Order 2010-2-8 

Served: February 13, 2010 

UNITED STATES OF AMERICA 

DEPARTMENT OF TRANSPORTATION 

OFFICE OF THE SECRETARY 

WASHINGTON, D.C. 

 

 

Issued by the Department of Transportation 

on the 13th Day of February, 2010 

Joint Application of: 

AMERICAN AIRLINES, INC. 

BRITISH AIRWAYS PLC 

FINNAIR OYJ 

IBERIA LÍNEAS AÉREAS DE ESPAÑA, S.A. 

ROYAL JORDANIAN AIRLINES 

Under 49 U.S.C. §§ 41308-41309 for approval of 

and antitrust immunity for alliance agreements

 

Docket DOT-OST-2008-0252 

Joint Application of: 

AMERICAN AIRLINES, INC.

 and

BRITISH AIRWAYS, PLC 

Under 14 C.F.R. Part 212 and 49 U.S.C. § 40109 

for amended statements of authorization 

Docket DOT-OST-2002-13861 

SHOW CAUSE ORDER 

I. SUMMARY

Pursuant to 49 U.S.C. §§ 41308 and 41309, the Department of Transportation is proposing to 

grant antitrust immunity to American Airlines, British Airways, Iberia, Finnair, and Royal 

Jordanian – together referred to as the “Joint Applicants” or “applicants” – to form a global 

alliance subject to conditions. As members of “oneworld,” the applicants already have basic 

marketing agreements in place to sell each other’s products and services. If approved in a final 

order, the applicants would utilize the antitrust immunity to more closely coordinate international 

operations and launch an integrated joint venture in transatlantic markets. While all five 
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applicants would engage in close coordination, only American Airlines, British Airways, and 

Iberia would participate in the joint venture initially. 

The application raises a question of whether the potential benefits of the applicants’ 

cooperation in a number of airline markets, including some large markets between the United 

States and the United Kingdom, outweigh the potential competitive harm that could result from 

the reduction of competition on select overlap routes, including some routes in which there is 

limited available capacity due to infrastructure constraints. Provided the applicants abide by 

certain conditions, we have tentatively concluded that the potential benefits outweigh the potential 

harm. 

Above all, if approved, the proposed alliance would enhance competition around the globe by 

creating a viable third immunized alliance that is comparable and more competitive with the 

product and service offerings of Star Alliance and SkyTeam, which have already received grants 

of antitrust immunity and are proceeding with their own alliance plans and integrated joint 

ventures. With its own immunized alliance and joint venture, oneworld could provide the 

traveling and shipping public with a wide range of valuable benefits, including: 

 Lower fares on more itineraries between city-pairs, 

 Accelerated introduction of new routes, 

 Additional flights on existing routes, 

 Improved schedules, 

 Reduced travel and connection times, and 

 Product and service enhancements that can provide full reciprocal access to their networks. 

 

The proposed alliance, if approved, would also allow the alliance partners to improve 

efficiency, reduce costs, and strengthen their networks to better meet the demands of global 

customers. In the circumstances of this case, these benefits for the airlines would be passed on to 

consumers and airline employees. The anticipated expansion of each partner’s network would 

increase the supply of air service, particularly in transatlantic markets, which would exert 

downward pressure on fares so that consumers would continue to have affordable air travel 

options. 

We tentatively find that one immediate and tangible consumer benefit will be transatlantic 

code-sharing and fully reciprocal frequent-flyer programs for oneworld customers. Transatlantic 

code-sharing and full frequent-flyer cooperation allow customers of one airline to earn and redeem 

miles on the flights of another airline. Due to unique commercial issues affecting oneworld 

airlines, the oneworld alliance has been unable to provide consumers with these benefits absent an 

integrated joint venture that operates with a grant of immunity. 

While the proposed alliance could, if approved, offer a wide range of benefits by creating a 

viable third immunized alliance, it could also potentially cause competitive harm in select markets. 

The potential harm is largely limited to flights between the U.S. and London’s Heathrow 

International Airport (“Heathrow”), which serves as a primary hub for oneworld. Due to limited 

runway capacity at Heathrow, takeoff and landing rights – otherwise known as “slots” – are 

scarce. As a result, new competitive entry is difficult. Since the proposed alliance would allow 
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oneworld to control almost half of Heathrow’s available slots, making new entry even more 

difficult, we tentatively find that it is necessary to take precautions to ensure adequate competition 

in the U.S.-Heathrow market. 

Thus, to protect consumers against potential harm, but to still enable the benefits of the 

alliance, we propose that the applicants make four slot pairs available to competitors for new U.S.-

Heathrow services. This slot remedy would offset the potential loss in competition that results 

from combining the international operations of American and British Airways, which currently 

compete in U.S.-Heathrow markets, and it would give competitors the opportunity to introduce 

new services and improve their access to Heathrow. We are also proposing other conditions that 

serve the public interest and enhance the competitive benefits of the transaction. For example, we 

are proposing that the applicants change certain terms of their joint venture agreement. The 

changes would remove competitive constraints and ensure that the applicants deliver the promised 

public benefits. Additionally, we are proposing standard conditions, such as the obligation to 

submit traffic data and the requirement that the applicants implement the proposed alliance within 

18 months for the antitrust immunity to remain effective. 

In the tentative decision below, we analyze the competitive issues in detail and take action on 

two specific requests made by the applicants: (1) a request for blanket code-sharing authority and 

(2) a request for approval of, and a grant of antitrust immunity for, a series of commercial alliance 

agreements. To support our proposed decision to grant both requests, we make a number of 

tentative findings and conclusions. We direct parties to “show cause” why we should not adopt 

those findings and conclusions in a final order. Parties have 45 days in which to file answers and 

15 days in which to submit replies. 

II. BACKGROUND

A. History 

The Joint Applicants are requesting authority from the Department, including a grant of 

immunity from the antitrust laws, to operate an enhanced commercial airline alliance.1 Under our 

established policy, the existence of an “open-skies” framework is a necessary predicate to our 

consideration of requests for antitrust immunity.2 Open-skies international aviation agreements 

encourage more competitive airline service because market forces, not restrictive agreements, 

discipline the price, frequency, capacity levels, and quality of airline service. We are willing to 

consider the instant request because the United States has an “open-skies” relationship with all of 

the homelands of the foreign-carrier applicants in this proceeding – namely, the United Kingdom, 

Spain, Finland, and Jordan.3 We note, in particular, the existence of the “open-skies-plus” 

 

1 Joint Application (Aug. 14, 2008). 

2 See, e.g., Star, Docket DOT-OST-2008-0234, Order 2009-4-5 at 2 (April 7, 2009). 

3 U. S.-EU Air Transport Agreement, signed April 30, 2007 (establishing an open-skies framework between the 

United States and the United Kingdom, Spain, and Finland, among other markets); Air Transport Agreement between 

the Government of the United States of America and the Government of the Hashemite Kingdom of Jordan, signed 

Nov. 10, 1996 (establishing an open-skies framework between the United States and Jordan). 
4

agreement governing air services between the United States and Europe, which has been 

provisionally applied since March 2008 (“the U.S.-EU Agreement). 

This is the third case involving American and British Airways. The two founding members of 

the oneworld alliance have twice before sought a grant of antitrust immunity. The first case, 

beginning in 1997, ended when the Department terminated the proceeding after it became apparent 

that the United States and the United Kingdom were not reaching an open-skies agreement.4 The 

second case, beginning in 2001, ended when the applicants withdrew their request because they 

would not accept the principal remedies proposed by the Department – the transfer of sufficient 

takeoff/landing rights (“slots”) at London’s Heathrow International Airport (“Heathrow”), 

proposed to facilitate substantial new entry into the U.S.-London market.5 In that case, the 

Department assumed that the United States and the United Kingdom would reach an open-skies 

agreement that would have allowed all of the proposed new services to be introduced. When the 

applicants voluntarily withdrew their request, however, new entry in the U.S.-Heathrow market 

did not occur, and several years passed before liberalization was achieved in the context of the 

broader U.S.-EU Agreement. 

To forge a deeper partnership and compete with SkyTeam and Star Alliance, the oneworld 

applicants have searched for ways to mitigate risks and balance the benefits of cooperation. This 

case reflects their decision to form a “metal-neutral” joint venture,6 premised upon revenue 

sharing, to accomplish that goal. By sharing overall revenues and agreeing to sell each other’s 

products and services without regard to which airline is operating the aircraft and collecting the 

revenue, the applicants argue that the alliance as a whole can focus on developing the Joint 

Business and providing the customer with the best available products and services, while ensuring 

that no member of the alliance is put at a disadvantage. 

B. Summary of the Record 

On August 14, 2008, the oneworld carriers filed two related applications: one for code-share 

authority in Docket DOT-OST-2002-13861 and another for antitrust immunity in Docket DOTOST-2008-0252. In addition, the applicants filed a wide range of supporting materials, including 

documents, traffic data, pleadings, and copies of the written agreements between the airlines 

governing the proposed alliance (the agreements are referred to as the “Alliance Agreements”).7

 

4 See American/ British Airways I, Docket DOT-OST-97-2058, Order 99-7-2 (July 30, 1999). 

5 See American/ British Airways II, Docket DOT-OST-2001-10387, Order 2002-1-12 (Jan. 25, 2002) (granting 

tentative approval to the alliance subject to the condition that the alliance surrender 16 daily slot pairs – or 224 weekly 

slots – among other conditions), Joint Motion to Dismiss (Feb. 13, 2002) (moving for dismissal because the prospect 

of reaching open skies and agreeing upon remedies was remote), Order 2002-4-4 (April 4, 2002) (dismissing the 

application of American and British Airways, among other things). 

6 Metal neutrality is an industry term meaning that the partners in an alliance are indifferent as to which operates the 

“metal” (aircraft) when they jointly market services. Without a metal-neutral sales environment, the partners have a 

strong economic incentive to book passengers on their own aircraft in order to retain a larger share of the revenue for 

themselves, which may not be in the best interest of the consumer or the alliance as a whole. Metal neutrality may be 

achieved through revenue and/or comprehensive benefit sharing arrangements. 

7 See Joint Application at 2-3 (Aug. 14, 2008) (enumerating the Alliance Agreements for which the applicants have 

sought immunity); Joint Application at 5, 10-15, 22 (describing the terms of the Alliance Agreements); Joint 
5

Subsequently, we granted a request to consolidate the related dockets and issued a request for 

additional information to ensure a complete record.8 Once the additional information was 

supplied, we provided an initial comment period ending in May 2009 for interested parties to 

submit their views on the application.9 We also provided a supplemental comment period, ending 

on January 11, 2010, to allow interested parties the opportunity to address issues raised in late 

filings.10

1. Joint Applicants’ Filings 

The Alliance Agreements submitted by the applicants would create an integrated alliance in 

the areas of planning, marketing, and operations. All five airlines plan to engage in broad code 

sharing, coordinate customer service and ground operations, link their frequent-flyer plans, 

coordinate sales and corporate contracts, and jointly price and manage capacity on certain routes. 

Three of the airlines – American, British Airways, and Iberia – will enter into a comprehensive 

joint venture agreement, known as the “Joint Business Agreement (“JBA” or “joint venture”).11 

Under the JBA, the participating carriers will jointly plan and manage all of their capacity and 

services over the North Atlantic, closely coordinating core business operations and sharing 

revenues. The arrangement is designed to achieve metal neutrality so that “each carrier acts for 

the benefit of – and is compensated for its contribution to – the alliance as a whole.”12 The 

addition of Iberia to the alliance will, the applicants emphasize, help create a viable third alliance 

that can improve connections not just over Heathrow, but also over Iberia’s much less congested 

hub in Madrid.13

The applicants make a number of arguments in support of approval of the proposed alliance: 

(1) the proposed alliance meets the Department’s standards for a grant of antitrust immunity 

because it is an integrated alliance with a metal-neutral joint venture at its core; (2) the proposed 

alliance enables numerous efficiencies and valuable consumer benefits by reducing double 

marginalization;14 (3) the proposed alliance enhances inter-alliance competition and delivers 

 Application at Exhibit JA-1 (the Alliance Agreements); Joint Application at JA-4 (describing the relationship of the 

Alliance Agreements). 

8 Order 2008-11-7 (Nov. 12, 2008); Order 2008-12-11 (Dec. 19, 2008). 

9 Joint Applicants’ Consolidated Response to Order 2008-12-11 (March 13, 2009); Order 2009-4-15 (April 27, 2009); 

Order 2009-5-1 (May 1, 2009). 

10 Order 2009-12-16 (Dec. 22, 2009). 

11 See Joint Application at 2-3, 14-15 (Aug. 14, 2008). 

12 Joint Application at 2-3, 11, 14-15 (Aug. 14, 2008). 

13 Joint Application at 22-23, 29 (Aug. 14, 2008). 

14 Double marginalization, also called multiple mark-ups, occurs when two airlines have basic interline or code share 

arrangements to handle multiple segments but are unwilling to cooperatively price the combined itinerary for the 

consumer. Thus, for example, Airline A is not willing to accept a cooperative price for the segment it operates 

because it risks losing revenue to Airline B, which might operate the longer, more profitable segment in the itinerary. 

The consumer is ultimately not offered the most competitive fare or optimal routing. However, in a “metal-neutral” 

sales environment, with revenue- or benefit-sharing, the airlines can balance risks and benefits for the benefit of the 

consumer and alliance as a whole. The airlines are willing to cooperatively price itineraries and make seats available 
6

genuine new benefits for consumers such as more expansive code sharing, frequent-flyer 

reciprocity, more competitive fares, and new routes; and (4) the proposed alliance operates in a 

pro-competitive environment because, due to the open regulatory framework provided by the 

U.S.-EU Agreement, competition will discipline any alliance that might otherwise seek to exercise 

market power. In addition, the applicants argue that the proposed alliance will not substantially 

reduce competition in any market, even though there are several markets in which the applicants’ 

services overlap for nonstop services. In particular, they assert that other airlines and alliances 

now have full access to Heathrow. The Joint Applicants also state that they will not go forward 

with the alliance without antitrust immunity.15

Additionally, American (and its affiliates American Eagle Airlines, Inc. and Executive 

Airlines, Inc. d/b/a American Eagle) and British Airways (and its affiliate BA European Ltd t/a 

OpenSkies Airlines)16 are seeking to amend their existing authority to engage in reciprocal code 

sharing. They argue that this request is consistent with the U.S.-EU Agreement and the public 

interest. American and British Airways expect the expanded code sharing to provide a more 

efficient use of capacity in the marketplace and to help maximize the range of service options 

available to the traveling and shipping public.17

2. BAA/ACL Filings 

The Department sent requests for information to BAA Airports Limited (“BAA”), which owns 

and operates Heathrow, and Airport Coordination Limited (“ACL”), which coordinates operations 

and allocates slots there. The questions and the answers provided by BAA and ACL were 

submitted for the public record.18 

BAA and ACL state that slots are scarce at Heathrow. Slots are allocated in accordance with 

EU slot regulations and IATA World Scheduling Guidelines, which allow incumbents to maintain 

their historical operations with grandfathering rights, subject to use-or-lose-it rules. The 

remaining slots, called “pool slots,” are composed of new capacity, slots released or forfeited to 

the slot coordinator, or other unallocated capacity. New entrants are entitled to priority in the 

allocation of 50% of the pool slots. BAA/ACL explain that there are very few pool slots, and that 

no pool slots have been available for allocation to new transatlantic services. 

