!“data!also!show!that!antitrust!immunity!is!not!reasonably!necessary!for!

alliance!participants!to!deliver!pricing!efficiencies!to!connecting!passengers.!This!

evidence!does!not!support!broad!regulatory!exemptions!from!the!U.S.!antitrust!laws!

for!international!airline!alliances.”6

Current'Consumer'Environment

Meanwhile,!in!2011,!travelers!have!already!seen!repeated!airfare!increases.!!The!Los'

Angeles'Times!reported!in!April!that!international!travelers!are!likely!to!see!the!

biggest!hikes!partly!due!to!less!competition!on!international!routes.7

Of!particular!concern,!in!May!2011,!the!New'York'Times'ran!a!story!about!the!clout!

of!the!airline!alliances!that!are!receiving!antitrust!immunity,!noting:

But'for'all'the'talk'of'the'benefits'that'alliances'offer'travelers,'there'is'a'

continuing'debate'about'the'downside'of'this'trend:'too'much'market'

concentration,'leading'to'higher'fares.'That'is'particularly'a'concern'across'the'

Atlantic,'where'fares'have'risen'disproportionately'as'competition'has'shrunk.

“’Something'changed'in'the'North'Atlantic'that'allowed'prices'to'rise'three'

times'faster'than'they'did'in'any'other'market,”'said'Hubert'Horan,'an'aviation'

consultant'who'has'opposed'alliance'antitrust'immunity.'‘That'was'due'to'the'

extreme'consolidation'of'the'industry.'There'is'no'other'factor'that'could'

explain'it.’8

In!January!2011,!USA'Today!wrote!a!forecast!for!business!travelers!that!also!

suggested!a!troubling!trend:

While'airline'mergers'are'often'limited'by'foreign'ownership'laws,'airline'

alliances'continue'to'grow.'The'alliances'now'control'over'60%'of'world'airline'

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 5!Bilokatch,!Volodymyr!and!Kai!Huschelrath.!“Antitrust!Immunity!for!Airline!Alliances.”!Centre!for!

European!Economic!Research,!Discussion!Paper!No.!10Q080,!at!33.!!Article!also!published!in!Journal!

of!Economics,!Law!and!Organization.

6!Gillepsie,!William!and!Oliver!Richard,!“Antitrust!Immunity!and!International!Airline!Alliances.”!

Economic!Analysis!Group,!Antitrust!Division,!U.S.!Department!of!Justice,!at!20. 7!Martin,!Hugo.!“Summer!airfares!may!climb!15%!from!a!year!earlier.”!Los!Angeles!Times.!April!17!

2011.!

8!Stellin,!Susan.!“The!Clout!of!Air!Alliances.”!New!York!Times.!May!2!2011.
capacity'with'more'than'60'current'and'pending'members'including'25'of'the'

world's'30'largest'airlines.'Few'places'remain'where'alliances'don't'reach'and'

now'they'are'even'recruiting'LCCs.'While'alliances'help'travelers'maximize'

their'miles'with'a'single'carrier'and'simplify'airfare'discount'negotiations'for'

corporate'travel'managers,'the'alliance'oligopoly'will'likely'lead'to'fewer'flight'

options'and'higher'airfares'on'many'global'routes.9

In!November!2010,!the!New'York'Times!had!put!numbers!to!the!trend!in!relation!to!

U.S.!to!Europe!travel,!a!central!segment!of!the!airline!immunization:

Fares'between'the'United'States'and'Europe'also'rose'sharply,'especially'for'

economyYclass'seats.'The'average'oneYway'fare'in'August'was'$455,'a'rise'of'20'

percent'from'a'year'earlier,'while'the'average'premiumYclass'fare'was'$2,087,'

an'increase'of'11'percent.10

In!all!of!these!accounts,!competitive!issues!are!raised!as!a!possible!cause!of!

increasing!fares.

