BEFORE THE DEPARTMENT OF TRANSPORTATION WASHINGTON, D.C.

Joint Application of

DELTA AIR LINES, INC.; VIRGIN AUSTRALIA AIRLINES PTY LTD d/b/a

VIRGIN AUSTRALIA; VIRGIN AUSTRALIA INTERNATIONAL AIRLINES

PTY LTD d/b/a V AUSTRALIA; PACIFIC BLUE AIRLINES (NZ) LTD; and PACIFIC BLUE AIRLINES (AUST) PTY LTD Docket DOT-OST-2009-0155

Under 49 U.S.C. §§ 41308 and 41309 for Approval of and Antitrust Immunity for Alliance Agreements

REPLY OF THE JOINT APPLICANTS

June 3, 2011Communications with respect to this document should be sent to:

Merren McArthur Group Executive, Corporate Advisory Dayna Field Senior Counsel The Virgin Australia Group P.O. Box 1034 Spring Hill QLD 4004 Australia +617 3333 6801 merren.mcarthur@virginaustralia.com.au dayna.field@virginaustralia.com.au

Anita Mosner Holland & Knight 2099 Pennsylvania Avenue, N.W., Suite 100 Washington DC 20006 (202) 419-2604 anita.mosner@hklaw.com

for: VIRGIN AUSTRALIA AIRLINES PTY LTD d/b/a VIRGIN AUSTRALIA, VIRGIN AUSTRALIA INTERNATIONAL AIRLINES PTY LTD d/b/a V AUSTRALIA, PACIFIC BLUE AIRLINES (NZ) LTD, and PACIFIC BLUE AIRLINES (AUST) PTY LTD Andrea Fischer Newman Senior Vice President, Government

Affairs Alexander Van der Bellen, Managing Director, Government Affairs

and Associate General Counsel Jeff Morgan Regional Director, Government Affairs DELTA AIR LINES, INC. 1212 New York Avenue, N.W. Washington, DC 20005 (202) 842-4184 sascha.vanderbellen@delta.com

iBEFORE THE DEPARTMENT OF TRANSPORTATION WASHINGTON, D.C.

Joint Application of

DELTA AIR LINES, INC.; VIRGIN AUSTRALIA AIRLINES PTY LTD d/b/a

VIRGIN AUSTRALIA; VIRGIN AUSTRALIA INTERNATIONAL AIRLINES

PTY LTD d/b/a V AUSTRALIA; PACIFIC BLUE AIRLINES (NZ) LTD; and PACIFIC BLUE AIRLINES (AUST) PTY LTD Docket DOT-OST-2009-0155

Under 49 U.S.C. §§ 41308 and 41309 for Approval of and Antitrust Immunity for Alliance Agreements

REPLY OF THE JOINT APPLICANTS

Delta Air Lines, Inc. (“Delta”), Virgin Australia Airlines Pty Ltd (“Virgin Australia”),

Virgin Australia International Airlines Pty Ltd (“V Australia”), Pacific Blue Airlines (NZ)

Ltd, and Pacific Blue Airlines (Aust) Pty Ltd 1 (the “Joint Applicants”) hereby respond to

the Department’s Show Cause Order 2011-5-8 and the Comments submitted on June 1,

2011 by Hubert Horan.

The Joint Applicants appreciate the detailed and thorough reexamination of the

proposed alliance conducted by the Department. The Department’s first show cause

order identified several concerns which the Joint Applicants extensively addressed in

1 These carriers are referred to collectively as t he “Virgin Australia Carriers.” As the Department previously has noted, the Virgin Blue Group has undergone a rebranding. See Order 2011-5-8 at n.3. By letter dated May 24, 2011, the Depart ment acknowledged and registered the change in names of Virgin Blue Airlines Pty Ltd and Virgin Blue International Airlines Pty Ltd d/b/a V Australia to, respectively, Virgin Australia Airlines Pty Ltd d/b/a Virgin Australia, and Virgin Australia International Airlines Pty Ltd d/b/a V Au stralia. The Joint Applicants request that the final order reflect the updated and current registered trade names of the Virgin Australia Carriers.Joint Reply Page 2

subsequent filings, including amending the scope of the Joint Venture agreement,

offering assurances on capacity levels following ATI approval, providing a more detailed

explanation and quantification of public benefits, and providing further evidence on the

improved stability of the U.S.-Australia market in the post open skies environment. After

careful consideration of this additional evidence, the Department was able to “find that

the applicants meet the high standard necessary to obtain antitrust immunity.” Order