BAA/ACL also explain that there is a secondary market for Heathrow slots. While the market 

suffers from lack of liquidity, some slots have changed hands since 2008. According to 

BAA/ACL, slots for competitor services may be found from incumbent carriers, from alliance 

partners, or from the secondary slot market generally. BAA/ACL state that they do not have data 

 because they share the same economic incentive to make the sale and share the revenues. See generally Whalen, 

W.T. A Panel Data Analysis of Code Sharing, Antitrust Immunity, and Open Skies Treaties in International Aviation 

Markets, Review of Industrial Organization, 30: 39-61 (2007). 

15 See Joint Application (Aug. 14, 2008); Joint Applicants’ Consolidated Reply (May 28, 2009). 

16 See OpenSkies Airlines Code Share Matter, Docket DOT-OST-2008-0064, Order 2008-5-19 (May 15, 2008) 

(authorizing OpenSkies Airlines to display British Airways’ code on flights operated by OpenSkies Airlines to and 

from the United States). 

17 Joint Application to Authorize Blanket Open-Skies Code Sharing at 3 (Aug. 14, 2008). 

18 ACL/BAA Response (Jan. 28, 2009) (located at docket entries -3068 and -3069). 
7

on compensation paid for slots, but it is probable that prices have fallen from the high levels paid 

during 2008. BAA/ACL notes that slot allocation is based upon runway, terminal, and aircraft 

parking constraints. Although Heathrow has terminal and aircraft parking capacity shortfalls, the 

shortfalls have not prevented the completion of a secondary slot trade. 

3. Responsive Pleadings 

Numerous parties submitted comments on the proposed alliance. Some comments were filed 

initially in response to the application and others were filed as supplemental comments. No party 

has filed objections to the application of American and British Airways for expanded code-share 

authority.19 

a. Initial Comments 

 

Parties representing airports and coalitions of airports and cities support the alliance. Those 

parties include the Dallas-Fort Worth International Airport20 and the City of St. Louis.21 The 

parties believe that the proposed alliance is essential for oneworld to remain competitive, and that 

a stronger alliance will mean more services, and a stronger economy, in their cities. 

Virgin Atlantic opposes the proposed alliance.22 Virgin’s major arguments are (1) 

circumstances have not changed significantly since the last American/ British Airways case, in 

which DOT identified significant competitive issues; (2) the proposed alliance is a grave threat to 

competition in several transatlantic markets in which the applicants’ services overlap; (3) 

competitors to the alliance cannot respond due to severe infrastructure constraints at Heathrow 

airport, which is the preferred airport for travel to London; (4) the alliance members dominate 

corporate contracts; (5) the proposed alliance will not produce any consumer benefits; and (6) the 

competitive harm cannot be remedied. 

The Allied Pilots Association (“APA”), which represents American’s pilots, opposes the joint 

venture.23 The APA believes that the provisions of the joint venture concerning revenue sharing 

and capacity management will reduce opportunities for American’s pilots and result in lost jobs. 

Two trade associations representing travel agents do not take a position on the proposed 

alliance, but they express reservations about a grant of immunity.24 Specifically, the Interactive 

Travel Services Association and the American Society of Travel Agents (“ITSA/ASTA”) are 

concerned that the proposed alliance could harm travel agents and reduce price transparency for 

 

19 We note that Spirit raised concerns regarding the grant of antitrust immunity to code-share flights involving 

restricted entry markets in South America. See Answer of Spirit (May 18, 2009). We have addressed Spirit’s 

concerns below in Section IV(C)(2) of this order. 

20 Answer of DFW (May 18, 2009). 

21 Answer of the City of St. Louis (May 18, 2009). 

22 Answer of Virgin Atlantic (May 18, 2009). 

23 Answer of APA (May 18, 2009). 

24 Answer of ITSA/ASTA (May 18, 2009). 
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consumers. Thus, ITSA/ASTA ask DOT to prevent the applicants from using a grant of immunity 

to negotiate jointly with travel agents. 

Spirit Airlines does not take a position on the proposed alliance, but it does express concern 

about certain code-share operations to restricted markets in South America.25 Spirit believes that 

American should not be permitted to code share with British Airways, and thereby leverage a 

dominant position, on restricted routes to Bolivia, Colombia, and Venezuela. 

In response to the above parties, the Joint Applicants reiterate their position that approving the 

proposed alliance will place the three major global alliances on an equal footing and ensure 

adequate competition.26 Disapproval of the proposed alliance, the Joint Applicants argue, would 

place oneworld’s future in jeopardy as the gap between oneworld and the other two global 

alliances would continue to widen. The applicants assert that Virgin Atlantic hopes to impede 

oneworld for its own competitive advantage. The applicants point to perceived flaws in Virgin 

Atlantic’s arguments, including a failure to acknowledge changes in the competitive landscape 

since the 1990s and manipulation of market data to distort actual competitive effects. The 

applicants argue that APA’s assertions about potential job losses are based on erroneous 

arguments; the proposed alliance will actually carry more behind/beyond traffic, according to the 

applicants, which will require more flights and thus more jobs. With regard to ITSA/ASTA’s 

answer, the applicants contend that the Department has already dismissed the same specific 

concerns of travel agents in prior cases. The applicants argue that ITSA/ASTA’s antitrust 

arguments are unsupported and that its proposed carve-out remedy would disrupt the efficiencies 

of the joint venture. 

b. Supplemental Comments 

The Justice Department (“DOJ”) filed supplemental comments.27 DOJ argues that the 

proposed alliance will result in competitive harm on six transatlantic routes – Boston-London, 

Chicago-London, Dallas/Ft. Worth-London, Miami-London, Miami-Madrid, and New YorkLondon. Based upon an empirical model, DOJ suggests that fares on the six transatlantic routes 

could materially increase. According to DOJ, nonstop competition demonstrably affects nonstop 

pricing, regardless of the presence of connecting competition. 

Additionally, DOJ discounts the benefits that would flow from the alliance and concludes that 

the applicants have not shown that immunity is necessary to achieve whatever benefits there might 

be. Consequently, DOJ recommends that, “given the risk of significant competitive harm, any 

grant of immunity should be limited to protect competition. Three types of remedies could 

potentially provide that protection: (1) unencumbered slot divestitures, (2) earmarked slot 

divestitures, and (3) carve-outs from immunity.”28

 

25 Answer of Spirit (May 18, 2009). 

26 Joint Applicants’ Consolidated Reply (May 28, 2009). 

27 DOJ Comments (Dec. 21, 2009). 

28 DOJ Comments at 30 (Dec. 21, 2009). 
9

Virgin Atlantic agrees with DOJ that a grant of antitrust immunity could result in competitive 

harm, and that entry constraints at Heathrow would prohibit effective competitive discipline 

against oneworld’s alleged market power. However, while DOJ suggests that slot and carve-out 

remedies are necessary to approve the joint venture, Virgin argues that the competitive harm in 

this case cannot be remedied, and that DOT must simply deny the application. If DOT does 

choose to grant antitrust immunity, Virgin states that the Department must consider remedies 

above and beyond those suggested by DOJ.29 

Also acknowledging DOJ’s allegations of potential competitive harm, ITSA/ASTA filed 

supplemental comments. While they did not comment on DOJ’s recommendations for carve-outs 

and slot remedies, the two travel groups cited DOJ’s arguments to support their request that DOT 

prevent the applicants from jointly negotiating with independent travel agents. Furthermore, 

ITSA/ASTA claim that granting immunity would increase the applicants’ market power, resulting 

in increased transatlantic fares, and that immunity would not produce any benefits from reduced 

double marginalization.30

Mr. Hubert Horan filed supplemental comments.31 Mr. Horan states that the Department 

cannot accept a study submitted by the applicants concluding that the proposed alliance will result 

in $92 million in annual public benefits from cooperative pricing on connecting routes. Mr. Horan 

states that the entire basis of the applicants’ claim consists of one article plus statistical updates. 

Any evidence of price or capacity benefits are not due to cooperative pricing on connecting routes 

but rather improved supply/demand conditions and other changes in the marketplace. Mr. Horan 

concludes that the applicants have failed to provide sufficient evidence that the proposed alliance 

will lower prices. 

The Joint Applicants filed their own supplemental comments on September 8th and responded 

to other supplemental comments as well.32 In the September 8th pleading, the applicants address 

comments filed by DOJ in the recent Star Alliance case, arguing that DOJ’s empirical model, the 

same being used here, to predict price effects is fundamentally flawed because it fails to account 

for the increased capacity that alliances provide. Additionally, the applicants dismiss the need for 

carve-outs on particular routes, on the grounds that carve-outs would destroy the efficiencies of 

their integrated joint venture. 

In their subsequent pleadings, the applicants respond to DOJ’s filing in this case, as well as to 

other parties who filed. Overall, the applicants assert that DOJ has not met its burden of proof in 

showing that a grant of antitrust immunity would lead to consumer harm. Specifically, the 

applicants state that DOJ’s empirical model remains flawed, that DOJ does not consider the 

 

29 Supplemental Comments of Virgin Atlantic (Jan. 11, 2010). Virgin Atlantic also filed a late reply on January 20th, 

reiterating its assertions that there are barriers to entry at Heathrow and urging DOT not to consider achieving 

“regulatory parity” among all three alliances operating transatlantic services. We will accept the pleading. 

30 Supplemental Comments of ITSA/ASTA (Jan. 11, 2010).

31 Supplemental Comments of Hubert Horan (Jan. 10, 2010). Mr. Horan’s comments, originally filed on January 10, 

were not properly served on parties to the case. Mr. Horan re-submitted his comments on January 31, along with a 

motion for leave to file, and served parties We will grant the motion and accept the pleading. 

32 Joint Applicants’ Supplemental Comments (Sept. 8, 2009); Joint Applicants’ Reply to Answer of Virgin Atlantic 

(Sept. 28, 2009); Joint Applicants’ Answer to DOJ Comments (Jan. 11, 2010). 
10

competitive discipline that connecting service would provide in the markets of concern, and that 

entry into Heathrow is possible through the secondary market for slots. Furthermore, the 

applicants restate the benefits of the alliance, as well as the benefits of inter-alliance competition 

with an immunized oneworld alliance, and claim that DOJ has failed to refute these benefits. 

Attached to the comments are expert exhibits by Compass/Lexicon and the Brattle Group that 

outline the alleged methodological flaws in DOJ’s empirical model and argumentation. 

III. DECISIONAL STANDARDS

There are two requests pending in this consolidated docket: a request for amended authority to 

allow blanket code sharing and a request for a grant of antitrust immunity covering a series of 

alliance agreements. 

We evaluate the code-share request under 14 C.F.R. Part 212. Where airlines have underlying 

economic authority from the Department, we will issue a statement of authorization to allow code 

sharing if we find that it is in the public interest. In determining the public interest, we consider, 

among other things, the extent to which the authority sought is covered by and consistent with 

bilateral agreements to which the United States is a party, the extent to which a foreign applicant’s 

home country deals with U.S. air carriers on the basis of substantial reciprocity, and whether the 

applicants have previously violated our code-share rules.33 

We evaluate the antitrust immunity request under 49 U.S.C §§ 41308-41309. We engage in a 

two-step analysis of foreign air transportation agreements submitted for our approval. We must 

first determine under § 41309 whether the agreements are adverse to the public interest because 

they would substantially reduce or eliminate competition (the “competitive analysis”). If so, we 

must determine whether they are nonetheless necessary to meet a serious transportation need or to 

achieve important public benefits. If we make that finding, we will approve the agreements, 

provided that these public benefits cannot be met or achieved by reasonably available and 

materially less anticompetitive alternatives; U.S. foreign policy goals are a key element of these 

benefits.34 A party opposing approval has the burden of showing that the agreement or request 

would substantially reduce or eliminate competition and that less anticompetitive alternatives are 

available. On the other hand, the party seeking approval of the agreement or request must submit 

evidence establishing the transportation need or public benefits. 

If we approve the agreements under the analysis outlined above, we next decide whether to 

grant immunity under 49 U.S.C. § 41308. Under § 41308(b), Congress has given the Department 

the authority to exempt airlines from the antitrust laws to the extent necessary to allow a proposed 

transaction to proceed, provided that the exemption is required by the public interest. While the 

public interest determination under both sections 41309(b) and 41308(b) entails a comparison of 

anti-competitive effects and public benefits, the standard in section 41308(b) (“required by” rather 

 

33 14 C.F.R. § 212.11. 

34 We discuss the public benefits findings below. 
11

than “not adverse to”) is higher.35 We grant immunity if the public interest requires it and the 

parties to such an agreement would not otherwise go forward with the transaction.36

If we determine that the transaction would substantially reduce or eliminate competition, yet 

meets the test for approval under section 41309(b)(1), then we must exempt the parties to the 

transaction, pursuant to 49 U.S.C. § 41308(c). 

The intended commercial effects of the Alliance Agreements are similar to those resulting 

from a merger of airline operations. Thus, we apply the Clayton Act test, which is used to predict 

the competitive effects of a proposed merger.37 The Clayton Act test requires us to consider 

whether the Alliance Agreements are likely to substantially reduce competition and facilitate the 

exercise of market power – that is, to allow the Joint Applicants to profitably charge supracompetitive prices or reduce service or quality below competitive levels in any relevant market. 

To determine whether an alliance is likely to create or enhance market power, we primarily 

consider whether the alliance would significantly increase market concentration, whether the 

alliance causes potential competitive harm, and whether new entry into the market would be 

timely, likely, and sufficient either to deter or counteract the potential competitive harm. 

Where new entry would not otherwise be sufficient to address competitive harm, or where 

there are external factors such as infrastructure constraints in the marketplace that exacerbate the 

competitive harm remedies may be necessary and appropriate to address competitive problems 

caused by the alliance, provided they still allow the benefits of the alliance to be realized. 

 

35 See United/ Lufthansa, Docket DOT-OST-96-1116, Order 96-5-12 at 2 (May 9, 1996); Star, Docket DOT-OST2008-0234, Order 2009-4-5, at 18 (April 7, 2009), quoting Northwest/KLM, Docket 46371, Order 93-1-1 at 11 (Jan. 

11, 1993). See also SkyTeam I, Docket DOT-OST-2004-19214, Order 2005-12-12 at 32 (Dec. 22, 2005); Air Canada/ 

Austrian/ bmi/ LOT/ Lufthansa/ SAS/ Swiss/ TAP/ United, Docket DOT-OST-2005-22922, Order 2006-12-17 at 15 

(Dec. 18, 2006).

