BEFORE THE
DEPARTMENT OF TRANSPORTATION
WASHINGTON, D.C.
__________________________________________
Joint Application of
:
:
Docket OST-2001-10387
AMERICAN AIRLINES, INC
:
and
:
BRITISH AIRWAYS PLC
:
:
Under 49 U.S.C. §§ 41308-41309 for approval of :
and antitrust immunity for agreement
:
__________________________________________:
__________________________________________
Joint Application of
:
:
Docket OST-2001-10388
AMERICAN AIRLINES, INC
:
and
:
BRITISH AIRWAYS PLC
:
:
Under 14 C.F.R Part 212 for statements of
:
authorization (blanket codesharing) and under :
49 U.S.C. § 40109 for related exemption
:
authority
:
__________________________________________:
REPLY OF THE AIR CARRIER ASSOCIATION OF AMERICA TO THE JOINT
APPLICATION OF AMERICAN AIRLINES AND BRITISH AIRWAYS FOR
APPROVAL OF AND ANTITRUST IMMUNITY FOR AGREEMENT
Communications with respect to this document should be addressed to:
Edward P. Faberman
Michelle M. Faust
AIR CARRIER ASSOCIATION
OF AMERICA
1500 K Street, NW, Suite 250
Washington, DC 20005-1714
Tel: 202-639-7502
Fax: 202-639-7505
Date: November 9, 2001
DCDOCS-9470-01
BEFORE THE
DEPARTMENT OF TRANSPORTATION
WASHINGTON, D.C.
__________________________________________
Joint Application of
:
:
Docket OST-2001-10387
AMERICAN AIRLINES, INC
:
and
:
BRITISH AIRWAYS PLC
:
:
Under 49 U.S.C. §§ 41308-41309 for approval of :
and antitrust immunity for agreement
:
__________________________________________:
__________________________________________
Joint Application of
:
:
Docket OST-2001-10388
AMERICAN AIRLINES, INC
:
and
:
BRITISH AIRWAYS PLC
:
:
Under 14 C.F.R Part 212 for statements of
:
authorization (blanket codesharing) and under :
49 U.S.C. § 40109 for related exemption
:
authority
:
__________________________________________:
REPLY OF THE AIR CARRIER ASSOCIATION OF AMERICA TO THE JOINT
APPLICATION OF AMERICAN AIRLINES AND BRITISH AIRWAYS FOR
APPROVAL OF AND ANTITRUST IMMUNITY FOR AGREEMENT
I.
Introduction
Once again those supporting increasing the dominance of the nation’s largest air
carrier--American Airlines-- apparently believe that by waving a magic wand, all will be
convinced that by allowing it to “merge” with one of the world’s largest carriers--British
Airways-- will provide benefits to the traveling public. American even called out some
of its financially supported “experts” to justify its claims that being the largest is not
DCDOCS-9470-01
1
enough and that this “bonding” with British Airways will benefit travelers. As to those
claims, ACAA refers to the words of Abraham Lincoln:
If you forfeit the confidence of your fellow citizens, you can never regain their
respect and esteem. It is true that you may fool all the people some of the time;
you can even fool some of the people all the time; but you can’t fool all the
people all the time.
[Abraham Lincoln, to a caller at the White House, from
Alexander K. McClure, Lincoln’s Yarns and Stories, 1904]
While some evidence was presented as to the benefits that the latest alliance
relationship between those two carriers will have for international travelers, no
information has been provided that disputes the overwhelming evidence that a carrier
increasing its control over hub airports and regions of the United States will increase the
domestic barriers to competition for smaller carriers that are competing against it. This is
particularly the case when one of the carriers involved in the alliance is notorious for its
behavior towards new entrants.
II.
The AA/BA Alliance Will Increase American’s Dominance in Domestic
Markets
The proposed AA/BA alliance and blanket codeshare agreement would further
enhance American’s AAdvantage and Codeshare Relationships and strengthen the reach
of Oneworld.1 The American/British Airways proposal is not just about passengers
traveling from international gateways in the United States to Heathrow and those
connecting to international cities throughout Europe and the rest of the world. It is much
greater than that. This is about flights between dozens of domestic United States cities
and various U.S. gateways and is also about passengers traveling from the various
American’s extensive list of partners are as follows: Aer Lingus, Air Pacific, Air Tahiti Nui, Alaska
Airlnes, British Airways, Cathay Pacific, China Eastern Airlines, CrossAir, El Al, Eva Air, Finnair, Grupo
1
DCDOCS-9470-01
2
international cities to dozens of cities within the United States. As more and more
passengers are able to travel under a combined American/British Airways operation,
American’s control over markets will increase. As that control increases, it becomes
more difficult for low-fare, new entrant carriers to compete in markets already dominated
by the nation’s largest carriers.
