Before the U.S
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BEFORE THE U.S. DEPARTMENT OF TRANSPORTATION OFFICE OF THE SECRETARY WASHINGTON, DC __________________________________________ ) 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 ) __________________________________________) ANSWER OF JETBLUE AIRWAYS CORPORATION Communications with respect to this document should be sent to: Robert C. Land Senior Vice President, Government Affairs and Associate General Counsel Adam L. Schless Director Aircraft Transactions and International Counsel Reese Davidson Manager Staff Counsel International JETBLUE AIRWAYS CORPORATION 1212 New York Avenue, NW Suite 1212 Washington, DC 20005 (202) 715-2565 [email protected] [email protected] [email protected] September 9, 2020 BEFORE THE U.S. DEPARTMENT OF TRANSPORTATION OFFICE OF THE SECRETARY WASHINGTON, DC __________________________________________ ) 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 ) __________________________________________) ANSWER OF JETBLUE AIRWAYS CORPORATION JetBlue Airways Corporation (“JetBlue”) submits this Answer to address urgent concerns about a fundamental predicate to DOT’s continuing approval and grant of antitrust immunity (ATI) to the oneworld transatlantic alliance: the London Heathrow Airport (LHR) slot remedy condition. Consistent with its previous filings in this and other dockets, JetBlue reiterates it is not opposed to joint ventures or grants of ATI per se. JetBlue takes no position on the merits of the joint applicants’ request to add Aer Lingus to the oneworld transatlantic joint venture, provided that DOT maintain, or expand, the LHR remedies in place including the requirement that four LHR slot pairs be made available to new entrants. As an essential condition to granting ATI to the oneworld transatlantic alliance in 2010, DOT required the reallocation of LHR slots as a “remed[y] to address harm to competition” from granting ATI.1 That slot remedy is due to expire in March 2021. JetBlue has firm plans to start serving LHR from Boston and New York (JFK) in 2021, but cannot do so without access to LHR slots at “commercially viable”2 times of the day. For the reasons set forth below, JetBlue requests that DOT, in conjunction with the UK’s Competition and Markets Authority (CMA),3 extend the duration of the 2010 slot remedy and repurpose it to address current barriers to entry and competition in U.S.-LHR markets by reallocating at least four daily slot pairs to JetBlue. At a minimum, DOT should maintain the requirement that four slot pairs be available for new-entrants with two slot pairs dedicated for service at Boston and two “flex” slot pairs for service at any U.S. gateway. U.S.-LHR markets are far less competitive than in 2010 and timely DOT action is necessary to address this competitive problem. I. JetBlue’s Independent Partnerships with Aer Lingus and American JetBlue is pleased that the proposed expanded oneworld JV “preserves Aer Lingus’ ability to cooperate and codeshare with other carriers, including other value carriers and LCCs” and “maintains Aer Lingus’ freedom to continue its existing codesharing with JetBlue.”4 Aer Lingus has been a valued partner of JetBlue since 2008 and JetBlue hopes that Aer Lingus will maintain and grow the partnership as JetBlue prepares to launch transatlantic service. JetBlue recently announced a Northeast Alliance with American. This bilateral alliance (which involves American but none of the other applicants in this proceeding) focuses on four 1 Order 2010-2-8, Feb. 13, 2010, at 25-27 (DOT-OST-2008-0252). DOT described the LHR slot remedy as “the best [way to] address the potential competitive harm in this case.” Id. at 26. 2 Id. at 26 & n.88. 3 DOT has stated that it is coordinating with the CMA, which has been conducting a two-year investigation into competitive conditions at LHR, “to address potential competition concerns regarding competition in transatlantic markets.” DOT Notice Establishing Procedural Schedule, Aug. 12, 2020 (Docket DOT-OST-2008-252) at 2. 4 Joint Motion to Amend Order 2010-7-8 for Approval of and Antitrust Immunity for Amended Joint Business Agreement, Dec. 21, 2018 (Docket DOT-OST-2008-0252) at 26 and 43. 2 airports in the northeastern U.S. where JetBlue and American operate primarily domestic networks. This unique, but limited, alliance, which is currently undergoing regulatory review, will aid JetBlue’s recovery from COVID-19 and help it to avoid pilot and other crewmember furloughs by buttressing its fleet size above a level that depressed COVID-19 demand would otherwise warrant. For purposes of this ATI proceeding, it is important to note that JetBlue’s own-metal transatlantic service is specifically excluded from the scope of its proposed new alliance with American. JetBlue will be an independent, vigorous competitor in U.S.