36 See SkyTeam II, Docket DOT-OST-2007-28644, Order 2008-4-17 at 17 (April 9, 2008); Air Canada/ Austrian/ 

bmi/ LOT/ Lufthansa/ SAS/ Swiss/ TAP/ United, Docket DOT-OST-2005-22922, Order 2006-12-17 at 8 (Dec. 18, 

2006). 

37 See Acquisition of Northwest/Wings Holdings, Inc., Docket 46731, Order 92-11-27 at 13; SkyTeam II, Docket 

DOT-OST-2007-28644, Order 2008-4-17 at 5 (April 9, 2008). 
12

IV. TENTATIVE DECISION

A. Tentative Approval of Code Sharing 

In this section, we consider the request by American and British Airways to expand their codesharing relationship. Their request for blanket authority is the last piece of authority that the 

applicants would need to implement blanket code sharing under the umbrella of oneworld. The 

Department has already approved code-shares between American and Royal Jordanian, American 

and Iberia, American and Finnair, and some code-shares between American and British Airways.38 

We tentatively find that approval of the requested authority, as conditioned, will enable 

American and British Airways to implement the expanded operational opportunities resulting from 

the U.S.-EU Agreement. Open-skies agreements with foreign countries give authorized carriers 

from either country the ability to serve any route between the two countries they wish (with open 

intermediate and beyond rights). We tentatively find that the expanded code-share authority that 

American and British Airways seek is encompassed by the U.S.-EU Agreement. We also 

tentatively find that it is in the public interest to expand the code-share authority, as it will result in 

new service opportunities for U.S. passengers and shippers. 

Therefore, we tentatively approve the requests of American and British Airways to renew their 

existing statements of authorization and to amend their authority to allow blanket open-skies code 

sharing, subject to the conditions set forth in Appendix A.39

B. Tentative Approval of the Alliance Agreements 

In this section, we consider whether to approve the Alliance Agreements under § 41309. Our 

analysis involves a detailed assessment of the competitive effects of the proposed alliance at the 

regional, country-pair, and city-pair level. We will also discuss, to the extent relevant to this 

transaction, the dynamics of competition between the global alliances and the potential need for 

remedies to address competitive concerns. Although we discuss some specific competitive 

benefits of the alliance in this section, a more complete evaluation of public benefits is found in 

the next section. 

Under the U.S.-EU Agreement, any U.S., U.K., or duly authorized EU airline may now enter 

the U.S.-Heathrow market, provided it can obtain slots. Some new entry has already occurred, as 

airlines have dealt with alliance partners or paid to acquire slots on the secondary market. 

Continental, Delta, Northwest (now a subsidiary of Delta), and US Airways – all of whom were 

excluded from Heathrow under the previous air services agreement – have commenced services. 

Meanwhile, the four “incumbents” at Heathrow –American, British Airways, United, and Virgin 

Atlantic - have responded by introducing several new services of their own. While some of the 

new Heathrow services were formerly operated from Gatwick, another London airport, others are 

 

38 See Order 2003-5-33 and Renewal Application filed March 23, 2005, in the instant docket. The authority remains 

in effect pursuant to the provisions of the Administrative Procedure Act, 5 U.S.C. § 558(c), as implemented by 14 

C.F.R Part 377, pending action on its timely-filed renewal application.

39 The carriers request that their amended statements of authorization remain in effect indefinitely. We are tentatively 

granting the request. 
13

genuinely new to the U.S.-London market because they involve an expansion of capacity in an 

existing city pair or a new gateway.40

Against the backdrop of a more liberalized marketplace, it is important to note that the 

applicants are planning broader and deeper cooperation than ever before. The proposed alliance 

features broad multilateral cooperation by five airlines on nonstop and connecting routes, which 

would allow oneworld to flow traffic over multiple hubs that are less congested than Heathrow 

and to compete more vigorously with Star Alliance and SkyTeam. 

1. Market Analysis 

a. Network Level

The proposed alliance involves large global airlines whose networks reach hundreds of points 

in the Americas, Europe, Africa, Asia, and the Middle East. However, the core focus of the 

alliance – integrating the services of American, British Airways, and Iberia under the JBA – will 

be traffic over the Atlantic Ocean. Accordingly, our analysis will focus on competitive effects in 

transatlantic markets between the United States and Europe. 

Table 1, below, provides a broad snapshot of airline competition in the U.S.-Europe market. 

As seen in the data, there are many competitors, both in the form of individual carriers and 

immunized alliances. In total, there are approximately 39 airlines operating scheduled service in 

the market.41 No single airline has a dominant share of nonstop passengers, indicating a generally 

competitive market. 

 

40 “New entrants” operate new U.S.-Heathrow services from Atlanta (Delta), Cleveland (Continental that has been 

canceled for future seasons), Detroit (Delta/Northwest), Houston (Continental), Minneapolis (Delta), New York-EWR 

(Continental), New York-JFK (Delta), Philadelphia (US Airways). Economic and competitive factors will continue to 

dictate whether services in the market are sustainable. For example, Air France canceled its daily flight from Los 

Angeles and Delta canceled its daily flight from Seattle. Additionally, incumbent carriers have adjusted capacity in 

markets that were already served before open skies from Gatwick and/or Heathrow, resulting in new U.S.-Heathrow 

services from Atlanta (British Airways), Boston (American), Dallas/Ft. Worth (American and British Airways), 

Denver (United), Houston (British Airways), Raleigh (American), and Seattle (British Airways). At the same time, of 

course, incumbents have also reduced U.S.-Heathrow services in certain markets, including Chicago (American), 

Detroit (British Airways canceled its only daily flight), Los Angeles (American), New York JFK (American, British 

Airways, and Virgin Atlantic), and Washington, DC (Virgin Atlantic). Source: OAG scheduling data for July 2007-

July 2009. Cf. Table 3, DOJ Comments at 20 (Dec. 21, 2009); Figure 2, Answer of Virgin Atlantic at 11 (May 18, 

2009). 

41 OAG scheduling data for April 2009. 
14

Table 1 

Onboard Share in the U.S.-EU Market42

Pre-transaction Passengers Share Post-transaction Passengers Share 

Austrian, bmi, Continental, 

LOT, Lufthansa, SAS, Swiss, 

TAP, United/ Air New Zealand43 

(Immunized) 

15,371,629 31.7% 

Austrian, bmi, Continental, 

LOT, Lufthansa, SAS, Swiss, TAP, 

United/ Air New Zealand 

(immunized) 

15,371,629 31.7% 

Air France, Alitalia, Delta/ 

Northwest, KLM, Czech 

 (Immunized) 

14,025,416 28.9% 

Air France, Alitalia, Delta/ 

Northwest, KLM, Czech 

(immunized) 

14,025,416 28.9% 

British Airways 5,521,729 11.4% American, British Airways, 

Iberia, Finnair (immunized) 10,793,182 22.3% 

American, Finnair 

 (Immunized) 4,401,137 9.1% Virgin Atlantic 3,447,329 7.1% 

Virgin Atlantic 3,447,329 7.1% Other Traffic 2,645,402 5.5% 

Other Traffic 2,645,402 5.5% US Airways 2,212,080 4.6% 

US Airways 2,212,080 4.6% 

 

 Total 48,495,038 100% 

Iberia 870,316 1.8% 

Total 48,495,038 100% 

Source: T-100 nonstop segment data (“T-100 traffic data”) for 12 months ended June 2009. 

The data suggest that the proposed alliance would enhance competition at the network level. 

The two leading competitors in the U.S.-Europe market, immunized Star Alliance (31.7%) and 

immunized SkyTeam (28.9%), retain their positions. In effect, the proposed alliance combines the 

third and fourth competitors to form a more competitive immunized oneworld alliance, with an 

initial share of 22.3% of the market. Oneworld becomes a strong third alliance competitor. This 

is also evident in the booking data submitted by the Joint Applicants. Those data show oneworld 

achieving a critical mass of traffic and becoming more competitive with SkyTeam and Star in 841 

transatlantic markets, affecting almost five million passengers.44

 

42 We define the U.S.-EU market to include scheduled airline operations for traffic between points in the United 

States and points in all 27 Member States of the European Union, plus Norway and Switzerland. In all tables, 

competitors are defined as having an independent airlines or groups of airlines operating with antitrust immunity. 

Competitors must have 1% market share to be listed. The term “market share” is shorthand for “nonstop segment 

passenger share” and should not be confused with the existence of a relevant antitrust market. The market shares of 

KLM, Lufthansa, and Swiss International Airlines include traffic carried by Privatair, which operates flights for all 

three airlines. 

43 United and Air New Zealand operate an immunized alliance, however Air New Zealand does not have authority to 

engage in immunized operations with any other airlines. See United/ Air New Zealand, DOT-OST-1999-6680, Order 

2001-4-2 (April 3, 2001). 

44 Marketing Information Data Tapes Data (“MIDT booking data”) for YE 2Q08. The MIDT booking data was 

submitted in raw format under seal in Exhibit JA-28 of the Joint Application (Aug. 14, 2008). While the Department 

has worked from the raw data for its tentative findings in this order, the majority of relevant data outputs have been 
15

b. Country-Pair Level 

The proposed alliance affects competition in three country-pair markets in which the services 

of the applicants overlap: U.S.-U.K., U.S.-Spain, and U.S.-France. Using T-100 traffic data, we 

evaluate competitive effects in each of these markets. 

Table 2 

Onboard Share in the U.S.-U.K. Market 

Pre-transaction Passengers Share Post-transaction Passengers Share 

British Airways 5,520,975 33.7% American, British Airways 

(immunized) 7,760,293 47.4% 

Virgin Atlantic 3,447,329 21.0% Virgin Atlantic 3,447,329 21.0% 

bmi, Continental, 

United/Air New Zealand 

(Immunized) 

3,055,001 18.6% 

bmi, Continental, 

United /Air New Zealand 

(immunized) 

3,055,001 18.6% 

American 2,239,318 13.7% Air France, Delta/ Northwest 

(Immunized) 1,407,576 8.6 % 

Air France, Delta/ Northwest 

(Immunized) 1,407,576 8.6 % US Airways 579,227 3.5% 

US Airways 579,227 3.5% Other Traffic 139,184 0.8% 

Other Traffic 139,184 0.8% 

 Total Total 16,388,610 100% 16,388,610 100% 

Source: T-100 traffic data for the 12 months ended June 2009. 

As shown in Table 2, above, the primary change in the U.S.-U.K. market is the consolidation 

of American and British Airways, which results in a 47.4% post-transaction market share for 

oneworld. The alliance would carry nearly half the passengers between the two countries. We 

believe that the competitive effect of an immunized oneworld alliance is compounded in this 

market by several logistical factors. 

First, the U.S.-U.K. market is large, accounting for more than one quarter of all traffic across 

the North Atlantic.45 Second, the local market is crucial to the profitability of the routes. 

Approximately one half of the passengers in the U.S.-U.K. market are local, whereas only about 

one third of the passengers in U.S.-Continental Europe markets are local.46 Third, there are few 

suitable hubs in between the United States and the United Kingdom. For passengers traveling 

to/from the east coast of the United States, connections at other domestic hubs are not optimal. 

 produced publicly in Exhibit JA-27 of the Joint Application. The Department’s analysis of the raw data resulted in 

nearly identical outputs as those shown in Exhibit JA-27. 

45 According to MIDT booking data for YE 2Q08, the traffic in the U.S.-U.K. market accounts for 26.8 percent of 

U.S.-E.U. traffic. The vast majority of the passengers in the U.S.-U.K. market travel to/from/via London. 

46 MIDT booking data for YE 2Q08. 
16

For the passengers traveling to/from Europe, the evidence shows that Heathrow is uniquely 

situated. We agree with Virgin Atlantic’s assessment that “[a]lthough Heathrow attracts a robust 

share of connecting transatlantic traffic from other major European hubs, the converse is not true. 

Very few passengers originating in London, or at Heathrow, travel to the United States via other 

points in Europe.”47

Table 3 

Onboard Share in the U.S.-Spain Market 

Pre-transaction Passengers Share Post-transaction Passengers Share 

Iberia 870,316 39.0% American, Iberia (immunized) 1,159,356 52.0% 

Delta 547,431 24.6 % Delta 547,431 24.6 % 

Continental 311,069 14.0% Continental 311,069 14.0% 

American 289,040 13.0% US Airways 211,028 9.5% 

US Airways 211,028 9.5% 

Total Total 2,228,884 100% 2,228,884 100% 

Source: T-100 traffic data for the 12 months ended June 2009. 

Table 3, above, shows the competitive shares for the U.S.-Spain market. Similar to the U.S.-

U.K. market, the pre-transaction market is characterized by one leading carrier and several smaller 

competitors. Even though oneworld’s share of the market would grow to greater than 50%, the 

overall structure of the market remains intact. Oneworld was, and will remain, the leading 

competitor. It is also important to note that two new entities will initiate service in the spring, 

namely United/ Aer Lingus and Air Europa. The new entry is facilitated, in part, by the available 

capacity at Madrid Barajas airport.48

 

47 Answer of Virgin Atlantic at 8-9 (May 18, 2009). 

48 See Joint Application at 28 (Aug. 14, 2008). 
17

Table 4 

Onboard Share in the U.S.-France Market 

Pre-transaction Passengers Share Post-transaction Passengers Share 

Air France, Delta/ Northwest 

(Immunized) 4,325,183 70.1 % Air France, Delta/ Northwest 

(Immunized) 4,325,183 70.1 % 

Continental, United 

(Immunized) 744,339 12.1% Continental, United 

(Immunized) 744,339 12.1% 

American 658,382 10.7% American, OpenSkies/ L’Avion (Immunized) 739,348 12.0% 

Other Traffic 361,015 5.9% Other Traffic 361,015 5.9% 

OpenSkies/ L’Avion49 80,966 1.3% 

Total Total 6,169,885 100% 6,169,885 100% 

Source: T-100 traffic data for the 12 months ended June 2009. 

Table 4, above, shows the shares resulting in the U.S.-France market, in which American’s 

services overlap with those of British Airways’ subsidiary, OpenSkies. For the purpose of this 

analysis, OpenSkies, which operates flights between the United States and Paris Orly airport, is 

grouped with L’Avion, which was purchased by the British Airways subsidiary in July 2009.50 A 

grant of immunity would not significantly alter the structure of competition between United States 

and France. Oneworld’s market share would only increase by 1.3 percentage points, giving it a 12 

percent share of the overall market. 

While the T-100 traffic data from the tables above are a useful metric, analysis of booking data 

from Marketing Information Data Tapes (MIDT) more accurately shows the effects of competing 

networks.51 According to the booking data, the proposed alliance establishes oneworld as a strong 

third alliance competitor. It makes oneworld more competitive, and thus enhances inter-alliance 

competition, in eight of the top 10 markets: U.S. to Germany, Italy, France, the Netherlands, 

Switzerland, Ireland, Belgium, and Denmark. 