By further enhancing American’s international
partnerships with an AA/ BA alliance and codeshare agreement, dozens of markets in the
United States will be directly affected. As a result of the inevitable domestic hub
dominance from an AA/BA alliance, American’s control over corporations, travel agents
and business and leisure travelers will dramatically increase. In turn, it will become even
more difficult for new entrant and small carriers to enter and expand at hubs, and regions
of the country dominated by the two or three largest carriers and their alliance partners.
In 1999, the Transportation Research Board stated that:
a concern of the committee is that, in advocating international alliances
and also granting antitrust immunity, DOT might not have give sufficient
consideration to the potential effect of international alliances on the
competitive structure of the domestic airline industry.
Transportation Research Board Special Report 255,
Entry and Competition in the U.S. Airline Industry:
Issues and Opportunities, July 1999.
We note concerns expressed by TWA.
Taca, Gulf Air, Hawaiian Airlines, Iberia, JAL, Lan Chile, LOT, Quantas, Sabena, SCNF, SwissAir, TAM,
Air Portugal, Thalys, Turkish Airlines and TWA.
DCDOCS-9470-01
3
In White Paper entitled “ The Anticompetitive Nature of Airline Alliances”, TWA
stated:
Based on the experience with transatlantic alliances, these combinations
raise serious questions whether small carriers can survive
***
The result will be a domestic industry in which 81% of the traffic is
controlled by an oligopoly of three large alliances. At a time when DOT
is attempting to protect new entrants and to foster competition in the
domestic market, it is most curious that the government would even
consider permitting these combinations.
Since those comments, American has taken over TWA, expanded in east coast markets,
and added other new domestic and international alliance partners. At the same time,
there are fewer U.S. domestic competitors.
Domestic Competition is Significantly Decreasing
One by one small carriers such as Midway have ceased operations, turning over
markets and control of fares in markets such as Raleigh-Durham and connecting cities, to
American and other large carriers. The Department’s own studies have demonstrated
what happens when domestic competition disappears. Those studies clearly show what
will happen if the Department fails to ensure that new entry and low fares will continue to
be available even if it allows the continue expansion of American’s empire and arsenal.
Competition brings consumers lower fares and better service, and
maintaining competition is essential to ensure the continuing success of
airline deregulation. In particular, low-fare competition makes airline
service affordable for millions of passengers every year who otherwise
could not travel by air, and it enhances the service and fare options
available to all consumers.
The benefits of deregulation depend on competition. Particularly
important for many travelers are the low-fare airlines, since they rely on a
strategy of attracting customers by offering low fares.
DCDOCS-9470-01
4
Travelers are not the only beneficiaries of increased competition. Regions
where the lower fares and increased service options created by
competition are available are better able to attract new businesses and
business expansions; conversely, regions denied access to competitive
service suffer economic difficulties.
Enforcement Policy Regarding Unfair Exclusionary
Conduct in The Air Transportation Industry,
“Findings and Conclusions on the Economic, Policy
and Legal Issues.” Docket OST-98-3713
In dominated hubs as a whole, 24.7 million passengers pay on average
41% more than do their counterparts flying in hub markets with low-fare
competition. It is reasonable to expect that with the benefit of low–fare
competitors another 25-50 million passengers annually would travel in
these markets.
Passengers in short-haul hub markets without low-fare carriers pay even
higher fares, or 54% more on average than passengers in comparable
markets with a low-fare competitor.
The negative effects of high hub fares reach beyond hub cities. Spoke
communities whose service is predominantly to network hubs by hub
dominant carriers may also be subjected to high prices. Buffalo, New
York provides a good example of this, and also the benefits of low-fare
competitive alternatives.
People at Buffalo, and their elected
representatives, worked hard to attract low-fare service and they have
succeeded. The benefits, in terms of increased service and lower prices,
and enormous. For example, average fares declined by 36%, from $185 to
$119, in the Atlanta-Buffalo market after AirTran’s entry, and the number
of passengers in the market increased by 65%.