Brussels'Airlines'Joint'Motion

The!Joint!Movants!claim!that!inclusion!of!Brussels!Airlines!in!the!immunized!A++!

joint!venture!would!benefit!consumers!in!a!variety!of!ways,!including!“efficiencyQ

enhancing!integration,”!“reduction!of!double!marginalization,”!“economies!of!

density!...!permitting!a!ticket!price!reduction,”!improved!“capacity!allocation!

(availability)!at!a!wider!ranger!of!fares,”!“reduced!waiting!time!for!preferred!flights”!

and!more.11

The!Joint!Movants!base!these!conclusions!on!stated!benefits!of!the!initial!A++!

immunization!in!2009.!!Yet,!despite!growing!scholarly!and!popular!skepticism!about!

the!benefit!or!necessity!of!antitrust!exemptions,!the!Joint!Movants!do!not!provide!

any!proof!that!consumers!have actually'realized!these!claimed!benefits!under!A++!

since!the!initial!grant!of!immunity!two!years!ago.!!!

If!the!stated!benefits!were!a!true!result!of!the!immunity!grant,!the!Joint!Movants

ought!to!be!able!to!demonstrate!them!and!predict!concretely!their!expansion!to!

Brussels!Airlines.

Beyond!failing!to!prove!the!consumer!benefits!of!A++!immunity!and!therefore!an!

expansion!of!that!immunity,!the!Joint!Movants!fail!to!demonstrate!that!immunity!is!

necessary!to!provide!supposed!benefits!with!regards!to!Brussels!Airlines.!!!!

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 9!Grossman,!Ben.!“2011!business!travel!forecast:!Higher!prices!and!more!hassles.”!USA!Today.!!

January!4,!2011.

10!Clark,!Nicola.!“Sticker!Shock!for!Travelers!as!Airfares!Climb.”!New!York!Times.!November!8!2008.

11!Docket!DOTQOSTQ2008Q0234Q0313!at!7Q8.
The!Joint!Movants!note,!“if!immunity!were!not!granted,!it!would!be!highly!inefficient!

for!Lufthansa”!and!claim!that!without!immunity!they!would!face!“intolerably!high!

risk!of!antitrust!litigation”!and!“legal!compliance!complexities.”12!!We!do!not!believe!

that!these!are!valid!reasons!to!claim!an!entitlement!to!exemption!from!our!antitrust!

laws.!!In!fact,!the!reasoning!is!entirely!circular:!that!antitrust!immunity!is!necessary!

because!protection!from!antitrust!compliance!is!necessary.!!

Furthermore,!though!Brussels!Airlines!would!offer!only!connecting!service!for!U.S.!

passengers,!the!Joint!Movants!to!do!nothing!to!dismiss!the!previously!noted!finding!

by!the!economists!at!the!Department!of!Justice!Economic!Analysis!Group!that!“data!

also!show!that!antitrust!immunity!is!not!reasonably!necessary!for!alliance!

participants!to!deliver!pricing!efficiencies!to!connecting!passengers.”13

Precedent+for Expansion of+Immunized+Group

We!believe!the!inclusion!of!Brussels!Airlines!in!the!immunized!A++!joint!venture!

sets!problematic!precedents!for!the!expansion!of!antitrust!immunity!grants.

Expansion'of'HubYtoYHub'Service

Since!OrderQ2009Q7Q10!was!issued!granting!immunity!to!the!A++!joint!venture,!the!

European!scope!of!the!venture!has!significantly!expanded.!!Initially,!Frankfurt!was!

the!only!European!hub!with!service!dominated!by!one!of!the!A++!partners.!!With!the!

additions!of!SWISS!and!Austrian!Airlines,!Zurich!(ZRH)!and!Vienna!(VIE)

respectively!join!that!immunized!hub!list.!!Brussels!Airlines!would!make!Brussels!

(BRU)!the!fourth!addition!in!just!two!years.

