BEFORE THE 

DEPARTMENT OF TRANSPORTATION 

WASHINGTON, D.C. 

-------------------------------------------- 

Joint Application of: : 

 : 

 AMERICAN AIRLINES, INC. : 

 BRITISH AIRWAYS PLC : 

 FINNAIR OYJ : 

 IBERIA LINEAS AÉREAS DE ESPAÑA, S.A. : DOT-OST-2008-0252 

 ROYAL JORDANIAN AIRLINES : 

 : 

under 49 U.S.C. §§ 41308 and 41309 for : 

approval of and antitrust immunity for : 

alliance agreements : 

-------------------------------------------- 

JOINT APPLICANTS’ COMMENTS ON SHOW CAUSE ORDER 2010-2-8

Communications with respect to this document should be sent to: 

For American Airlines: For British Airways: For Iberia: 

WILLIAM K. RIS, JR. 

Senior Vice President – 

 Government Affairs 

American Airlines, Inc. 

1101 17th Street, Suite 600 

Washington, DC 20036 

VIRASB VAHIDI 

Senior Vice President – 

 Planning 

American Airlines, Inc. 

P.O. Box 619616, MD 5628 

DFW Airport, TX 75261 

KENJI C. HASHIMOTO 

Vice President – 

 Strategic Alliances 

American Airlines, Inc. 

P.O. Box 619616, MD 5635 

DFW Airport, TX 75261 

CARL B. NELSON, JR. 

Associate General Counsel 

American Airlines, Inc. 

1101 17th Street, Suite 600 

Washington, DC 20036 

R. BRUCE WARK 

Associate General Counsel 

JEFFREY A. OGAR 

Senior Attorney 

American Airlines, Inc. 

P.O. Box 619616, MD 5675 

DFW Airport, TX 75261 

(817) 967-3478 

jeff.ogar@aa.com 

TOM KING 

Executive Vice President - 

 External Relations 

British Airways Plc 

Rue Wiertz 50 

B-1050 Brussels 

PAUL C. JASINSKI 

General Counsel, Americas 

JAMES B. BLANEY 

Senior Counsel, Americas 

British Airways Plc 

75-20 Astoria Boulevard 

Jackson Heights, NY 11370 

(347) 418-4250 

paul.jasinski@ba.com 

DARYL A. LIBOW 

Sullivan & Cromwell LLP 

1701 Pennsylvania Ave., N.W. 

Washington, DC 20006 

(202) 956-7500 

libowd@sullcrom.com 

DON H. HAINBACH 

Garofalo Goerlich Hainbach PC 

1200 New Hampshire Ave., N.W. 

Washington, DC 20036 

(202) 776-3970 

dhainbach@ggh-airlaw.com 

ELVIRA HERRERO 

Senior Vice President - 

 Int’l Relations & Alliances 

Iberia Líneas Aéreas de 

 España, S.A. 

Velazquez, 130 

28006 Madrid, Spain 

WILLIAM KARAS 

CAROL GOASAIN 

Steptoe & Johnson LLP 

1330 Connecticut Avenue, N.W. 

Washington, DC 20036 

(202) 429-6223 

wkaras@steptoe.com 

For Finnair: 

SAMI SARELIUS 

Vice President & 

 General Counsel 

Finnair oyj 

Tietotie 11 A 

FI-01053, Finland 

+358 (9) 818-4070 

sami.sarelius@finnair.fi 

For Royal Jordanian: 

MICHAEL J. HOLLAND 

Condon & Forsyth LLP 

7 Times Square 

New York, NY 10036 

(212) 490-9100 

mholland@condonlaw.com 

March 30, 2010 
BEFORE THE 

DEPARTMENT OF TRANSPORTATION 

WASHINGTON, D.C.

-------------------------------------------- 

Joint Application of: : 

 : 

 AMERICAN AIRLINES, INC. : 

 BRITISH AIRWAYS PLC : 

 FINNAIR OYJ : 

 IBERIA LÍNEAS AÉREAS DE ESPAÑA, S.A. : DOT-OST-2008-0252 

 ROYAL JORDANIAN AIRLINES : 

 : 

under 49 U.S.C. §§ 41308 and 41309 for : 

approval of and antitrust immunity for : 

alliance agreements : 

-------------------------------------------- 

JOINT APPLICANTS’ COMMENTS ON SHOW CAUSE ORDER 2010-2-8

 The Joint Applicants applaud the Department for issuing show 

cause Order 2010-2-8, which tentatively grants approval for blanket 

codesharing authority and antitrust immunity for alliance agreements, 

including a Joint Business Agreement, among oneworld’s core 

transatlantic members. Once made final, this decision will allow the 

three major global alliances to compete on equal regulatory footing, 

and deliver consumers the maximum benefits of the U.S.-EU Open Skies 

Agreement. While we do not agree with every aspect of the 

Department’s tentative findings in Order 2010-2-8, we strongly support 

the issuance of a final order as quickly as possible after the comment 

period closes in order to allow oneworld members American, British 

Airways and Iberia to begin implementation of their fully integrated 

metal neutral JBA. 