2011-5-8 at 15. Mr. Horan’s criticisms of the Department’s Order and proposed

conditions are without merit. While the Joint Applicants do not intend to respond in detail

to every erroneous claim, we reply generally as follows:

In his October 12, 2010 filing, Mr. Horan argued that the Joint Applicants should

have been granted ATI on the basis of their original filing: “DOT must accept the

Delta/Virgin application on the grounds that it produces sufficient public benefits under

section 41308(b) to justify a grant of antitrust immunity, as it clearly meets all of the

standards used in the public benefits analysis used in SkyTeam, Star, oneworld and

Japan cases.” (page 17). Mr. Horan now claims, with respect to the enhanced

application and more substantial record, that public benefits have not been

demonstrated and “thus immunity cannot be granted.” (June 1 comments at 6). There

is no merit to Mr. Horan’s new and contradictory claims. The substantial evidence

submitted in this case strongly supports the Department’s conclusion that the Joint

Applicants met the standard to obtain antitrust immunity.

Competition in the U.S.-Australia and U.S.-South Pacific market is now more

robust than ever. Just last month, Q antas began Sydney-DFW service, creating new

network service via the largest hub of its oneworld partner, American. Continental

announced its intention to begin nonstop Houston-Auckland service, as B787 aircraft are

delivered to its fleet. And, United, already the largest hub carrier at Los Angeles, has

been further strengthened by its recent merger with Continental. Mr. Horan’s hypothesisJoint Reply Page 3

that approval of the alliance could jeopardize U.S.-Australia competition, or that United

might withdraw from the Los Angeles-Sydney route as a result of additional competition

by the Delta/Virgin Australia joint venture is unsubstantiated speculation.

Mr. Horan fundamentally misreads the Joint Applicant’s capacity commitment

agreement. The Joint Applicants have no intention of withdrawing capacity. In fact, V

Australia committed to maintaining a higher level of service on U.S.-Australia routes than

existed at the time of the first show cause order. The Joint Applicants were willing to

offer the capacity commitments to put to rest any concern that they might withdraw

service as a result of the grant of antitrust immunity. Contrary to Mr. Horan’s

contentions, the Joint Applicants have no unilateral right to invoke force majeure to avoid

the capacity commitments. If the Joint Applicants expect their service to drop below the

specified levels as the result of a force majeure event such as a terrorist attack, global

pandemic, stock market crash, or exceedingly high fuel prices “the Parties will seek prior

approval from DOT to continue the effect iveness of antitrust immunity absent the

capacity commitment.” See , Capacity Commitment Agreement. Mr. Horan’s remaining

criticisms are equally without merit.Joint Reply Page 4

The Joint Applicants agree with the Department’s analysis, tentative findings, and

proposed conditions of Show Cause Order 2011-5-8. We request that a Final Order be

issued as soon as possible, so that the Joint Applicants can begin delivering the benefits

of their alliance to the traveling public.

Respectfully submitted,

Merren McArthur for Virgin Australia Airlines Pty Ltd, Virgin Australia International Airlines Pty Ltd d/b/a V Australia, Pacific Blue Airlines (NZ) Ltd, and Pacific Blue Airlines (Aust) Pty Ltd Alexander Van der Bellen for Delta Air Lines, Inc.CERTIFICATE OF SERVICE

A copy of the foregoing has been served this 3rd da y of June, 2011, upon the following persons via email:

carl.nelson@aa.com howard_kass@usairways.com benjamin.slocum@usairways.com thomas.bolling@coair.com dan.weiss@coair.com steve.morrissey@united.com jhill@dlalaw.com urskr@state.gov horanaviation@gmail.com info@airlineinfo.com todd.homan@dot.gov peter.irvine@dot.gov christopher.mandel@dot.gov