Volodymyr!Bilotkach!and!Kai!Huscherlrath’s!recent!studies!for!the!Centre!for!

European!Economic!Research!show!that!immunization!has!notable!effects!on!air!

travel!networks.!!For!example,!they!find!that!antitrust!immunity!leads!to!decreases!

in!the!passenger!volumes!and!frequency!of!service!for!nonQalliance!carriers!to!newly!

immunized!hubs.14!!

In!its 2009!comments,!the!Department!of!Justice!also!raised!concern!the!possible!

antiQcompetitive!effects!of!immunizing!airline!partners!with!hubs!at!both!ends!of!

certain!cityQpairs. 15!!

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 12 Joint!Movants!Response!to!Request!for!More!Information,!July!5,!2011,!in!in!Docket!DOTQOSTQ

2008Q0234!at!7. 13!Gillepsie,!William!and!Oliver!Richard,!“Antitrust!Immunity!and!International!Airline!Alliances.”!

Economic!Analysis!Group,!Antitrust!Division,!U.S.!Department!of!Justice,!at!20.

14!Bilokatch,!Volodymyr!and!Kai!Huschelrath.!“Airline!Alliances,!Antitrust!Immunity!and!Market!

Foreclosure.”!Centre!for!European!Economic!Research,!Discussion!Paper!No.!10Q083,!at!23,24.

15 DOJ!Comments!on!Show!Cause!Order!in!Docket!DOTQOSTQ2008Q0234!at!17Q18,!25Q26.!
The!Brussels!application!alone!seeks!immunization!that!would!add!three!such!hubQ

toQhub!pairs:!Washington/Dulles!to!Brussels,!Chicago!to!Brussels!and!Newark!to!

Brussels.!!The!immunized!partners!would!face!no!nonQstop!competitors!on!the!

Dulles!–!Brussels!route,!and!only!one!nonQstop!competitor!on!the!Chicago!–!Brussels!

route,!while!holding!the!dominant!hub!presence!at!both!ends. 16

We!believe!the!Department!of!Transportation!must!analyze!the!collective!

competitive!impact!of!the!expansion!of!hubs!within!the!A++!network!(Zurich,!Vienna!

and!Brussels)!in!considering!this!application!and!potential!carveQouts.!

Ownership

Because!Lufthansa!still!owns!less!than!a!majority!of!Brussels!Airlines,17!yet!requests!

the!“same!treatment”!for!Brussels!as!given!to!“majorityQowned!affiliates”!under!

Order!2009Q7Q10,18!a!notable!precedent!would!be!set!in!this!case!for!the!expansion!

of!immunized!joint!ventures!under!clauses!regarding!controlled!or!affiliate!entities.!!

If!the!Department!determines!that!some!grant!of!immunity!is!necessary,!we!suggest!

that!it!not!take!effect!until!Lufthansa!officially!purchases!the!remaining!shares!of!

Brussels!Airlines.

InterYAlliance'Dynamics

Additionally,!part!of!the!justification!the!Joint!Movants!give!for!their!immunity!

request!suggests!another!dangerous!precedent!for!antitrust!exemptions.!!In!their!

response!to!the!Department!of!Transportation’s!Request!for!More!Information,!the!

Joint!Movants!note!that!immunity!would!make!them!more!competitive!with!other!

alliances,!particularly!SkyTeam.19!!

However,!they!do!not!suggest!that!any!new!service!would!be!launched;!they!only!

suggest!that!existing!service!would!become!part!of!the!immunized!joint!venture.!!It!

should!not!be!the!Department!of!Transportation’s!prerogative!to!use!antitrust!

immunity!to!improve!the!market!position!of!any!one!alliance!in!relation!to!others.!!

Indeed,!we!believe!the!Department!ought!to!be!weary!of!encouraging!a!cycle!of!

continued!consolidation!based!on!repeating!this!logic.