 

 
- 2 - 

As explained below, the parties believe that Order 2010-2-8 is 

based on an overly narrow definition of the relevant market, which 

when coupled with the lack of recognition that a vibrant secondary 

market for Heathrow slots exists, leads the Department to the 

erroneous conclusion that Heathrow slots need to be divested. Given 

the unprecedented level of new entry at Heathrow since the advent of 

U.S.-EU Open Skies, the availability of Heathrow slots for new 

entrants, and the fact that Heathrow is Europe’s most competitive hub, 

the record simply does not justify imposing remedies. 

The proposed alliance has also been subject to detailed review by 

the European Commission under European competition law. While the 

Joint Applicants do not agree with the Commission’s competitive 

analysis for the same reasons described above, American, British 

Airways and Iberia have offered formal commitments to the Commission 

in order to meet competition concerns and allow the Commission to 

conclude that there are no grounds for enforcement action. These 

commitments are now being formally market tested, and the Joint 

Applicants anticipate their being made final in the near future. The 

Joint Applicants request that the Department make one minor but 

important modification (discussed below) to its tentative decision in 

order to ensure that the two remedy packages are consistent. 

Finally, the Joint Applicants have made important changes to the 

governance provisions of the JBA that comply with Appendix B to the 

Show Cause Order. Given these changes, the Joint Applicants ask that 

the Department move promptly and issue a Final Order approving the 

proposed alliance and granting antitrust immunity. 
- 3 - 

► RELEVANT MARKETS IN PASSENGER AIR TRANSPORTATION 

 The Joint Applicants disagree that the only relevant market in an 

alliance case is the narrow airport-pair definition urged by the 

Department of Justice and Virgin Atlantic and largely adopted in Order 

2010-2-8, rather than viewing city-pairs as a network aggregate. 

Consumers are increasingly buying networks – not individual flights 

between a city-pair – making alliances and network competition 

increasingly important. Even at the city-pair level, the Joint 

Applicants also take issue with the Department’s conclusion that 

Heathrow and Gatwick are in separate markets. The Department argues 

that “[b]usiness passengers exhibit a strong preference for using 

Heathrow” (p. 19), but the relevant question is substitutability, not 

mere preference. There is no evidence that consumers would not view 

Gatwick as a substitute in the event of a price increase at Heathrow, 

and fare data demonstrates the lack of any Heathrow premium. 

The Department concludes that because more U.S.-UK passengers fly 

to London through Heathrow than fly through Gatwick, the airports are 

in separate relevant markets (pp. 18-19). Yet this is largely because 

of alliance – not consumer – preference. Carriers such as American 

and United choose Heathrow to create connections with their UK 

alliance partners. Nor does the shift of service by Continental, 

Delta, Northwest and US Airways from Gatwick to Heathrow after U.S.-EU 

Open Skies took effect in 2008 indicate the existence of separate 

relevant markets (although it does prove ease of entry in an Open 

Skies environment). The Joint Applicants believe the relevant market 

as tentatively established by Order 2010-2-8 is unduly narrow. 
- 4 - 

► INTRA-ALLIANCE TRANSFERS AND SECONDARY TRADING MAKE SLOT REMEDIES 

UNNECESSARY 

The Department acknowledges that “there is some scope for 

Heathrow incumbents and members of global alliances to introduce 

transatlantic services from existing holdings” (p. 24).1

 Likewise, “it 

is possible to acquire slots on the secondary market” (Id.). 

Nonetheless, the Department concludes that “infrastructure constraints 

at Heathrow could exacerbate the potential competitive harm” because 

“oneworld would hold 47.2% of Heathrow slots” (p. 25).2

 But this is 

the smallest percentage of slots held by the largest carrier or by the 

other alliances at any major hub in Europe. Paris (CDG), Frankfurt 

and Amsterdam are all fully slot coordinated and have limited slot 

availability during peak transatlantic windows, and Star/SkyTeam have 

a far higher percentage of slots at those airports than oneworld has 

at Heathrow.3

 Yet the Department found no need to order slot 

divestitures in the recent Star (DOT-OST-2008-0234) and SkyTeam (DOTOST-2007-28644) antitrust immunity dockets even though those airports 

lack vibrant secondary trading like Heathrow. 