Overall, the competitive change is positive in 23 of 29 markets. Only the U.S.-U.K. market 

experiences a reduction in competition. Five markets – U.S. to Spain, Poland, Finland, Slovenia, 

and Slovakia – experience no competitive change, either because oneworld’s shares grow in a 

market in which it is already the clear leader or because oneworld’s shares do not increase 

significantly enough to give it a competitive share of traffic. 

 

49 OpenSkies purchased L’Avion and integrated the carrier’s operation into its own in July 2009. 

50 See Letter from Don H. Hainbach, Attorney for British Airways (Sept. 21, 2009) (submitted for the record). 

51 We explained the differences in T-100 traffic data and MIDT booking data in the recent Star Alliance case. See

Star, Docket DOT-OST-2008-0234, Order 2009-4-5 at 8-10 (April 7, 2009). 
18

c. City-Pair Level 

The proposed alliance affects competition in numerous city-pair markets in which the 

applicants offer overlapping service. As explained in Section III on decisional standards, we use 

traditional antitrust analysis to define relevant markets and measure concentration at the city-pair 

level. We then determine whether the proposed alliance will give the applicants the ability to 

sustainably increase prices or decrease output in any relevant market, and whether the proposed 

alliance raises competitive concerns in light of factors such as market structure, the likelihood that 

competing carriers will enter the affected markets if the proposed alliance is approved, and any 

infrastructure constraints. 

Defining Relevant Markets 

As DOJ stated in the previous American/ British Airways case,52 relevant markets in the 

airline industry are transportation between city pairs. Demand is specific to city pairs; if the price 

of travel in City Pair A increases by a significant amount, consumers would not generally consider 

substituting travel in City Pair B. 

However, the relevant market may be narrower than just transportation between city pairs. 

The global airline industry is a network enterprise in which the aggregation of traffic at hubs is 

currently the only economical way to operate expensive long-range aircraft. There are often 

several pathways and products available on the network in any given city pair. A passenger may 

prefer – and be willing to pay more for – nonstop versus connecting service, or service to a 

centrally-located airport versus other airports within the same population center, or premium 

service versus economy service. If an airline can identify and price separately for these services 

within the same city pair, then the services may constitute a separate relevant market.53

In this case, DOJ argues that nonstop services between the United States and Europe are 

relevant markets.54 To support its argument, DOJ cites its own empirical work suggesting that the 

number of airlines operating in a nonstop market has a significant impact on fares, and that fares 

on certain routes are higher for nonstop service versus connecting service. DOJ also cites the 

standard airline industry practice of planning routes and capacity based on the assumption that 

offering nonstop service versus connecting service will translate to a greater market share. 

Finally, DOJ asserts that many businesses distinguish between nonstop and connecting travel, 

often requiring their employees to book nonstop travel unless there is a significant fare difference. 

Virgin Atlantic argues that there are additional, more narrowly defined relevant markets that 

we must consider: nonstop services to Heathrow airport.55 Virgin Atlantic points to the lengths 

that some airlines have gone to move their U.S.-London services from Gatwick to Heathrow when 

legal barriers to entry were removed, implying that there is no viable substitute for Heathrow. 

Virgin Atlantic uses booking data to suggest that airlines are able to charge a premium for travel to 

 

52 American/ British Airways II, Docket DOT-OST-2001-11029, DOJ Comments at 11-12 (Dec. 17, 2001). 

53 See American/ British Airways II, Docket DOT-OST-2001-11029, DOJ Comments at 12 (Dec. 17, 2001). 

54 DOJ Comments at 9-10 (Dec. 21, 2009). 

55 Answer of Virgin Atlantic at 12-19 (May 18, 2009). 
19

Heathrow, and it observes that Heathrow is a preferred airport for time-sensitive travelers because 

it serves as an international hub with a wide array of connections and other amenities. DOJ states 

that the evidence in the record “suggests” that Heathrow is a separate market.56 

In contrast, the applicants favor a broader definition. In particular, they deny that service to 

Heathrow constitutes a separate market, arguing that London’s other airports offer competitive 

discipline to Heathrow service and that connecting flights are viable in the U.S.-U.K. market.57

We agree with DOJ and Virgin Atlantic as to market definition. Although we do not adopt 

Virgin Atlantic’s belief in the so-called “Heathrow premium,”58 we do view the facts and 

circumstances in the record as supporting some of its conclusions. We tentatively find that the 

relevant markets in this case include (1) nonstop services for many travelers between the United 

States and Europe, and (2) nonstop services for time-sensitive travelers between the United States 

and London’s Heathrow airport. 

With regard to Heathrow services, we believe the evidence as a whole shows that: 

 Business passengers exhibit a strong preference for using Heathrow versus the other 

international airports in London, based largely upon Heathrow’s location and pattern of 

service. Virgin Atlantic states that 

[t]here are many reasons why time-sensitive passengers in particular do not 

view flights operated from Gatwick as substitutes for Heathrow service. The 

most important attraction of Heathrow to time-sensitive passengers is its 

convenient schedules, greater frequency of flights and its extensive range of 

flight connections. Passengers know that if they miss a flight at Heathrow 

there is a good chance that they can catch a later flight, whereas at other 

London airports, a missed flight may mean an overnight wait or a journey to 

Heathrow to catch an alternative.59

The counterargument – that Gatwick and other airports are true substitutes for Heathrow 

for transatlantic service – is not compelling. Documents submitted by the applicants show 

that Heathrow is a separate market that is more convenient to business travelers and more 

suitable for launching long-haul services due to its hub and ground infrastructure.60 

 The preference for business passengers to use Heathrow is strong enough that many 

travelers will choose to fly on a connecting itinerary out of Heathrow instead of a nonstop 

 

56 DOJ Comments at 11 (Dec. 21, 2009). 

57 Joint Application at 41-46, Exhibit JA-26 (Aug. 14, 2008); Joint Applicants’ Consolidated Reply at 30-42, 46 

(May 28, 2009). 

58 Answer of Virgin Atlantic at 12-19 (May 18, 2009).

59 Answer of Virgin Atlantic at 17 (May 18, 2009). 

60 See, e.g., BA 02500; BA 002475-003190 at 03146-003149 and 02631-003041; AA 02883; AA 0003287. 
20

itinerary out of Gatwick. By a three-to-one margin, passengers in the U.S.-U.K. market 

travel to/from Heathrow even when alternative Gatwick service is available.61

 

 Once the U.S.-EU Agreement took effect, removing barriers to serving Heathrow, 

numerous carriers moved their transatlantic services from Gatwick to Heathrow. 

American, Continental, Delta, Northwest (now a subsidiary of Delta), US Airways, and 

British Airways have all “switched” transatlantic services from Gatwick to Heathrow in the 

past eighteen months.62 For the U.S. carriers that did not have slots at Heathrow, moving 

there entailed a large upfront investment to purchase slots.63 The move to Heathrow, to 

the exclusion of other airports with capacity available, strongly suggests that Heathrow is a 

unique and separate market that is more attractive for business travelers and more lucrative 

for airlines, despite the large upfront investment required. 

 Recent data regarding fares and yields in the London market are not conclusive. Virgin 

Atlantic believes that British Airways commands a substantial premium for its services at 

Heathrow versus Gatwick, and that fares are generally higher from Heathrow.64 The 

applicants argue that the Heathrow premium no longer exists, not even for business 

travelers.65 The O&D data submitted by the applicants, which, unlike MIDT booking data 

or T-100 traffic data, contains detailed revenue information, shows that some passengers 

are paying more to connect to/from Heathrow than to travel nonstop from Gatwick. In our 

view, variance in the data suggests that passengers have different utility and price elasticity 

in the overall U.S.-London market. Some are time-sensitive, some are airport-sensitive, 

and some are price-sensitive. While many passengers do favor Heathrow, and may even 

choose a connecting itinerary out of Heathrow instead of a nonstop itinerary out of 

Gatwick, the Heathrow passengers are not necessarily paying a premium. However, the 

effective date of the open-skies agreement was March 2008; thus, the data are limited. 

Based on the totality of the circumstances, we tentatively find that Heathrow is a separate 

relevant market for time-sensitive travelers. Our tentative finding is consistent with our tentative 

decision in the previous American/ British Airways case.66

Assessment of competitive effects 

Having defined the relevant markets, Table 5 shows the extent to which the applicants’ 

services overlap in those markets. 

 

61 According to publicly-available Origin & Destination Survey Data (“O&D data”) for CY2008, which only includes 

data submitted by U.S. carriers, 232,770 passengers traveled in U.S.-U.K. service to/from Heathrow and Gatwick. 

More than 75% of those passengers chose Heathrow. 

62 See Answer of Virgin Atlantic at 11 (May 18, 2009); DOJ Comments at 20 (Dec. 21, 2009). 

63 See Answer of Virgin Atlantic at 30 (May 18, 2009). 

64 Answer of Virgin Atlantic at 5, 13-16, Appendix J (May 18, 2009). 

65 Joint Application at 51-52, Exhibit JA-26 (Aug. 14, 2008). 

66 American/ British Airways II, Docket DOT-OST-2001-11029, Order 2002-1-12 at 39-43 (Jan. 25, 2002). 
21

Table 5 

Nonstop Overlaps67

Market 

Change in # 

of Nonstop 

Competitors 

Pretrxn Posttrxn O&D Market Shares 

Annual 

Market 

Size Each 

Way 

Connecting 

Passengers on 

Nonstop 

Flights 

O&D 

Passengers 

Who 

Connect 

Dallas/Ft. Worth – 

London 2-to-1 51.2% 82.9% Star (9.0%) 96,109 66.2% 26.7% 

SkyTeam (5.8%) 

Miami – Madrid* 2-to-1 36.6% 83.2% SkyTeam (7.1%) 83,183 67.4% 22.1% 

US Airways (5.8%) 

Boston – London 3-to-2 27.5% 68.4% Virgin Atlantic 

(22.5%) 313,035 44.5% 9.8% 

Chicago – London** 3-to-2 25.6% 51.2% 

Star (28.4%) 

Virgin Atlantic 276,889 75.3% 7.3% 

(13.4%) 

Miami – London 3-to-2 22.5% 64.5% Virgin Atlantic 

(24.5%) 267,590 45.8% 18.4% 

New York - Paris 4-to-3 18.1% 23.7% 

SkyTeam (44.8%) 

Star (23.0%) 639,308 52.4% 13.2% 

Air India (6.9%)***

Los Angeles – 

London 5-to-4 11.4% 37.7% 

Star (27.2%) 

476,921 54.4% 12.1% Virgin Atlantic 

(25.3%) 

SkyTeam (8.2%) 

New York - London 5-to-4 17.6% 51.6% 

Virgin Atlantic 

(25.6%) 1,617,181 37.4% 3.0% Star (8.4%) 

SkyTeam (6.7%) 

*

 Air Europa begins nonstop Miami-Madrid service March 2010 ** Virgin Atlantic reinstates nonstop Chicago-London service March 2010 *** Air India no longer serves New York-Paris. 

Source: MIDT Data for YE 2Q08. “Pre-trxn” refers to the shares of American/ Finnair. 

Interested parties express concern about a number of the nonstop overlap markets. Virgin 

Atlantic – which focuses on the six overlaps between the United States and the United Kingdom68

– argues that the degree of overlap in these markets is unacceptable. Virgin Atlantic believes that, 

once the proposed alliance is formed, competing carriers will not be able to match the frequency 

and capacity shares of American and British Airways, creating a distinct disadvantage in their 

ability to compete for high-yield business traffic.69 DOJ – which expresses concern about five of 

the overlaps between the United States and the United Kingdom, as well as Miami-Madrid70 – 

 

67 Unlike the T-100 traffic data tables, which did not include any airlines that had less than a 1% share of the market, 

we have used a 5% standard in this table using MIDT booking data.

68 Virgin Atlantic expresses concern about Boston-London, Chicago-London, Dallas/Ft. Worth-London, Los 

Angeles-London, Miami-London, and New York-London. See Answer of Virgin Atlantic at 39-58 (May 18, 2009). 

69 Answer of Virgin Atlantic at 33-39 (May 18, 2009). 

70 DOJ expresses concern about Boston-London, Chicago-London, Dallas/Ft. Worth-London, Miami-London, 

Miami-Madrid, and New York-London. See DOJ Comments at 1, 11-14 (Dec. 21, 2009). 
22

argues that the increases in concentration could create or enhance market power. Relying on its 

empirical model, DOJ predicts that markets in which the number of competitors is reduced to two, 

or to one are likely to show price increases of 6.6% to 15% (the so-called 3-to-2 and 2-to-1 

markets). Although 5-to-4 markets are not captured by its model, DOJ is nevertheless concerned 

about New York-London, based on the applicants’ large share of business traffic on the route. 

The applicants challenge DOJ’s empirical model, centering on perceived flaws in the 

methodology. In particular, the applicants assert that DOJ misclassifies the passenger itineraries 

from which it draws its conclusions about price effects. The applicants explain that DOJ 

misunderstands the differences between online, code-share, immunized, and interline itineraries. 

After resting its case on erroneous classifications of these various kinds of itineraries, the 

applicants argue that DOJ’s conclusions about the price effects of the oneworld alliance should be 

given no weight.71

We are concerned that DOJ may be viewing marketing as a proxy for pricing for a number of 

itineraries, when that is not the case. The key to correctly classifying itineraries for a price effects 

study is identifying which airline or entity is responsible for the pricing function. In the context of 

an immunized alliance, an itinerary may be marketed by one carrier but priced by another. If 

itineraries are not classified based on the airline or entity responsible for pricing them, conclusions 

about price effects are not reliable. 

Further, any analysis must account for the significant integration of pricing that occurs within 

a joint venture. Northwest-KLM, the first transatlantic alliance with an integrated joint venture, 

and the only one for which long-term data are available, has been associated with lower fares, 

increased capacity, and greater service options for passengers.72 The data on subsequent 

immunized alliances also suggest pro-consumer results,73 even before those alliances moved 

towards deeper integration.74 Past experience with immunized alliances (such as that between 

United/Lufthansa, Delta/Air France, and Northwest/KLM) shows that benefits from new direct 

routes, increased frequencies, greater capacity on hub-to-hub and other routes linking the airlines’ 

networks, and associated increases in passenger volumes may be expected to develop over time as 

synergies from the integrated joint venture are realized.75 Both SkyTeam and Star are now in the 

process of implementing their respective joint ventures recently approved by DOT. As a result, 

the price effects of these arrangements on transatlantic airfares have not yet been captured in data 

collected by DOT, and therefore cannot be evaluated using that data. 

 

Nevertheless, we share many of DOJ’s fundamental concerns. For example, we are 

particularly concerned about competitive effects in the Boston-London market. According to 

MIDT booking data, Boston-London is a substantially large market of more than 300,000 annual 

 

71 Joint Applicants’ Answer to DOJ Comments at 36-38 (Jan. 11, 2010). 

72 Cf. Reitzes, J. & Moss, D., Airline Alliances and Systems Competition, Houston Law Review, 48: 293-332 (2008). 

73 See SkyTeam II, Docket DOT-OST-2007-28644, Order 2008-4-17 (April 9, 2008); Star, Docket DOT-OST-2008-

0234, Order 2009-4-5 (April 7, 2009).