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 16 Source:!BRU!airport!timetables.!There!are!direct!flights!from!BRU!to!ORD,!ATL,!IAD,!PHL,!EWR!and!

JFK.!United!is!the!only!carrier!flying!nonstop!from!IAD!to!Brussels,!and!the!ORDQBRU!route!has!only!

United!and!American.!BRU!is!a!hub!for!Brussels!Airlines,!which!controls!over!30%!of!the!flights!there!

(See!“Brussels!Airlines!Puts!Star!Alliance!in!theQDriving!Seat!in!Belgium.”!Airlines!and!Destinations.!

11!January!2010.).!!ORD!and!IAD!are!hubs!for!United,!EWR!is!a!hub!for!Continental. 17!Lufthansa!owns!45%!of!Brussels!Airlines.!Joint!Movants!Response!to!Request!for!More!

Information,!July!5,!2011,!in!Docket!DOTQOSTQ2008Q0234!at!Exhibit!B. 18 DOT!Order!2009Q7Q10!at!2,!see!text!and!also!Footnote!4. 19 Joint!Movants!Response!to!Request!for!More!Information,!July!5,!2011,!in!Docket!DOTQOSTQ2008Q

0234!at!3,!6.
Existing+Regulatory+Concerns

In!June!2011,!Bloomberg!reported!that,!“Deutsche!Lufthansa!AG!(LHA)’s!

competitors!made!no!attempt!to!take!over!routes!the!carrier!ceded!in!return!for!

European!Union!antitrust!approval!to!buy!part!of!Brussels!Airlines!NV,!EU!

regulators!said.”!!While!the!EU!is!not!taking!further!action!at!this!time,!Bloomberg!

reported!the!EU Competition Commissioner!noted!that!travel!agents!or!others!could!

file!a!complaint!“if!there!are!serious!concerns!about!a!breach!of!competition!law.”20!!

The!United!States!should!withhold!inclusion!of!the!four!routes!ceded!by!Lufthansa!in!

any!grant!of!antitrust!immunity!for!Brussels!Airlines.!!

Additionally,!three!of!the!airlines!involved!in!this!request!for!antitrust!immunity!

expansion!are!currently!subjects!of!antitrust!probes!the!European!Commission!

launched!in!February!2011!related!to!specific!routes.

21!!One!of!the!routes!under!

scrutiny!overseas!–!Brussels!to!Lisbon!–!is!included!in!the!Brussels!application. 22!!

This!route!should!not!be!included!in!any!U.S.Qimmunized!group!until!the!European!

Commission!makes!a!determination!in!that!case.

Lack+of+Information+in+Public+Domain

DOT!Order!2009Q7Q10,!included!in!this!docket,!directed!the!Joint!Movants!to!submit!

annual!reports!to!the!Department!of!Transportation!Office!of!Aviation!Analysis.23

The!reports!were!described!in!the!Order:

V.'ANNUAL'REPORTING

In'the'tentative'decision,'we'tentatively'found'that'additional'reporting'is'

necessary'to'monitor'commercial'developments'and'ensure'that'public'benefits'

are'being'realized.'No'party'has'objected'to'these'reporting'requirements.'

ITSA/ASTA'has'suggested'that'we'augment'the'requirements'to'address'sales'

and'distribution'issues,'as'well'as'compliance'with'antitrust'protocols.'We'

agree'with'this'suggestion.'The'Department'intends'that'additional'reporting'

should'cover'all'core'airline'activities'undertaken'to'achieve'the'full'range'of'

public'benefits,'which'includes'cooperation'in'sales'and'distribution'and'joint'

negotiations'with'travel'agents,'as'well'as'efforts'to'preserve'competition,'

which'include'antitrust'compliance.'All'interested'parties'had'the'opportunity'

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 20!White,!Aoife.!“Lufthansa!Competitors!Made!No!Bids!for!Brussels!Slots,!EU!Says.”!Bloomberg.!20!