                                                           

1

 In 2007, when arguing for the proposed merger of the SkyTeam and 

Wings alliances, Delta and its partners made note of “[a]dditional 

access to Heathrow Airport beyond the access available under the 

separate Delta/Air France and Northwest/KLM 2-way Joint Ventures (by 

linking Northwest with Air France and Delta with KLM), producing even 

more competition against Star and oneworld . . . . These significant 

public benefits are not illusory . . . but are very real” (SkyTeam 

Joint Reply, DOT-OST-2007-28644, 11/27/07, p. 9). 

2

 The Department claims that oneworld would hold a “large share of 

slots usable for transatlantic service” (p. 24), but in reality the 

Joint Applicants hold less than half of even that sub-category. 

3

 Star controls 80% of FRA peak hour slots, while SkyTeam controls 65% 

and 78% of CDG and AMS peak hour slots respectively. 
- 5 - 

 Despite its treatment of Star and SkyTeam, the Department seeks 

divestiture of four slot-pairs from the Joint Applicants in this 

proceeding: two for Boston-London and two “flex” slot-pairs that could 

be used on any route. We find the latter remedy to be particularly 

objectionable, because it does not address the purported competitive 

harm on the city-pair, but would instead effectuate a value transfer 

from oneworld to its competitors.4

 The Department claims that: 

“Under this proposal, prospective new entrants 

would not be forced to compete where oneworld is 

strongest, such as in the Dallas/Ft. Worth-London 

market. Rather, they would be able to serve 

routes in which they have a greater chance of 

success and a greater opportunity to exert 

competitive discipline on the oneworld network” 

(p. 26). 

The Joint Applicants do not see how Star, SkyTeam or Virgin need 

any help competing against the oneworld network to London from cities 

like Atlanta or New York. Star – with United and bmi – has an 

immunized hub operation in London and ample access to Heathrow slots. 

SkyTeam, anchored by the world’s two largest carriers, promised new 

entry in London as a public benefit of their 2007 application for 

expanded antitrust immunity (SkyTeam Joint Reply, DOT-OST-2007-28644, 

11/27/07, p. 9) and should be expected to do so – without the need for 

slots from a competitor – once the economy recovers. Virgin serves 

Heathrow from eight North American gateways, and leases out to shorthaul carriers Heathrow slots it has used for transatlantic service in 

the past, proving that Virgin has no need for a slot remedy. 

                                                           

4

 While the Department has allowed the Joint Applicants to lease slots, 

the amount of compensation available is “limited” (p. 27). Thus the 

remedy still needlessly transfers value to competing airlines that are 

larger and/or more profitable. 
- 6 - 

In short, there is no basis for a slot divestiture remedy in this 

proceeding, and the Department should reach that conclusion consistent 

with what it found in the recent Star and SkyTeam antitrust immunity 

dockets. 

► ANY SLOT REMEDIES SHOULD BE DRAFTED TO ACHIEVE CONSISTENCY WITH 

THE EUROPEAN COMMISSION’S REMEDIES 

 If the Final Order includes slot remedies, the Department should 

work with the European Commission to ensure that the remedies are 

consistent and do not provide for double-penalizing the parties. The 

Department has long advocated a closer working relationship with the 

European Union on aviation issues with an eye towards convergence – 

thus avoiding inappropriately cumulative or inconsistent remedies. 

The Joint Applicants support these efforts and were the first to 

simultaneously seek antitrust immunity from the Department and Article 

9 clearance from the European Commission. As a result, this case 

presents a unique opportunity to show that the Department can work 

effectively with its counterparts in Europe on aviation policies. 

The European Commission is in the process of formally market 

testing a set of commitments for the JBA. These commitments include a 

requirement for long-term leases of four Heathrow slot-pairs for three 

routes: Boston (two pairs), Dallas/Fort Worth (one pair) and Miami 

(one pair). Consistent with its precedents, the European Commission 

(which has adopted a definition of the relevant market similar to that 

contained in Order 2010-2-8) will require that the slot leases be used 

for nonstop service between the relevant city-pairs. Thus, with 

regard to Boston-Heathrow, the slot remedies in the Show Cause Order 

and EU commitments package are consistent. 
- 7 - 

However, for Dallas/Fort Worth and Miami, the European 

Commission’s proposed remedies differ from Order 2010-2-8. While the 

Commission has encouraged the parties to table commitments that will 

facilitate new nonstop service on the impacted routes, Order 2010-2-8 

allows two slot-pairs to be used on any route. The European 

Commission shares the Department’s concern that it is possible that no 

carrier will elect to enter these routes with nonstop service, in 

which case the proposed commitments provide that the slots may be used 

for other city-pairs beginning in the Summer 2013 slot season. The 

Joint Applicants urge the Department to modify its tentative decision 

by moving the date for leasing the “flex” slot-pairs to Summer 2013, 

and only if new entry had not occurred at Dallas/Fort Worth and/or 

Miami. Not only will this convergence eliminate the inconsistency 

between the two remedy packages, it will give consumers the best 

chance of seeing new entry on the DFW and MIA routes, while 

harmonizing the two slightly different approaches to a slot remedy. 