74 Cf. Brueckner, J.K. & Proost, S., Carve-outs Under Airline Antitrust Immunity (March 2009 working paper). 

75 Whalen, W.T. A Panel Data Analysis of Code Sharing, Antitrust Immunity, and Open Skies Treaties in 

International Aviation Markets, Review of Industrial Organization, 30: 39-61 (2007).
23

local passengers that will go from three competitors to two, resulting in an increase in 

concentration. Unique structural, geographic, and demographic factors raise competitive concerns 

in this market. Oneworld will obtain 68 percent of bookings and will open up a 41 point gap over 

the next largest competitor, Virgin Atlantic. Several carriers have exited the market in recent 

years, and no new carriers have entered, despite the open-skies agreement. We believe that the 

proposed alliance, if not remedied, will increase the risk and difficulty for airlines that may want 

to enter the market, especially if they do not have access to feeder traffic in Boston. Boston is the 

northeastern-most gateway to London from the United States. The lack of suitable intervening 

hubs between Boston and London – from which other airlines could compete with connecting 

flights – would leave consumers in the local market with fewer and less desirable options if prices 

increase or service quality decreases. 

Like DOJ, the Department is also concerned that the proposed alliance will have diffuse 

negative effects in the remaining U.S.-U.K. overlap markets, as well as U.S.-U.K. markets 

generally. The proposed alliance combines the operations of British Airways and American, the 

two largest competitors in the market as measured by departures.76 They are each other’s primary 

competitors in the U.S.-U.K. market. Not surprisingly, the proposed alliance causes a share shift 

in many overlap markets involving London. For example, whereas British Airways is the leading 

competitor in New York-London pre-transaction, with 34 percent of bookings, post-transaction it 

would achieve almost 52 percent of bookings by joining with American. Virgin Atlantic retains 

its second-place position in the market, but instead of an eight-point gap with the first-place 

competitor, it would then face a 26-point gap. In such circumstances, the Department recognizes 

that it could be difficult for competitors to match the frequency, scheduling, hubbing, and 

capacity-share advantages of the oneworld alliance. 

 

We tentatively conclude, however, that we should not disapprove the proposed alliance 

outright. The data in Table 5 show that most markets will continue to have a number of 

competitors even after the applicants combine their services; typically there will be a third, fourth, 

or fifth competitor with a substantial share of bookings. Only Dallas/Ft. Worth-London will 

ultimately have fewer than two competitors, and we agree with the applicants that nonstop service 

in this market would be difficult to sustain in the current environment without a substantial hub 

operation.77 With fewer than 100,000 annual bookings, the Dallas/Ft. Worth-London market is 

only one-third the size of the next largest U.S.-London overlap market, Boston-London. 

Additionally, travelers in the Dallas/Ft. Worth-London markets have multiple connecting options. 

As shown in the data, a relatively large percentage of passengers connect within the Dallas/Ft. 

Worth-London city pair. 

The data also show that all of the nonstop overlap markets are disciplined to an extent by 

connecting competition. The discipline is manifested in two ways: by the number of passengers 

who utilize connecting service in the origin and destination city pair (for example, Miami-New 

York-London) and by the number of passengers on nonstop flights who are connecting behind or 

beyond the nonstop trunk route (for example, Miami-London-Copenhagen). The mix of 

connecting and local passengers on these routes is important to the competitive analysis. In 

 

76 OAG scheduling data for August 2009. 

77 Joint Applicants’ Answer to DOJ Comments at 19-20 (Jan. 11, 2010); Joint Application at 55 (Aug. 14, 2008). 
24

Chicago-London, Los Angeles-London, Miami-London, and New York-London, at least 37 

percent of passengers are using the nonstop route as a segment on a connecting itinerary, and it is 

as much as 75 percent in the case of Chicago-London. In these markets, the applicants submit 

credible evidence in their September 8th pleading that their true economic incentive as alliance 

partners is to increase capacity on the nonstop segment and maintain competitive fares for both 

local and connecting passengers. The incentive to increase capacity exists because the alliance 

must continue to add capacity on trunk routes to accommodate the large number of connecting 

passengers and thus to compete with other network airlines.78 

2. Infrastructure Issues 

Since six of the nonstop overlaps involve services at Heathrow, where slots are scarce, we 

must examine how infrastructure constraints affect competition. There is ample evidence in the 

record that Heathrow is constrained, and that the operational constraints make new entry on 

transatlantic routes difficult, due to the limited window of time for departures and arrivals that 

consumers prefer. As BAA/ACL and other parties have indicated, Heathrow operates at near full 

capacity.79 The primary constraint is runway capacity. It is highly unlikely that a prospective 

new entrant would be able to secure suitable landing or takeoff times from the ACL-administered 

slot pool. Thus, the prospective new entrant must hold existing Heathrow slots to trade or convert 

for use on transatlantic routes, or acquire the right to slots on the secondary market. 

We note, however, that there is some scope for Heathrow incumbents and members of global 

alliances to introduce transatlantic services from existing holdings. For example, bmi uses 12 slots 

from its substantial Heathrow portfolio to fund a portion of its Heathrow-Brussels and HeathrowAmsterdam services at times that are suitable for transatlantic service.80 Similarly, SkyTeam 

member Air France controls slots that it could use – and, in fact, did use at times in 2008 – for 

U.S.-Heathrow service.81

Additionally, it is possible to acquire slots on the secondary market. However, BAA/ACL 

notes that there is limited liquidity in the secondary market and high prices.82 Thus, there are still 

barriers to entry at Heathrow, especially for well-timed slots that are usable for transatlantic 

services. Passengers traveling eastbound, particularly business travelers, who account for the bulk 

of the revenue, have a relatively narrow window of time for departure and arrival due to time zone 

changes.83 Flights from the eastern seaboard typically depart the United States in the late 

afternoon or early evening for an early morning arrival in London, which allows the traveler to 

 

78 Joint Applicants’ Supplemental Comments at 5 and Declaration of Don Casey (Sept. 8, 2009). 

79 Answer of Virgin Atlantic at 19-21 (May 18, 2009); ACL/BAA Response (Jan. 28, 2009).

80 Bmi operates flights to Brussels departing at 0830, 1255, 1830, and returning to Heathrow at 0740, 1145, and 

2120. Bmi operates flights to Amsterdam departing at 0830, 1240, and 1820, and returning to Heathrow at 0745, 

1405, and 2135. These times are suitable for Heathrow services to JFK, LAX, Boston, Seattle, and Chicago, among 

other cities. Source: OAG scheduling data for November 2009. 

81 Joint Application at 9 (Aug. 14, 2008).

82 ACL/BAA Response (Jan. 28, 2009). Sellers on the secondary market have fetched in excess of $50 million for 

well-timed slots. See Figure 9, Answer of Virgin Atlantic at 30 (May 18, 2009). 

83 Answer of Virgin Atlantic at 22 (May 18, 2009); Joint Applicants’ Consolidated Reply at 32-33 (May 28, 2009).
25

conduct a full day of business or make a connection. Even though westbound departure times are 

more flexible, the fact is that only certain slots at Heathrow are suitable for arrivals, making slot 

transfers more complicated and limiting new entry into the U.S.-London market. 

Because the scope for new entry is limited, we tentatively find that the infrastructure 

constraints at Heathrow could exacerbate the potential competitive harm caused by the proposed 

alliance. If approved, an immunized oneworld would hold 47.2% of Heathrow slots,84 including a 

large share of slots usable for transatlantic service. We believe that this factor, more than the loss 

of a competitor in the transatlantic market or any specific competitive effects in a city pair, poses 

the greatest risk of harm for consumers. Without more and easier access to Heathrow slots, 

competing carriers would find it difficult to introduce new services to compete with an immunized 

oneworld. 

3. Remedies to Address Harm to Competition 

Given the potential competitive harm we identified above, plus the risk that the harm could be 

exacerbated by infrastructure constraints, we must determine whether there are any appropriate 

remedies that could mitigate the harm while still allowing the potential benefits of the proposed 

alliance to be realized. Interested parties have suggested several potential remedies, including slot 

divestitures, carve-outs, and mandatory interlining. 

DOJ states that slot transfers could potentially protect consumers from the anti-competitive 

effects of the proposed alliance. DOJ suggests that we could require either unencumbered slot 

divestitures, in which new entrants would not be required to serve specific routes, or earmarked 

slot divestitures, in which new entrants would be required to serve specific routes. In crafting the 

best slot remedy, DOJ indicates that we must decide what measure of continuing oversight is 

appropriate under the circumstances. Earmarked slot divestitures have the advantage of being 

more narrowly tailored to restore lost competition, but continuing oversight may be necessary if 

the parties to the slot transfer are engaged in an ongoing relationship, as they would be in the case 

of a lease agreement. DOJ cautions, however, that an earmarked slot remedy could introduce 

inefficiency into the marketplace, since the divested slots could potentially be used more 

productively elsewhere.85 

In addition to slot divestitures, DOJ suggests that “carve-outs” could be appropriate. A carveout prohibits the airlines from coordinating pricing and capacity for a narrowly defined group of 

passengers, usually time-sensitive passengers or passengers in the local O&D market, who are 

most likely to rely upon nonstop flights and therefore feel the effects of reduced competition. 

Virgin Atlantic, while maintaining that we should deny the application outright, states that slot 

divestitures would be essential if the application were to be approved. Virgin Atlantic emphasizes 

that prospective new entrants must be given the opportunity to use the slots before the applicants 

implement the proposed alliance.86 

 

84 ACL/BAA Response, accompanying data (Jan. 28, 2009). 

85 DOJ Comments at 30-31 (Dec. 21, 2009). 

86 Answer of Virgin Atlantic at 81-82 (May 18, 2009). 
26

Virgin Atlantic also argues for an interline remedy. In this instance, an interline remedy would 

require the applicants to accommodate connecting passengers from competing carriers at specific 

cities, such as Chicago, by providing through pricing, ticketing, and baggage, as well as access to 

inventory on reasonable terms. Specifically, Virgin Atlantic requests that we prevent the 

applicants from withdrawing from existing interline arrangements with non-oneworld carriers and 

require them to charge interline fares that are no less favorable than those they charge each 

other.87 This remedy, according to Virgin Atlantic, is necessary to allow airlines to serve 

connecting passengers and compete with oneworld’s powerful network. 

a. Slot Transfers

We tentatively find that slot transfers would best address the potential competitive harm in this 

case. We tentatively determine that four slot pairs are necessary to remedy the potential harm, 

divided as follows: two slot pairs earmarked for the Boston-London Heathrow market (the “fixed 

slots”) and two slot pairs to be used at any U.S. gateway for services in the U.S.-Heathrow market 

(the “flex slots”). 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. 

This proposed approach would serve the public interest because it addresses the lost 

competition, particularly where it is most acute, in the Boston-London market, while also 

addressing the diffuse network-level effects of the proposed alliance across all U.S.-London 

markets, such as oneworld’s superior network coverage, frequency, and ability to attract highyield business traffic. This approach would also improve the chances that the slot pairs will be 

utilized and that new capacity will be added to the U.S.-London market. Meanwhile, the 

applicants can proceed with their alliance plans and deliver the promised public benefits. 

We recognize that more information is needed to implement the proposed remedy. We are 

proposing a general framework for implementation. Mindful of DOJ’s comments, urging us to 

avoid inefficiencies, we tentatively determine that an implementation mechanism should comport 

with the following principles: 

 Airlines are not eligible recipients if they are members of the oneworld global alliance, 

affiliates of the applicants, or airlines in which the applicants have a substantial 

financial interest. 

 The fixed and flex slots must be usable for transatlantic service and have commercially 

viable times.88 

 

87 Answer of Virgin Atlantic at 82 (May 18, 2009). 

88 See American/ British Airways II, Docket DOT-OST-2001-10387, Order 2002-1-2 at 52 (Jan. 25, 2002) 

(establishing that Heathrow slots subject to divestiture should be “usable for transatlantic services”). See also Answer 

of Virgin Atlantic at 22-25 (May 18, 2009) (stating that morning arrivals from the United States are important due to 

time zone constraints and the requirements of time-sensitive travelers) (May 18, 2009); DOJ Comments at 21 (Dec. 

21, 2009) (stating that the time of day is important for arrivals from the United States). 
27

 Given that there is some scope for airlines to adjust their portfolios once they receive 

slots or eventually acquire slots through other means, we tentatively find that the 

applicants need not permanently divest their ownership rights in the four slot pairs 

subject to the remedy. Thus, the applicants may elect to lease, rather than sell, the slots, 

and collect limited compensation. We expect the compensation to be at such a level so 

as to attract prospective new entrants by lowering the barriers to entry below where 

they are today. We are proposing that the applicants make the slots available for a 

period of 10 years from the date of issuance of a final order in this case. The slots 

would be made available in time for recipients to launch services in the IATA 2011 

Summer Season. If slots were not used initially, or if they were returned to the 

applicants, they would remain available for the full 10-year period. 

 The proposed remedy should be administered expeditiously and independently. While 

we intend to exercise some oversight and monitor the process, we do not seek to 

administer the day-to-day tasks. We tentatively find that the applicants should appoint 

and pay for the services of a trustee, who must be approved by DOT. 

 To the extent possible, the administration and implementation should be compatible 

with any remedy adopted by the European Commission, which is also reviewing this 

matter. Both the Department and the European Commission committed to explore 

compatible approaches to common matters in Annex 2 of the U.S.-EU Agreement.89 

Annex 2 was incorporated because both parties to the agreement recognized that 

incompatible approaches could frustrate the effective exercise of the parties’ regulatory 

responsibilities. In the context of this case, it is possible that incompatible 

implementation and administration of a slot remedy could potentially place prospective 

new entrants at a disadvantage, jeopardizing efforts to reduce the competitive harm that 

we have tentatively found in the proposed transaction. 

We invite the applicants and interested parties to comment on a proposed implementing 

mechanism that comports with these principles, achieves the objectives set forth in this order, and 

is workable. 

 

89 Annex 2, U.S.-EU Air Transport Agreement, signed April 30, 2007. 
28

b. Other Remedies 

We have carefully considered DOJ’s and Virgin Atlantic’s arguments concerning other 

potential remedies. We have tentatively decided not to impose a carve-out remedy. The recent 

fundamental shift in the character of alliances – towards integrated joint ventures – has made us 

more skeptical about the efficacy of carve-outs, especially in the context of joint ventures. In the 

recent SkyTeam and Star cases, we did not impose any carve-outs in overlap markets in which the 

joint venture partners planned to cooperate and to achieve truly integrative benefits that could be 

passed on to consumers.90 We determined that the carve-outs would detract from the potential 

benefits of the alliance by introducing inefficiencies, and in some areas, impediments to procompetitive cooperation.91 Because airlines measure profitability by flight segment – so that each 

segment can be sold as part of dozens of different itineraries – carve-outs that are imposed on a 

city-pair basis disrupt the functioning of airline joint ventures and impair metal neutrality, limiting 

the benefits for both nonstop and connecting passengers. 

