Before the U.S. Department of Transportation Washington, D.C
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BEFORE THE U.S. DEPARTMENT OF TRANSPORTATION WASHINGTON, D.C. Application of AMERICAN AIRLINES, INC. BRITISH AIRWAYS PLC OPENSKIES SAS IBERIA LÍNEAS AÉREAS DE ESPAÑA, S.A. Docket DOT-OST-2008-0252- FINNAIR OYJ AER LINGUS GROUP DAC under 49 U.S.C. §§ 41308 and 41309 for approval of and antitrust immunity for proposed joint business agreement JOINT MOTION TO AMEND ORDER 2010-7-8 FOR APPROVAL OF AND ANTITRUST IMMUNITY FOR AMENDED JOINT BUSINESS AGREEMENT Communications about this document should be addressed to: For American Airlines: For Aer Lingus, British Airways, and Stephen L. Johnson Iberia: Executive Vice President – Corporate Kenneth P. Quinn Affairs Jennifer E. Trock R. Bruce Wark Graham C. Keithley Vice President and Deputy General BAKER MCKENZIE LLP Counsel 815 Connecticut Ave. NW Robert A. Wirick Washington, DC 20006 Managing Director – Regulatory and [email protected] International Affairs [email protected] James K. Kaleigh [email protected] Senior Antitrust Attorney AMERICAN AIRLINES, INC. Laurence Gourley 4333 Amon Carter Blvd. General Counsel Fort Worth, Texas 76155 AER LINGUS GROUP DESIGNATED [email protected] ACTIVITY COMPANY (DAC) [email protected] Dublin Airport [email protected] P.O. Box 180 Dublin, Ireland Daniel M. Wall Richard Mendles Michael G. Egge General Counsel, Americas Farrell J. Malone James B. Blaney LATHAM & WATKINS LLP Senior Counsel, Americas 555 11th St., NW BRITISH AIRWAYS PLC Washington, D.C. 20004 2 Park Avenue, Suite 1100 [email protected] New York, NY 10016 [email protected] [email protected] Antonio Pimentel Alliances Director For Finnair: IBERIA LÍNEAS AÉREAS DE ESPAÑA, Sami Sareleius S.A. Senior Vice President and Velazquez, 130 General Counsel 28006 Madrid, Spain FINNAIR OYJ Tietotie 11 A FI-01053, Finland [email protected] December 21, 2018 TABLE OF CONTENTS EXECUTIVE SUMMARY .................................................................................................2 DISCUSSION ......................................................................................................................7 I. THE EXISTING JBA HAS GENERATED SIGNIFICANT CONSUMER BENEFITS AND HAS IMPROVED TRANSATLANTIC TRAVEL ......................7 A. Connectivity Has Increased ..................................................................................8 B. Output Has Expanded .........................................................................................11 C. Fares Have Decreased And Demand Has Increased ...........................................14 D. Quality Of Travel Has Improved ........................................................................17 II. ADDING AER LINGUS TO THE JBA GENERATES $96 MILLION IN ANNUAL CONSUMER BENEFITS AND FURTHER ENHANCES TRANSATLANTIC TRAVEL .................................................................................22 A. Increased Connectivity Will Increase Consumer Choice ...................................26 B. More Efficient Pricing And Increased Capacity Will Put Downward Pressure On Fares And Stimulate Demand .......................................................................29 C. Significant Improvements In The Quality Of Travel To Ireland ........................30 D. Intensified Inter-Alliance Competition ...............................................................31 E. The Consumer Benefits Of The JBA Are Significant And Quantifiable ...........33 III. THE AER LINGUS VALUE-CARRIER MODEL ALLOWS THE JBA TO MORE EFFECTIVELY COMPETE AND EXPAND SERVICE WITHOUT IMPACTING THE CORE BUSINESS MODELS OF AMERICAN AND IAG ...........................35 A. Adding Aer Lingus Positions The Joint Business To Better Compete With LCCs, Who Have Grown Significantly In Recent Years ...................................36 B. Aer Lingus’ Value-Carrier Model Will Thrive In The JBA ...............................40 IV. THE JBA WILL NOT REDUCE COMPETITION .................................................44 A. Transatlantic Competition Is And Will Remain Intense .....................................44 B. No Lessening Of Competition To/From Ireland .................................................45 C. The Consumer Benefits Of The JBA Far Outweigh Any Conceivable Harm From Higher Fares ..............................................................................................49 V. GRANT OF ATI IS CONSISTENT WITH DEPARTMENT PRECEDENT AND SATISFIES THE LEGAL STANDARD FOR APPROVAL AND ATI .................50 A. Adding An Affiliate To Existing ATI Is Consistent With Department Precedent50 B. The JBA Satisfies The Legal Standard For Approval And ATI .........................52 CONCLUSION ...................................................................................................................54 