► THE GOVERNANCE PROVISIONS OF THE JBA PROMOTE EFFICIENCY 

The Department raises concerns about the JBA’s governance 

provisions in Order 2010-2-8. Specifically, the Department states 

that “[c]ertain of the JBA’s terms described by Virgin Atlantic, for 

which they have sought confidential treatment, contain competitive 

restraints that divide the control over key functional areas on behalf 

of the alliance” (p. 33). The Department also claims that “[t]he 

terms permit a partner to act in its own economic interest, even if it 

means preventing the others from bringing new products and services to 

the market if there is a demand” (Id.). 
- 8 - 

The Department’s concerns should not apply in the context of a 

joint venture where all the three parties share in the revenue from 

their combined transatlantic network. Given this revenue sharing, 

each of the three parties will have fully aligned individual economic 

incentives. Thus it should not matter which party ultimately makes 

decisions about pricing, capacity, or any other function, as the 

competitive decisions would be identical no matter which carrier takes 

the lead. In the case of the JBA, the lead carrier is the one with 

the most historical expertise in the marketplace – British Airways in 

the UK and London, Iberia in Spain, and American throughout the rest 

of Europe. 

However, rather than contest this issue, the Joint Applicants 

have complied with the terms of Confidential Appendix B by amending 

the JBA to provide that all decisions – including those regarding 

pricing and capacity – will be made by consensus. In addition, there 

are certain situations where a party can make the unilateral decision 

to add capacity. These changes fully comply with the requirements set 

forth in Appendix B, and the Joint Applicants are separately 

submitting the executed JBA amendment to the Department subject to 

confidential treatment under 14 C.F.R. § 302.12. 

* * * 

 
- 9 - 

Accordingly, American, British Airways, Iberia, Finnair and Royal 

Jordanian urge that the Department swiftly grant final approval to the 

Joint Application and the JBA. 

Respectfully submitted, 

 

CARL B. NELSON, JR. PAUL C. JASINSKI 

Associate General Counsel General Counsel, Americas 

R. BRUCE WARK JAMES B. BLANEY 

Associate General Counsel Senior Counsel, Americas 

JEFFREY A. OGAR British Airways plc 

Senior Attorney 

American Airlines, Inc. DARYL A. LIBOW 

 Sullivan & Cromwell LLP 

ROGER W. FONES DON H. HAINBACH 

Morrison & Foerster LLP Garafalo Goerlich Hainbach PC 

ANDREW B. STEINBERG Attorneys for British Airways 

Jones Day 

Attorneys for American Airlines 

 

WILLIAM KARAS SAMI SARELIUS 

CAROL GOSAIN Vice President & General Counsel 

Steptoe & Johnson LLP Finnair Oyj 

Attorneys for Iberia 

 

 

MICHAEL J. HOLLAND 

Condon & Forsyth LLP 

Attorneys for Royal Jordanian 

March 30, 2010 
CERTIFICATE OF SERVICE

 

 I hereby certify that I have this day served the foregoing 

document by e-mail on the following persons: 

 

sascha.vanderbellen@delta.com jhill@dlalaw.com 

scott.mcclain@delta.com bill@mietuslaw.com 

sametta.c.barnett@delta.com mgoldman@sgbdc.com 

kquinn@pillsburywinthrop.com rsilverberg@sgbdc.com 

bkeiner@crowell.com dhainbach@ggh-airlaw.com 

mrosia@crowell.com mcmillin@woa.com 

bruce.rabinovitz@wilmerhale.com eskraft@jamhoff.com 

jeffrey.manley@united.com dpdean@jamhoff.com 

bob.kneisley@wnco.com dkirstein@yklaw.com 

robert.land@jetblue.com jyoung@yklaw.com 

msinick@ssd.com donna.kooperstein@usdoj.gov 

cdonley@ssd.com dwight.moore@ustranscom.mil 

gbleopard@fedex.com jim.ballough@faa.gov 

dvaughan@kelleydrye.com byerlyjr@state.gov 

kevin.montgomery@polaraircargo.com recohn@hhlaw.com 

jrichardson@johnlrichardson.com cjsimpson@zsrlaw.com 

lhalloway@crowell.com pmurphy@lopmurphy.com 

efaberman@wileyrein.com lachter@starpower.net 

mroller@rollerbauer.com anita.mosner@hklaw.com 

howard.kass@usairways.com rpommer@atlasair.com 

benjamin.slocum@usairways.com gmurphy@crowell.com 

sophy.chen@hklaw.com russell.bailey@alpa.org 

david.heffernan@wilmerhale.com 

 

 ______________________________ 

 JEFFREY A. OGAR 

March 30, 2010