In this case, we tentatively find that the facts and circumstances are similar to the SkyTeam 

and Star cases. All the nonstop overlaps in this case are subject to joint venture cooperation and 

the applicants have submitted a detailed joint venture agreement that seeks to achieve truly 

integrative benefits. Thus, for the same reasons expressed in the earlier cases, we tentatively do 

not think carve-outs are appropriate here. 

 

We also tentatively decide not to impose an interline remedy. While Virgin Atlantic has stated 

that mandatory interlining is necessary in addition to slot transfers, it has provided little evidence 

that the applicants will be in a position to cause Virgin Atlantic or other carriers any specific harm. 

We are reluctant to get involved in the complicated contractual business relations of private parties 

without substantial evidence on the record concerning the potential harm that is likely to occur and 

how a legal requirement to interline would be effective in preventing it. 

4. Tentative Conclusions 

We have carefully analyzed the impact of the proposed alliance at the network, country-pair, 

and city-pair level. On the one hand, the proposed alliance will provide a third global network that 

can better discipline the fares and services offered by the Star and SkyTeam alliances. The 

enhanced inter-alliance competition is beneficial for consumers across many markets, in particular 

the hundreds of transatlantic markets in which the applicants become more competitive as a direct 

result of the alliance. Travelers in those markets instantly gain new competitive options. On the 

other hand, the proposed alliance will increase concentration in several U.S.-London markets 

where the applicants would be in a position to potentially leverage substantial advantages in 

frequency, schedules, and access to corporate customers to exclude rivals. To address these 

potential anti-competitive effects, we have proposed a flexible slot transfer remedy that would 

 

90 SkyTeam II, Docket DOT-OST-2007-28644, Order 2008-4-17 at 10 (April 9, 2009); Order 2008-5-32 at 3 (May 

22, 2008). See also Star, Docket DOT-OST-2008-0234, Order 2009-7-10 at 18-21 (July 10, 2009). 

91 See also Brueckner, Jan K. and Stef Proost, Carve-Outs Under Antitrust Immunity, SSRN Working Papers (2009) 

(finding that carve-outs may be harmful when imposed on a joint venture alliance given the potential efficiency losses 

to the alliance of those carve outs). 
29

require the applicants to make available four slot pairs at Heathrow to allow competitors to 

introduce new services. 

Given the risk of competitive harm, we tentatively find that the proposed alliance must operate 

within a liberalized framework that enhances competition and promotes new entry regardless of 

national borders. The U.S.-EU Agreement – which permits entry by duly authorized airlines on 

any routes between the United States and the European Union (with open intermediate and beyond 

rights) – meets this objective. That landmark aviation agreement facilitates the competitive 

benefits and prevents some of the potential competitive harm of the proposed transaction. For 

example, the applicants will be able to better integrate their networks and compete with the other 

immunized alliances by, among other things, more flexibly deploying aircraft and crew in new 

markets, and expanding the joint venture’s operations in hubs dominated by other airlines. The 

same liberalized conditions created by the regional open-skies agreement will help to discipline 

oneworld and the other global alliances by making it easier for competitors and innovators to 

introduce new services. Without the U.S.-EU agreement, our competitive assessment and the 

proposed result would have been different.92

Provided that transatlantic markets continue to be governed by a regional open-skies 

agreement that promotes new entry regardless of national borders, and provided that the slot 

remedy is adopted, we see no persuasive basis upon which the applicants could impose and sustain 

supra-competitive prices or reduce service quality below competitive levels. Under these 

circumstances, we tentatively find that the proposed alliance, as conditioned, will not substantially 

reduce competition. Therefore, we tentatively conclude that the proposed alliance is not adverse 

to the public interest and should be approved under § 41309. 

C. Tentative Grant of Antitrust Immunity 

In this section, we consider whether to make a grant of antitrust immunity to the applicants 

under § 41308 to implement their proposed alliance. Since we tentatively determined that the 

Alliance Agreements, as conditioned, would not substantially reduce competition, this is a 

discretionary matter. It is not our policy to confer antitrust immunity simply on the grounds that 

agreements do not violate the antitrust laws. We are only willing to grant immunity if the parties 

to agreements would not otherwise go forward without it, and if we find that the public interest 

requires that we grant antitrust immunity. Our public interest examination focuses on the public 

benefits that will be created by the proposed alliance and the extent to which a grant of antitrust 

immunity is required to realize those public benefits. 

 

 

92 If the U.S.-EU open-skies agreement were to be suspended or scaled back, we would have to re-evaluate 

oneworld’s proposed immunity and authority. This is consistent with our guidance in the recent Star and SkyTeam 

cases. See Star, Docket DOT-OST-2008-0234, Order 2009-7-10 at 4, FN15 (July 10, 2009); SkyTeam II, Docket 

DOT-OST-2007-28644, Order 2008-5-32 at 4 (May 22, 2008) (adopting all tentative findings and conclusions in the 

Show Cause Order, which directly raised the importance of a regional open-skies agreement on page 13). 
30

1. Benefits of the Proposed Alliance 

The record centers on the question of whether the proposed alliance will generate sufficient 

public benefits to justify a grant of immunity. Several interested parties argue that benefits are 

lacking, while the applicants attempt to show, at length, that there are many substantial public 

benefits. 

In sum, the interested parties have advanced the following arguments: DOJ argues that there 

are insufficient benefits to justify a grant of immunity; APA argues that the proposed alliance will 

have a detrimental effect on U.S. labor; ITSA/ASTA argue that the proposed alliance will harm 

travel agents and consumers because the applicants will be able to negotiate jointly with travel 

agents and independent travel distributors; and Spirit argues the proposed alliance will distort 

competition in restricted markets where American and its partners hold a limited number of traffic 

rights. Additionally, Virgin Atlantic argues that the joint venture will stifle competition and fail to 

generate the efficiencies claimed by the applicants. Virgin Atlantic highlights certain provisions 

of the joint venture agreement (the JBA) that it claims give British Airways control over pricing 

and capacity in U.S.-London markets. Rather than enhancing competition, Virgin Atlantic 

concludes that the alliance will allow British Airways to protect its market share and revenue.93

 After evaluating the arguments and information in the record, we tentatively find that 

substantial public benefits are likely to be realized by the proposed alliance. The applicants 

provide a detailed account of how they will jointly manage their capacity and organize decisionmaking to take advantage of currently unexploited efficiency gains that are likely to benefit the 

traveling and shipping public, as well as the airlines and their employees. 

Specifically, we tentatively find that the following public benefits are likely: (1) more options 

for travelers in numerous transatlantic city pairs, based on the applicants’ ability to closely 

coordinate schedules and inventory and to achieve fare combinability; (2) lower fares resulting 

from the reduction in double marginalization on multi-segment itineraries; (3) volume discounting 

made possible when the alliance partners carry more passengers per flight and enjoy more efficient 

utilization of capacity; (4) expanded access to discounted fares resulting from coordinated 

inventory; (5) reduced costs through shared sales, marketing, distribution, procurement, fleet 

assignment, and frequent-flyer program management; and (6) expanded opportunities to earn and 

redeem miles due to the airline partners’ ability to share risks. Additionally, we note the 

applicants’ intentions to introduce new nonstop services and facilitate long-term operational 

changes, product enhancements, and investment in infrastructure.94

A grant of antitrust immunity is, we tentatively find, necessary to achieve most of these 

benefits, despite the concerns raised by some parties. We take seriously DOJ’s concerns about 

double marginalization effects. We understand DOJ’s point that economic studies, including the 

Department’s own studies of transatlantic competition, do not prove that airlines can only 

eliminate multiple markups by engaging in activity that raises antitrust concerns.95 Here, however, 

 

93 See Answer of Virgin Atlantic at 72-73 (May 18, 2009). 

94 Joint Application at 24-26, 33-34, Exhibit JA-13, Exhibit JA-19 at 9-10 (Aug. 14, 2008). 

95 DOJ Comments at 26 (Dec. 21, 2009). 
31

we do not expect the elimination of multiple markups to result from any anticompetitive conduct. 

Consistent with economic theory and the experience of other alliances, the proposed alliance is 

likely to significantly reduce fares on “interline” routes in which only one partner operates one 

segment and only another partner operates another segment.96 The cooperation of the partners 

over the joint network increases overall traffic flows and revenue, providing each partner with the 

necessary incentive to avoid self-interested markups on a particular segment that they operate, 

which benefits consumers and the alliance as a whole. Many of the synergies of the alliance, 

including the ability to cooperatively price itineraries with multiple segments, would not occur but 

for the Alliance Agreements. 

We have considered Virgin Atlantic’s concerns that antitrust immunity is not required because 

many of the public benefits of the transaction are already in place and because it is not necessary 

to facilitate the introduction of new services.97 We addressed those concerns above when we 

tentatively found that the proposed alliance would create public benefits that are directly 

attributable to immunity. Among other things, the applicants have demonstrated that they will be 

able to implement a broader code-share, enable full frequent flyer reciprocity, and pursue the 

substantial microeconomic benefits of alliance cooperation, such as improved economies of scale, 

scope, and density. Through these economies they expect to be able to launch new services, such 

as Dallas/Ft. Worth-Madrid.98 While we agree with Virgin Atlantic that antitrust immunity is not 

required as a legal or operational matter to launch new routes,99 in some circumstances new routes 

are likely to be introduced more quickly where alliance partners have integrated and procompetitive arrangements to aggregate behind and beyond traffic and share risks. In this way, 

alliances such as Northwest/KLM, now part of SkyTeam, have been able to introduce and sustain 

a large number of frequencies between their hubs, which benefits travelers in the local and 

connecting markets.100

We recognize Virgin Atlantic’s concern that the large degree of overlap between American 

and British Airways both eliminates competition and limits the public benefits that are possible 

from the alliance. That point highlights a key question raised by this case: whether the potential 

benefits of the applicants’ cooperation in a number of markets, including some large markets 

between the United States and the United Kingdom, outweigh the potential competitive harm that 

could result from the reduction of competition on select overlap routes, including some routes in 

which there is limited available capacity due to infrastructure constraints. Provided that the 

applicants abide by the conditions we have proposed, we tentatively find that the benefits 

outweigh the potential harm. 

 

96 See, e.g., Brueckner, J.K. & Whalen. W.T., The Price Effects of International Airline Alliances, Journal of Law 

and Economics, 43: 503-545 (2000). See also Brueckner, J.K., International Airfares in the Age of Alliances: The 

Effects of Code-Sharing and Antitrust Immunity, Review of Economics and Statistics, 85: 105-118 (2003); Whalen, 

W.T. A Panel Data Analysis of Code Sharing, Antitrust Immunity, and Open Skies Treaties in International Aviation 

Markets, Review of Industrial Organization, 30: 39-61 (2007). For an application of double marginalization to this 

case, see Joint Application, Exhibit JA-19, Affidavit of the Brattle Group, (Aug. 14, 2008). 

97 See Answer of Virgin Atlantic at 68-71 (May 18, 2009). 

98 Joint Application at 24 (Aug. 14, 2008). 

99 DOJ also made this argument. See DOJ Comments at 23-25 (Dec. 21, 2009). 

100 Joint Applicants’ Supplemental Comments at 4-7, Declaration of Don Casey at 6 (Sept. 8, 2009). 
32

We are persuaded by two factors. First, the applicants present for our consideration a detailed 

and integrated joint venture agreement. Where applicants seek immunity to combine networks 

that overlap substantially, it is important for them to demonstrate that their proposed arrangement 

will lead to efficiency-enhancing integration. As we explained in the SkyTeam and Star cases, a 

“metal-neutral” joint venture allows the joint venture partners to share risks and rewards fairly and 

it incentivizes them to offer customers the best available products and services, without regard to 

which partner owns and operates the aircraft.101 Iberia’s inclusion in the application, and its 

participation in the joint venture, is important to the public benefits analysis. Unlike Heathrow, 

Iberia’s hub at Madrid Barajas has available capacity. Madrid’s airport is capable of 120 aircraft 

movements per hour but only handles approximately 98.102 If the joint venture is implemented 

properly, the participants will have the option (and incentive) to utilize the Madrid hub to boost 

traffic and work around the constraints at Heathrow, sharing in the risks and rewards. 

Second, the proposed transaction facilitates a third strategic alliance. This too is a public 

benefit. Oneworld will become more competitive in a number of markets, exerting increased 

competitive discipline on fares and services in those markets. Consumers getting a third viable 

option will enjoy more destinations, better connections, improved schedules, and better frequent 

flyer benefits. These benefits complement the annual surplus from price reductions and increased 

traffic on current interline routes.103 

Of course, many of the public benefits discussed above depend upon the implementation of the 

joint venture. Yet the participants in the venture have not finalized the terms of the JBA. They 

await a grant of immunity to share the competitively sensitive information necessary to do so. 

Consistent with the recent SkyTeam and Star cases, we propose to limit the duration of the 

immunity unless and until the applicants complete their negotiations.104 This condition will 

encourage the applicants to implement the joint venture and allow the consumer benefits to be 

realized quickly. 

 

101 SkyTeam II, Docket DOT-OST-2007-28644, Order 2008-4-17 at 3 (April 9, 2008); Star, Docket DOT-OST2008-0234, Order 2009-4-5 at 4 (April 7, 2009). 

102 Joint Application at 28 (Aug. 14, 2008). 

103 See Joint Application, Exhibit JA-19, Affidavit of the Brattle Group at 8, (Aug. 14, 2009). We understand Mr. 

Horan’s critique of the applicants’ $92 million estimate of the benefits from cooperative pricing, as well as his general 

skepticism that the applicants have submitted sufficient evidence showing that public benefits will be realized by the 

alliance. Comments of Hubert Horan (Jan. 31, 2010). We disagree, however, with Mr. Horan’s total rejection of the 

Brueckner and Whalen models, which demonstrate the important principle that alliances facilitate cooperative pricing 

that can reduce prices and enhance joint products and services that consumers value. Mr. Horan does not recognize 

that antitrust immunity and the resulting integration of planning and pricing can fundamentally change the economics 

of connecting routes when each carrier participating in an itinerary shares equally in the benefits of cooperatively 

selling it. He correctly notes the role of airline revenue management systems, but fails to acknowledge that the 

purpose of these systems is to maximize revenue for the host carrier. As a result, even single-connect itineraries 

involving more than one carrier can have vastly different total revenue values to the host carrier, depending on which 

carrier operates the long-haul segment. When carriers are metal-neutral, they price, market, and revenue manage 

accordingly, opening availability of more seats and fares throughout the cabin on more itineraries in a given city pair. 

104 See SkyTeam II, Docket DOT-OST-2007-28644, Order 2008-4-17 at 15-16 (April 9, 2008); Star, Docket DOTOST-2008-0234, Order 2009-4-5 at 19 (April 7, 2009). The applicants in this case have indicated that they will accept 

this condition. See Joint Application at 1 (Aug. 14, 2008). 
33

2. Remedies to Achieve Full Public Benefits 

While the proposed alliance offers substantial public benefits, several parties express concerns 

about the ability of the alliance members to capture a majority of the benefits for themselves, 

without passing them on to consumers, employees, and the public at-large. We agree with some 

of those concerns and tentatively conclude that some remedies are necessary to ensure adequate 

public benefits. 