BEFORE THE U.S. DEPARTMENT OF TRANSPORTATION WASHINGTON, D.C. Application of AMERICAN AIRLINES, INC. BRITISH AIRWAYS PLC OPENSKIES SAS IBERIA LÍNEAS AÉREAS DE ESPAÑA, S.A. Docket DOT-OST-2008-0252- FINNAIR OYJ AER LINGUS GROUP DAC under 49 U.S.C. §§ 41308 and 41309 for approval of and antitrust immunity for proposed joint business agreement JOINT MOTION TO AMEND ORDER 2010-7-8 FOR APPROVAL OF AND ANTITRUST IMMUNITY FOR AMENDED JOINT BUSINESS AGREEMENT American Airlines, Inc. (“American”), British Airways PLC (“British Airways”), OpenSkies SAS (“OpenSkies”), Iberia Líneas Aéreas de España, S.A. (“Iberia”), Finnair OYJ (“Finnair”), and Aer Lingus Group DAC (“Aer Lingus”) (collectively “the Parties”) respectfully request that the Department amend DOT Order 2010-7-8 to extend its approval and grant of antitrust immunity (“ATI”) to Aer Lingus and an Amended Joint Business Agreement, copies of which are submitted in Appendix 1 (the “JBA”).1 As explained in this Motion, the JBA will generate significant consumer benefits not achievable through other means and will not result in any lessening of competition. This Motion is consistent with the Department’s longstanding precedent of extending ATI to affiliates, such as Aer Lingus, that are owned by a parent company covered by an existing grant of ATI. The JBA meets the legal standard for approval and ATI, and the Parties respectfully request that this Motion be granted. 1 OpenSkies was formerly a subsidiary of British Airways and was covered under the 2010 grant of ATI. As a result of recent corporate reorganization, OpenSkies is now owned by Fly LEVEL S.L. (“LEVEL”), an airline management company still under the common control of International Consolidated Airlines Group, S.A. (“IAG”). LEVEL branded services are operated by Iberia and OpenSkies under their respective Air Operator Certificates. EXECUTIVE SUMMARY In July 2010, the Department granted ATI for American, British Airways, and Iberia to implement a transatlantic revenue-pooling joint business arrangement (the “Existing JBA”) to strengthen the oneworld alliance and intensify competition with the global SkyTeam and Star Alliances and their respective transatlantic joint businesses.2 As the Department predicted, the Existing JBA has been a tremendous success for consumers, byconnecting more transatlantic passengers to more destinations in North America and Europe and accelerating growth in new routes, flights, and seats, all while improving quality of service, lowering fares, and intensifying competition for transatlantic travel. The Parties are now seeking ATI to extend the Existing JBA to include Aer Lingus, which was acquired in September 2015 by International Consolidated Airlines Group, S.A. (“IAG”), the parent company of British Airways and Iberia. Aer Lingus serves more than 115 destinations primarily in Europe and North America, with nonstop service to 13 North American destinations.3 Aer Lingus, like British Airways and Iberia, benefits from IAG’s centralized corporate functions, but also maintains a distinct brand and culture, with a “value-carrier” service model that provides a customer proposition competitive with both full service carriers (“FSCs”) and low-cost carriers (“LCCs”). Aer Lingus complements the full service British Airways and Iberia brands and has, since its acquisition by IAG, maintained its top-tier customer-satisfaction 2 See American-British Airways-Finnair-Iberia-Royal Jordanian, DOT-OST-2008-0252, Final Order 2010-7-8 (the “AA-BA 2010 Final Order”). The Department’s 2010 grant of ATI covered various bilateral and multilateral alliance agreements between and among American, British Airways, Iberia, Finnair, and Royal Jordanian, including a Joint Business Agreement (“Existing JBA”) between American, British Airways, and Iberia, which was later amended to include Finnair. Although not a party to the Existing JBA, Royal Jordanian is a party to an August 2008 Alliance Coordination Agreement covered by the Department’s grant of ATI to the Existing JBA. 3 Aer Lingus’s North American destinations include Boston, Chicago, Hartford, Los Angeles, Miami, Newark, New York, Orlando, Philadelphia, San Francisco, Seattle, Toronto, and Washington, D.C. All of these have service to/from Dublin, Ireland. In addition, Boston and New York (JFK) have service to/from Shannon, Ireland. Aer Lingus plans to add routes to Dublin from Minneapolis-St. Paul and Montreal beginning in summer 2019. Aer Lingus currently operates codeshare flights with British Airways, Iberia, United, and JetBlue. See Aer Lingus route map from Ireland to North America, https://www.aerlingus.com/plan-and-book/latest-offers/flights-from- ireland/flights-from-ireland-to-north-america/. 2 rating, significantly expanded its transatlantic