June!2011.

21!“Antitrust:!Commission!probes!certain!coQoperation!agreements!between!Lufthansa!and!Turkish!

Airlines!and!between!Brussels!Airlines!and!TAP!Air!Portugal.”!European!Commission!Press!Release!

IP/11/147.!!11!February!2011. 22 DOTQOSTQ2008Q0234Q0313!at!281. 23 DOT!Order!2009Q7Q10!at!29,!point!10.
to'reply'to'ITSA/ASTA’s'suggestions,'and'there'were'no'further'comments'on'

this'issue.

Therefore,'we'make'final'our'tentative'finding'that'the'airlines'should'submit'

annual'reports.'The'reports'should'focus'on'the'progress'made'by'the'

applicants'towards'achieving'their'stated'goals'for'operating'an'alliance'with'

antitrust'immunity,'the'specific'actions'they'have'taken'to'implement'each'of'

their'alliance'agreements'(including'especially'joint'venture'agreements),'the'

present'or'future'planned'cooperation'among'the'alliance'partners'in'all'core'

airline'functions,'and'a'discussion'of'the'public'benefits'that'are'being'realized'

by'the'immunized'alliance.24

Related!to!our!concern!about!the!demonstration!of!public!benefit!in!the!Brussels!

Airlines!application,!we!are!concerned!that!information!from!the!2010!submission!

of!this!report!is!not!included!in!the!public!docket.!!

In!May!2011,!UNITE!HERE!submitted!a!request!under!the!Freedom!of!Information!

Act!to!the!Department!of!Transportation!to!release!the!2010!report!that!should!have!

been!submitted!by!the!immunized!group.!25!The!Department!denied!the!request!in!

full26!and!an!appeal!is!pending.27

In!order!for!public!entities!to!make!more!informed!analysis!of!the!impact!of!

antitrust!immunity!granted!to!the!Joint!Movants,!including!an!understanding!of!any!

public!benefits!actually!realized,!we!believe!these!reports!must!be!made!publicly!

available!in!the!future!and!that!any!Final!Order!in!this!matter!should!reflect!this!

change.!!We!also!ask!that!the!2010!report!be!released!immediately!and!that!the!

schedule!on!this!Joint!Motion be!extended!accordingly!to!allow!for!analysis!prior!to!

any!expansion!of!antitrust!immunity!to!Brussels!Airlines.!!We!believe!that!the!

present!public!comment!process!is!fatally!flawed!because key!information!about!the!

effects!of!immunity!has!been!withheld!from!the!public.!!

Conclusion

We!are!concerned!that!the!Joint!Movants!have!not!proven!the!public!benefits!that!

would!come!from!an!expansion!of!the!A++!immunization,!nor!have!they!justified!the!

necessity!of!an!immunity!grant.!!Meanwhile,!the!proposed!growth!of!the!immunized!

joint!venture!sets!a!potentially!problematic!precedent!for!future!requests.!!!

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 24 DOT!Order!2009Q7Q10!at 26.

25!DOT!FOIA!File!Number!FYQ2011Q138 26!Determination!from!DOT!FOIA!Officer!Kathy!Ray!in!letter!from!the!Office!of!the!Secretary!of!

Transportation!dated!31!May!2011. 27!Appeal!submitted!by!UNITE!HERE!to!Rosalind!A.!Knapp!in!a!letter!dated!27!June!2011.
If!immunity!is!granted!nonetheless,!we!request!the!Department!of!Transportation!

consider!certain!route!carve outs.!!We!also!request!the!release!of!annual!reports!

submitted!by!the!Joint!Movants,!retroactively!and!in!the!future.

We!hope!that!the!Department!will!address!our!concerns!when!making!a!final!order!

on!this!matter.

Sincerely,

Kyle!Schafer

UNITE!HERE

55!W.!Van!Buren

Chicago,!IL!60660