We recognize the concerns cited by Virgin Atlantic concerning the structure of the joint 

venture. Certain aspects of the joint venture are inconsistent with the Department’s policy 

standard for granting antitrust immunity in cases involving large airlines and a substantial amount 

of network overlap. 

In the recent SkyTeam and Star cases – which featured a degree of network overlap that is 

comparable to this case – we required the applicants to make a strong showing that immunity is 

justified to achieve specific, demonstrable public benefits at the time the immunity is 

requested.105 To meet this standard, the applicants submitted joint venture agreements with 

sufficiently detailed terms to assess the competitive implications of the alliance and explained 

their plans to integrate core business functions and reconcile the network overlap that existed 

between them.106 Our analysis of public benefits turned on the extent to which the partners had 

aligned their economic incentives and achieved metal neutrality. As the Joint Applicants in this 

case have indicated,107 the alignment of incentives and metal neutrality is necessary for the 

partners to promote the interests of the alliance as a whole and to generate the most valuable 

consumer benefits from alliance cooperation such as the introduction of new capacity, reduced 

fares, and more efficient use of inventory across the joint network. 

We tentatively find that, without changes to the joint venture agreement, the applicants will 

fall short of meeting the standard. Certain of the JBA’s terms described by Virgin Atlantic, for 

which they have sought confidential treatment, contain competitive restraints that divide the 

governance of the venture among the partners and potentially allow a single carrier to exercise 

control over key functional areas on behalf of the alliance.108 The 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 market if there is a demand. Thus, the record does not yet show that the applicants 

have aligned their economic incentives and made their best efforts to achieve metal neutrality, 

which would be in the best interest of consumers in this case. 

We need not determine that the competitive restraints are contrary to the antitrust laws. The 

applicants have chosen to request a grant of immunity before they proceed. We will not grant that 

 

105 See SkyTeam I, Docket DOT-OST-2005-19214, Order 2005-12-12 at 34 (Dec. 22, 2005); SkyTeam II, Docket 

DOT-OST-2007-28644, Order 2008-4-17 at 14 (April 9, 2008); Star, Docket DOT-OST-2008-0234, Order 2009-4-5 

at 17-19 (April 7, 2009).

106 SkyTeam II, Docket DOT-OST-2007-28644, Order 2008-4-17 at 15 (April 9, 2008); Star, Docket DOT-OST2008-0234, Order 2009-4-5 at 19 (April 7, 2009).

107 Joint Application at 8 (Aug. 14, 2008); Joint Applicants Supplemental Comments at 19-22 (Sept. 8, 2009).

108 See Joint Application at Exhibit JA-1, page 92 (Aug. 14, 2008) (Joint Business Agreement at § 3.3, §3.3.4, 

§3.3.4.1, §9, and § 5.6). 
34

request unless and until we are satisfied that immunity is required by the public interest.109 In 

these circumstances, we do not think that immunity is required where the applicants have 

introduced competitive restraints that are not necessary to implement the joint venture or achieve 

the most valuable public benefits. We tentatively find, instead, that consumers will derive greater 

benefits from an arrangement that better promotes capacity growth over multiple hubs and better 

demonstrates consensus-based governance and a commitment by the partners to act in the interest 

of the alliance as a whole.110 

Therefore, as a condition of obtaining a final grant of immunity, we tentatively find that it is 

necessary for the applicants to make changes to the JBA to eliminate these concerns. We provide 

the applicants with additional guidance to make these changes in Appendix B.111 

We understand APA’s root concern that the alliance could threaten the jobs of U.S. labor. 

With the changes we are requiring to the joint venture agreement, we believe the applicants will be 

in a better position to increase overall capacity and share the growth opportunities. While it is true 

that the joint venture involves revenue sharing, the joint venture partners must maintain their 

networks and execute their business plans to remain profitable under the venture. In short, we 

believe that American, like its partners, has the incentive to increase its flying if possible, which 

could provide more opportunities for its pilots and other labor groups. 

We tentatively disagree with ITSA/ASTA regarding the need to restrict the ability of the 

alliance partners to cooperate in the area of marketing and sales. ITSA/ASTA’s claim, which 

alleges that the Joint Applicants would gain increased monopsony power over travel agents by 

virtue of the alliance,112 closely mirrors the argument they made in the recent Star Alliance case. 

In that case, the Department considered the merits of the travel agents’ claim in detail. In the Final 

Order, we found that ITSA/ASTA did not meet the burden of proving that antitrust immunity 

would result in anticompetitive effects.113 Specifically, the travel agents failed to prove that the 

alliance would be able to exercise market power and harm travel agents, and ignored the fact that 

reductions in travel agent commissions are attributable to structural changes in the travel 

distribution market and not an increase in immunized alliances. 

Here, the facts are substantially the same. We tentatively find that ITSA/ASTA have similarly 

failed to provide persuasive arguments that the Joint Applicants would be able to exercise 

monopsony power and have the ability to increase prices and reduce capacity. Ultimately, an 

immunized oneworld would carry 22.3 percent of passengers in the broadly defined transatlantic 

market (see Table 1, above). Just as in the Star case, this share is not sufficient to prove that there 

would be any anti-competitive effects for travel agents or consumers overall. Furthermore, as 

elaborated in the Star Final Order, the ITSA/ASTA answer assumes that grants of immunity have 

resulted in reductions in travel agent commissions and does not consider structural changes to the 

travel industry. 

 

109 See 49 U.S.C. § 41308(b). 

110 Cf. Answer of Virgin Atlantic at 71-73 (May 18, 2009). 

111 The appendix is available to interested parties pursuant to Rule 12 of the Department’s Rules of Practice. 

112 Answer of ITSA/ASTA at 7 (May 18, 2009). 

113 Star, Docket DOT-OST-2008-0234, Order 2009-7-10 at 23 (July 10, 2009). 
35

ITSA/ASTA also allege that a grant of antitrust immunity would result in competitive harm in 

U.S.-London markets by augmenting oneworld’s market power at Heathrow.114 In our analysis of 

U.S.-London markets above, the Department tentatively finds that the proposed alliance, as 

remedied, will not substantially reduce competition or enhance market power. 

We are not persuaded by Spirit to limit the operations of the proposed alliance in Latin 

America. Spirit’s request is focused on preventing code-share arrangements in select markets 

where there are still restrictions on new entry due to the lack of open-skies agreements. As we 

discussed in the Star show cause order, the Department’s predicate for considering a request for 

antitrust immunity is an open-skies agreement between the United States and the homeland of the 

foreign carrier-applicant, not for every third-country market that may be served.115 Spirit’s 

concerns are understandable to the extent that entry into certain markets may be difficult. 

However, Spirit has failed to provide the Department with persuasive evidence that competitive 

harm in these markets would negate the broader network benefits that a grant of immunity would 

bring. As such, we tentatively decide not to jeopardize these benefits by limiting the points that 

can be served, without stronger evidence of competitive harm. 

3. The Need for Antitrust Immunity 

Since we have tentatively found that the proposed alliance, as remedied, will deliver public 

benefits, we must now decide whether a grant of immunity is justified. Our policy is to grant 

immunity if the parties to the transaction would not otherwise go forward without it, and if we find 

that the public interest requires that we grant it. With regard to the latter element, we have found 

in previous cases, and we tentatively find here, that immunity is required by the public interest 

where the benefits are substantial and proximate to the granting of the authority.116

The applicants state that they will not proceed without a grant of antitrust immunity, due to the 

litigation risk inherent in the joining of two large networks and the commercial risks associated 

with the sharing of competitively sensitive information that would be necessary to complete the 

negotiations for the joint venture. They argue that a grant of immunity is necessary to achieve 

many of the public benefits of the transaction, including the closing of the transatlantic gap (for 

full code sharing and frequent flyer benefits), capacity and fare benefits attributable to integration 

under the joint venture, and joint corporate contracting, among others.117

Both DOJ and Virgin Atlantic challenge the applicants’ position. As discussed more fully 

above, DOJ and Virgin Atlantic do not believe there are substantial public benefits that are 

attributable to a grant of immunity. They believe that whatever benefits the alliance will produce 

have been, or can be captured, through arms-length cooperation. 

 

114 Answer of ITSA/ASTA at 20-23 (May 18, 2009).

115 See Star, Docket DOT-OST-2008-0234, Order 2009-4-5 at 20 (April 7, 2009). 

116 See SkyTeam II, Docket DOT-OST-2007-28644, Order 2008-4-17 at 14-16 (April 9, 2008); Star, Docket DOTOST-2008-0234, Order 2009-4-5 at 18-19 (April 7, 2009). 

117 Joint Application at 18-34, 58 (Aug. 14, 2008). 
36

We tentatively find the applicants’ position to be credible. Their third attempt to form an 

immunized alliance, made in conjunction with other partners under the oneworld umbrella, 

represents a deeper, more integrated and network-oriented approach. The efforts to integrate their 

entire global networks, with a focus on transatlantic markets, carry commercial risk. We 

tentatively find that immunity is necessary to facilitate the transaction and allow the partners to 

engage in the kind of revenue and benefit sharing that is necessary to alleviate the commercial 

risks and create substantial public benefits. It is highly unlikely that the parties would proceed 

with the proposed alliance absent a grant of antitrust immunity. 

Based on the above public benefits analysis, we tentatively conclude that a grant of antitrust 

immunity is required by the public interest. Therefore, we tentatively make a grant of immunity to 

the applicants to implement the proposed alliance, subject to remedies and conditions. 

D. Tentative Conditions 

In this section, we summarize and explain all of the proposed conditions and remedies. 

1. Slot Transfers 

In Section IV(B), we tentatively found that it is necessary for the applicants to make available 

four Heathrow slot pairs at times usable for transatlantic services to offset the potential loss of 

competition associated with the joining of American’s and British Airways’ transatlantic 

networks. The slots would be made available to competitors in time for the start of the IATA 

2011 Summer Season and would remain available for a period of 10 years from the date of 

issuance of a final order in this case. In our discussion, we proposed to earmark two slot pairs for 

Boston-London Heathrow service and indicated that the remaining two slot pairs could be used on 

a flexible basis for service in U.S.-Heathrow markets. Making available slot pairs in this way 

would reduce barriers to entry, enhance competition, and give competing airlines the opportunity 

to launch up to four new round trip flights between the U.S. and London. 

We also asked parties to comment on a proposed implementing mechanism for the slot 

transfers. In the event that a mechanism is established in the final order, we would require the 

applicants to implement it expeditiously as a condition of keeping the antitrust immunity. Such a 

condition would be important to ensure that the potential competitive harm we identified is 

alleviated by the prospect of new entry. Thus, we propose to require the applicants to implement 

the slot transfer mechanism within three months of the issuance of a final order or else the antitrust 

immunity will automatically expire. 

2. Implementation of the Joint Venture 

In Section IV(C), we tentatively found that we should not make an indefinite grant of 

immunity due to the risk that many of the public benefits will not be realized unless the joint 

venture is implemented in a prompt fashion. We are proposing to require the applicants to submit 

evidence that the JBA has been implemented in order to keep the antitrust immunity. If, within 18 

months of the issuance of a final order, they have not submitted verified statements attesting to the 
37

full implementation of the joint venture and a copy of the executed joint venture agreement, the 

antitrust immunity granted to the proposed alliance will automatically expire. 

We also tentatively found that it is necessary for the applicants to make changes in the text of 

the JBA to ensure that the applicants implement the venture in such a way so as to maximize 

public benefits. We are providing some guidance to assist the applicants as described further in 

Appendix B. The applicants should re-draft certain cited provisions of the JBA. The goal is to 

emphasize capacity growth over multiple hubs and enable the partners to act in the interest of the 

alliance as a whole. We expect these changes to be made and submitted on the record prior to the 

issuance of a final order. 

3. Annual Reporting 

The competitive issues associated with the proposed alliance are complex. We tentatively find 

that it is necessary for the applicants to report to the Department concerning commercial 

developments in the alliance and the degree to which the public benefits envisioned in the 

application are being realized. As in the recent SkyTeam and Star decisions, we are proposing 

annual reports.118 The reports should focus on progress made toward implementing the remedies 

and facilitating new entry, progress made toward achieving the alliance’s stated goals, specific 

actions taken to implement each of the alliance agreements (including especially joint venture 

agreements), 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. 

4. O&D Survey Data Reporting 

For many years, we have required foreign carriers to submit traffic data as a condition of 

obtaining immunity from U.S. antitrust laws. We ask those carriers to participate in the 

Department’s Origin-Destination Survey of Airline Passenger Traffic (“O&D Survey”), which 

requires U.S. carriers to submit traffic data in markets they serve singularly or jointly with foreign 

airlines. Without foreign carrier participation in this effort, we would receive no detailed market 

information for passengers traveling to or from the United States when their entire trip is on 

foreign airlines, except for T-100 data for nonstop and single-plane markets. The absence of such 

foreign carrier data severely handicaps our ability to evaluate the competitive effects of alliances. 

As in previous cases,119 we have tentatively decided to require the foreign carrier applicants – 

British Airways, Iberia, Finnair, and Royal Jordanian – to report full-itinerary O&D Survey 

information for all passenger itineraries that contain a United States point. This duty encompasses 

all traffic to third countries in which the itinerary includes a U.S. point. Since the oneworld 

alliance has not relied on grants of immunity to a large extent, this is a new requirement for 

several of the applicants.120 

 

118 See Star, Docket DOT-OST-2008-0234, Final Order 2009-7-10 at 26 (July 10, 2009); SkyTeam, DOT-OST-2007-

28644, Order 2009-6-26 at 2 (June 26, 2009). 

119 See, e.g., United/ Lufthansa/ Austrian/ SAS/ Swiss/ LOT/ TAP/ Air Canada, Docket DOT-OST-2005-22922, 

Order 2007-2-16 (Feb. 13, 2007). 

120 Finnair already participates in the O&D Survey as a result of our previous grant of immunity to the American/ 

Finnair alliance, which contained the same condition. See American/ Finnair, Docket DOT-OST-2002-12063, Order 
38

To prevent this reporting requirement from unfairly harming the foreign applicants’ 

competitive positions, we tentatively decide to grant confidentiality to their O&D Survey reports 

and special reports on code-share passengers. Currently, we grant confidential treatment to all 

international Origin-Destination data. We propose to provide these data confidential treatment 

because of the potentially damaging competitive impact on U.S. airlines and the potential adverse 

effect upon the public interest that would result from unilateral disclosure of these data (data 

covering the operations of foreign airlines that are similar to the information collected in the 

Passenger O&D Survey are generally not available to the Department, to U.S. airlines, or to other 

U.S. interests).121 

Our regulation, 14 C.F.R. Part 241 section 19-7(d)(1), provides for disclosure of international 

O&D Survey data to air carriers directly participating in and contributing to the O&D Survey. 