-LHR and other U.S.- Europe markets. The American alliance has not altered JetBlue’s transatlantic plans; rather, it bolsters and enhances JetBlue’s plans by providing increased passenger feed at BOS and JFK, including for its new transatlantic flights. Because JetBlue will not be a party to the oneworld JV (and has no plans to join it), JetBlue will remain an independent competitor of the oneworld JV, without immunity from U.S. antitrust laws. It is in this context that JetBlue, as a vigorous, independent competitor of the oneworld JV, urges DOT to establish a robust, repurposed LHR slot remedy as an essential competitive counterbalance to a continuing grant of ATI for the expanded oneworld JV alliance, which operates in far more anticompetitive conditions than when DOT granted ATI in 2010. II. Competitive Conditions in U.S.-LHR Markets Have Fundamentally Changed Since 2010 and Warrant a Restructured Slot Remedy Before the COVID-19 pandemic, the airline industry experienced an extended period of consolidation through mergers and grants of ATI for alliances. As a direct consequence, U.S.- LHR markets have become excessively concentrated. Under the standard antitrust measure of 3 industry concentration, the HHI Index, the U.S.-LHR market has gone from 2,404 (moderately concentrated) in June 2010 to a staggering 3,982 (highly concentrated) in June 2019.5 The oneworld and SkyTeam immunized alliances now collectively control approximately 70% of slots at LHR. Carriers that used to be new entrants and smaller non-aligned incumbents such as Delta and Virgin Atlantic are now part of dominant immunized alliances. LCCs, meanwhile, either have gone out of business, exited U.S.-London markets entirely, or serve the U.S. from other London airports with no competitive effect on fares or service at LHR.6 “Competition” in U.S.-LHR markets is essentially limited to the three immunized mega alliances, which operate similar business models and largely compete with each other only indirectly by serving different U.S. hubs. In the largest U.S.-LHR market (New York-LHR), 100% of service is operated by one of the three large immunized joint ventures. For these reasons, U.S.-LHR markets are in desperate need of the benefits of disruptive competition from a new entrant. To address these structural competitive problems, DOT should require a modified slot remedy that provides meaningful access to LHR for new entrants such as JetBlue. DOT has long recognized the need for new entrants to be able to obtain access to LHR. When evaluating the proposed oneworld transatlantic JV in 2010, DOT warned of the alliance’s potentially adverse effects on LHR access: “[w]ithout more and easier access to Heathrow slots, competing carriers would find it difficult to introduce new services to compete with an immunized oneworld.”7 In concert with the European Commission (DG-COMP), DOT conditioned immunity 5 Cirium schedule data. 6 Many carriers have exited the broad U.S.-Europe market in recent years, including Air Berlin, Air Italy, Primera, WOW and others. 7 Order 2010-2-8, Feb. 13, 2010, at 25 (DOT-OST-2008-0252). 4 for the JV on a LHR slot remedy to protect competition, including a requirement that two slot pairs be “earmarked for the Boston-London Heathrow market.”8 Ten years later, the 2010 slot remedy needs to be restructured and repurposed to address the lack of competition and access in U.S.-LHR markets. When DOT first granted ATI to the oneworld transatlantic alliance (in this docket) a decade ago, those carriers controlled 45% of LHR slots. Since then, British Airways and Iberia merged and formed the International Airlines Group (IAG). IAG subsequently acquired Vueling, Aer Lingus and LEVEL/OpenSkies (and its purchase of Air Europa is pending). These airlines control a significant number of LHR slots on their own (including Aer Lingus, which was not analyzed by DOT in 2010) and have been methodical about increasing their respective and combined slot portfolios since 2010. They have acquired the former slot holdings of bmi, and earlier this year resumed control of approximately a dozen remedy slot pairs that Flybe had been using. The cumulative effect is that today these carriers now control approximately 60% of LHR slots.9 Even before COVID, the IAG carriers struggled with the enviable problem of how to maintain the minimum level of usage necessary to retain their vast LHR slot portfolio. In addition to the oneworld immunized JV alliance’s 60% of LHR slots, the SkyTeam immunized JV alliance – which includes Delta, Virgin Atlantic and Air France-KLM – have an almost 10% share of LHR slots.