While we have tentatively found it appropriate to direct the foreign carrier applicants in this 

proceeding to provide certain limited O&D Survey data, they are not air carriers within the 

meaning of Part 241. The regulation, 14 C.F.R. Part 241, Section 03, defines an air carrier as 

“[a]ny citizen of the United States who undertakes, whether directly or indirectly or by a lease or 

any other arrangement, to engage in air transportation.” British Airways, Iberia, Finnair, and Royal 

Jordanian would have no access to the data filed by U.S. air carriers. Therefore, we would keep 

submissions confidential while maintaining the current restriction on access to U.S. air carrier 

O&D Survey data by foreign air carriers. 

5. Withdrawal from IATA Tariff Coordination 

As we have found in earlier decisions, it is contrary to the public interest to permit immunized 

alliances to participate in certain price-related coordination that is already immunized within 

IATA tariff coordination. We therefore tentatively decide to condition our grant of antitrust 

immunity by requiring the Joint Applicants to withdraw, or to remain withdrawn, from 

participation in any IATA tariff activities that affect or discuss any proposed through fares, rates 

or charges applicable between the United States and any countries whose airline(s) have been or 

are subsequently granted antitrust immunity by the Department for participation in similar 

alliances. Such countries include the homelands of the applicants.122 We tentatively find that this 

condition is in the public interest for the same reasons as stated in Order 2009-4-5. 

 2002-7-39 (July 30, 2002). We tentatively find that Finnair should continue to report the O&D Survey information. 

Royal Jordanian was required to submit O&D Survey information for a period of time while it had antitrust immunity 

with America West. This order would require Royal Jordanian to regularly report the information.

121 We treat the foreign airlines’ O&D data as confidential, do not allow U.S. airlines any access to the data, and do 

not allow foreign airlines any access to U.S. airline O&D Survey data. We use these data only for internal analytical 

purposes. 

122 This condition currently applies to prices in markets that are subject to our prior antitrust immunity orders. Those 

markets are U.S.-Netherlands, U.S.-Germany (Order 96-5-27 at 17), U.S.-Denmark/ Norway/ Sweden (Order 96-11-1 

at 23), U.S.-Austria (Order 2001-1-19 at 16), U.S.-Chile (Order 99-9-9 at 21), U.S.-Iceland (Order 2000-10-13 at 16), 

U.S.-Panama (Order 2001-5-1 at 11), U.S.-New Zealand (Order 2001-4-2 at 3), U.S.-Czech Republic/ France/ Italy 

(Order 2002-1-6 at 7), U.S.-Republic of Korea (Order 2002-6-18 at 14; Order 2003-5-18 at 12), U.S.-Finland (Order 

2002-7-39 at 10), U.S.-Belgium (Order 2004-4-10 at 12), U.S.-Jordan (Order 2005-1-23 at 13), U.S.-Peru (Order 

2005-10-8), U.S.-Poland/ Portugal/ Switzerland/ Canada (Order 2007-2-6), and U.S.-United Kingdom (Order 2007-9-
39

6. CRS Issues 

Consistent with recent cases, we are not proposing any conditions regarding the management 

of Computer Reservations Systems (CRSs).123 Any coordination between the applicants 

concerning the operation of separate businesses, such as CRSs, would not be transactions 

specifically approved or necessarily contemplated by our orders in this proceeding. While the 

Joint Applicants, individually or collectively, may maintain an interest in a CRS, the grant of 

immunity in this Order thus does not extend to their management of those interests.124 On the 

other hand, the applicants’ alliance relationships will likely require the coordination of the 

presentation and sale of the airlines’ own services in the CRSs and each airline’s operation of its 

internal reservations systems. Those activities will necessarily be covered by a grant of antitrust 

immunity. 

7. Operation under a Common Name 

Because implementation of the Alliance Agreements could raise important consumer issues 

and “holding out” questions, if the Joint Applicants choose to operate under a common name or 

use “common brands,” they must seek separate approval from the Department prior to such 

operations. For example, it is Department policy to consider the use of a single air carrier 

designator code by two or more airlines to be unfair and deceptive unless the airlines give 

reasonable and timely notice to passengers of the actual operator of the aircraft.125 

8. Standard Code Sharing Conditions 

We are tentatively granting authority for the applicants to engage in blanket code sharing as a 

part of their alliance. The standard conditions for such code sharing are provided in Appendix A. 

ACCORDINGLY: 

1. We direct all interested persons to show cause why we should not issue an order 

making final the tentative findings and conclusions discussed herein. Objections or 

comments to our tentative findings and conclusions shall be due no later than 45 

 12). Also, by letter dated May 8, 1996, Northwest and KLM indicated their willingness to limit voluntarily their 

participation in IATA (Dockets DOT-OST-96-1116 and DOT-OST-95-618). 

123 See, e.g., SkyTeam II, Docket DOT-OST-2007-28644, Order 2008-5-32 (May 22, 2008).

124 While any antitrust immunity granted in this proceeding would not cover the activities of Amadeus or any other 

system in which one of the Joint Applicants has an interest, we do, of course, have the authority under 49 U.S.C. § 

41712 to prohibit any system operating in the United States from engaging in unfair or deceptive practices or unfair 

methods of competition. The Court of Appeals has upheld our determination that we had such jurisdiction. Sabre, 

Inc. v. Dept. of Transportation, 429 F.3d 1113 (D.C. Cir. 2005). We also have the authority to take action against 

conduct by a foreign system or a foreign airline that unreasonably discriminates against a U.S. system. 49 U.S.C. § 

41310(g). 

125 See 14 C.F.R. § 399.82. 
40

calendar days from the service date of this Order, and answers to objections shall be 

due no later than 15 calendar days thereafter; 

2. We tentatively approve and grant antitrust immunity to alliance agreements between 

and among American Airlines, Inc. (along with its affiliates American Eagle, Inc. and 

Executive Airlines, Inc. d/b/a American Eagle), British Airways PLC (along with its 

affiliate OpenSkies SAS), Finnair OYJ, Iberia Líneas Aéreas de España, S.A., and 

Royal Jordanian Airlines, in so far as such agreements relate to foreign air 

transportation.126 Without regard to other conditions described in the ordering 

paragraphs below, the approval and grant of antitrust immunity shall remain in effect 

indefinitely, provided that the Joint Applicants: 

a. Submit for prior approval subsequent subsidiary agreements implementing their 

Alliance Agreements;127 

b. Resubmit the Alliance Agreements before five years from the date of issuance of 

the final order in this case; and 

c. Obtain prior approval if they choose to operate or hold out service under a common 

name or use common brands; 

3. We tentatively renew the existing statements of authorization of American Airlines, 

Inc. and British Airways Plc and amend their existing authority to allow blanket 

reciprocal open-skies code sharing, subject to the conditions attached as Appendix A, 

under 14 CFR Part 212 for: 

a. The display of British Airways Plc’s “BA” designator code on flights operated by 

American Airlines, Inc. or its affiliates between (i) points in the United States, (ii) 

points in the United States and points in the European Union (either nonstop or via 

intermediate points in third countries), (iii) points in the United States and points in 

third countries, and (iv) points in the European Union and points in third countries; 

and 

b. The display of American Airlines, Inc.’s “AA” designator code on flights operated 

by British Airways Plc between (i) points in the European Union, (ii) points in the 

European Union and points in the United States (either nonstop or via intermediate 

 

126 The alliance agreements shall mean those agreements referred to on page 2 and Exhibits JA-1 and JA-4, of the 

Joint Application filed on August 14, 2008. 

127 Regarding this requirement, we do not expect the Joint Applicants to provide the Department with minor 

technical understandings that are necessary to implement fully their day-to-day operations but that have no additional 

substantive significance. We do, however, expect and direct them to provide the Department with all unredacted 

contractual instruments that implement or materially alter, modify, or amend the cooperation agreements, joint 

ventures, or confidentiality/antitrust guidelines. For avoidance of doubt, the applicants should submit any slot transfer 

agreements entered into pursuant to the immunized alliance and any agreements with a trustee. All documents shall 

be submitted to the Director, Office of Aviation Analysis. 
41

points in third countries), (iii) points in the European Union and points in third 

countries, and (iv) points in the United States and points in third countries; 

4. We tentatively determine that the Joint Applicants shall make available four slot pairs 

at London’s Heathrow International Airport, subject to an expeditious and independent 

process, to duly authorized airlines that are not affiliates of the applicants or members 

of oneworld, for a period of at least 10 years from the issuance of a final order, at times 

that are usable for transatlantic services, for the purpose of introducing new services 

between the U.S. and London as described in this order.128

We tentatively determine that, unless the Joint Applicants implement a mechanism to 

transfer the slot pairs within three months of the issuance of the final order in this case, 

the authority herein shall expire and the grant of antitrust immunity shall be 

automatically withdrawn; 

5. We tentatively direct the Joint Applicants to revise the Joint Business Agreement as set 

forth in section IV(D)(2) of this order and to submit the revised agreement on the 

record prior to the issuance of a final order in this case; 

6. We tentatively direct the Joint Applicants to file with the Director of the Office of 

Aviation Analysis the following as evidence that the Joint Business Agreement has 

been implemented: 

a. Verified statement(s) in Docket OST-2008-0252 attesting that the Joint Business 

Agreement has been executed and implemented pursuant to the terms described in 

the Joint Application, Exhibit JA-1 (Joint Business Agreement), and 

b. A complete and unredacted copy of the Joint Business Agreement with appendices. 

We tentatively determine that, unless the Joint Applicants make the filings described in 

this ordering paragraph within eighteen months of the issuance of a final order in this 

case, the authority herein shall expire and the grant of antitrust immunity shall be 

automatically withdrawn; 

7. We tentatively direct the Joint Applicants to submit annual progress reports to the 

Office of Aviation Analysis, beginning one year from the date of issuance of a final 

order in this case, and continuing each year thereafter while the Alliance Agreements 

are effective;129 

8. We tentatively direct American Airlines, Inc., British Airways PLC, Finnair OYJ, 

Iberia Líneas Aéreas de España, S.A., and Royal Jordanian Airlines to withdraw, or to 

 

128 Section IV(B)(2) of this order indicates that 2 slot pairs are designated for Boston-Heathrow service and 2 slot 

pairs are designated for flexible use in U.S.-Heathrow city pairs. 

129 We expect the Joint Applicants to deliver the progress report by the close of business on the anniversary date. If 

that date falls on a weekend or federal holiday, the Joint Applicants may deliver the report by the close of business on 

the following business day. 
42

remain withdrawn, from participation in any International Air Transport Association 

tariff coordination activities that discuss any proposed through fares, rates, or charges 

applicable between the United States and any countries whose airlines have been or are 

subsequently granted antitrust immunity, or renewal thereof, to participate in similar 

alliance activities with a U.S. airline(s); 

9. We tentatively delegate to the Director, Office of International Aviation, the authority 

to determine the applicability of the directive set forth in Ordering Paragraph 8 as to 

specific prices, markets, and tariff coordination activities, consistent with the scope and 

purpose of the condition, as previously described; 

10. We tentatively direct British Airways PLC, Finnair OYJ, Iberia Líneas Aéreas de 

España, S.A., and Royal Jordanian Airlines, to begin or to continue to report fullitinerary Origin-Destination Survey of Airline Passenger Traffic for all passenger 

itineraries that include a U.S. point; 

11. We tentatively determine that we may amend, modify, or revoke this authority at any 

time without hearing; 

12. We grant the motions of Virgin Atlantic, submitted on January 20, 2010, and Hubert 

Horan, submitted on January 31, 2010, for leave to file late pleadings; and 

13. We will serve this Order on all parties on the service list in this docket. 

By: 

SUSAN L. KURLAND 

Assistant Secretary for Aviation 

and International Affairs 

(SEAL) 

An electronic version of this document is available at: http://www.regulations.gov
1

APPENDIX A 

Code-share Conditions 

The statements of authorization are subject to the following conditions: 

(1) The statements of authorization will remain in effect only as long as (a) American and British Airways 

continue to hold the necessary underlying authority to operate the code-share services at issue, and (b) the 

code-share agreement providing for the code-share operations remains in effect; 

(2) American and/or British Airways must notify the Department no later than 30 days before they begin 

any new code-share service under the code-share services authorized here. Such notice shall identify the 

market(s) to be served, which carrier will be operating the aircraft in the code-share market added, and the 

date on which the service will begin. Such notices should be filed in Docket DOT-OST-2002-13861; 

(3) American and/or British Airways must notify the Department immediately if the code-share agreement 

under which these code-share services are operated is no longer in effect or if the carriers decide to cease 

operating all or a portion of the approved code-share services. Such notices should be filed in Docket 

DOT-OST-2002-13861;130

(4) The code-sharing operations conducted under this authority must comply with 14 CFR Part 257 and 

with any amendments to the Department's regulations concerning code-share arrangements that may be 

adopted. Notwithstanding any provisions in the contract between the carriers, our approval here is 

expressly conditioned upon the requirements that the subject foreign air transportation be sold in the name 

of the carrier holding out such service in computer reservation systems and elsewhere; that the carrier 

selling such transportation (i.e., the carrier shown on the ticket) accept responsibility for the entirety of the 

code share journey for all obligations established in its contract of carriage with the passenger; and that the 

passenger liability of the operating carrier be unaffected; 

(5) Any service provided shall be consistent with the provisions of the U.S.-EU agreement, and all 

applicable agreements with other foreign countries involved. Furthermore, (a) nothing in the award of the 

blanket statement of authorization to American should be construed as conferring upon American rights 

(including code-share, fifth-freedom intermediate and/or beyond rights) to serve markets where U.S. carrier 

rights are limited unless American notifies us of its intent to serve such market and unless and until the 

Department has completed any necessary carrier selection procedures to determine which carrier(s) should 

be authorized to exercise such rights;131 and (b) should there be a request by any carrier to use the limitedentry route rights that are included in American’s authority by virtue of the blanket statement of 

authorization granted here, but that are not being used by American, the holding of such authority will not 

be considered as providing any preference for American in a carrier selection proceeding to determine 

which carrier(s) should be entitled to use the authority at issue. 

(6) The authority granted here is specifically conditioned so that neither American nor British Airways 

shall give any force or effect to any contractual provisions between themselves that are contrary to these 

conditions; and 

(7) We may amend, modify, or revoke the authority granted at any time without hearing at our discretion. 

 

130 We expect this notification to be received within 10 days of such non-effectiveness or of such decision. 

131 The notice referenced in condition (2) above may be used for this notification. 
1

APPENDIX B 

Structural Changes to the Joint Venture 

[Redacted] 

[Protected from Disclosure Pursuant to 14 C.F.R. Part 302.12. Persons who have filed appropriate 

affidavits in this docket, according to the guidelines set forth in the Department’s August 19, 2008 Notice, 

may request the confidential version of this document from the DOT Dockets Office at 1200 New Jersey 

Avenue, SE, Washington, DC 20590.]