“Dominated Hub Fares, Office of the Assistant
Secretary of Aviation and International Affairs,
U.S. Department of Transportation, January 2001
While a number of carriers are submitting comments on the impact of an AA/BA
alliance, their same arguments apply domestically.
. . . combining American and British Airways sales and distribution
networks in both the U.S. and Europe would make it very difficult, if not
impossible, for any other airline to compete. With enormous power and
scope of a combined American/British Airways in providing incentives to
DCDOCS-9470-01
5
travel agents by offering the most flights at London and throughout the
U.K., including flights on monopoly routes travel agents must access,
American/British Airways could insist that travel agents shift market
shares to reward the agents for volume sales and take travel agent business
away from other airlines on competitive routes. Since corporate accounts
require significant access to London Heathrow and global networks, the
combination of American and British Airways, which are two of the
world’s largest airlines, and dominate London Heathrow, would give those
airlines the ability to leverage their dominance of London Heathrow to
decrease the corporate business of other airlines which can neither match
scope nor offer significant access to London Heathrow.
(Answer of Continental Airlines, OST-01-10387, 10388, p16)
Continental and Virgin capture the impact of an AA/BA alliance on competition:
Leveraging their high revenues from business travelers and their slots and
facilities, American and British Airways would be able to discipline
upstart carriers such as Continental by expanding their capacity and
reducing their fares on Continental routes if Continental dares to challenge
the American/British Airways dominance on any London Heathrow-U.S.
routes. And Continental would be unable to respond because it cannot
secure sufficient competitive slots and facilities at London Heathrow to do
so.
(Answer of Continental Airlines, OST-01-10387, 10388, p 11)
Alliances raise barriers to entry as compared to non-alliance carriers.
Alliances tend to operate through one of the alliance partners’ home hubs
giving the alliance a network advantage over carriers operating on only a
limited number of routes. The effect of the network being concentrated at
the hub constitutes a barrier to entry because of the ability of the alliance
to feed interconnecting passengers through the network more smoothly,
through (i) interlining arrangements with partners so that a single ticket for
an interconnecting flight purchased from one carrier is valid on the other
interconnecting carrier’s flight; (ii) co-operation on scheduling so as to
ensure that inter-connection time is minimized; (iii) joint marketing and
sales; and (iv) the award of FFP points to users of the alliance network.
Independent providers such as Virgin Atlantic (providing a service on one
of the routes served by the alliance) will not be as attractive as an alliance
member to passengers wishing to interconnect.
(Answer of Virgin Atlantic Airways, OST-01-10387, 10388, p103)
These alliances exist both internationally and domestically. An American/British
Airways alliance impacts competition at European and domestic hubs and markets. In
addressing the future of competition, the Department cannot focus solely on the issue of
DCDOCS-9470-01
6
Heathrow access.
This proposed alliance will have much more broad ranging effects.
The Department is statutorily obligated to consider the effects of this alliance on
domestic markets and how to open effectively closed domestic markets and to ensure that
competition remains in all markets.
III.
Importance of Access to London Heathrow is Identical to the Importance of
Access to Domestic Markets like Reagan National and LaGuardia
In this proceeding as they have done many times in the past, the large carriers
explain why Heathrow is a critical market.
Access to London Heathrow is critical because it is the preferred gateway
for London passengers and consistently receives a better mix of high fare
business passengers than other European hubs. London Heathrow is
closer to the center of London, provides convenient and extensive
connections to the rest of Europe and beyond, and is surrounded by
business areas. Even London Gatwick is not a reasonable alternative to
London Heathrow. For example, most U.S. airlines serve London
Gatwick only at points where London Heathrow is unavailable to them.
(Answer of Continental Airlines, OST-01-10387, 10388, p20)
To ensure a fully competitive market structure, barriers to entry at
Heathrow must be eliminated to enable smaller, independent carriers to
offer vigorous competition through alternative gateways. If US Airways
is to be an effective, vigorous force in the U.S.-Europe and U.S.-U.K.
markets competing with the more established U.S. and foreign network
carriers offering far more transatlantic services, it must have competitive
access to Heathrow for four daily roundtrips from its three principal
gateways.
(Answer of US Airways, OST-01-10387, 10388, p10)
Northwest goes further stating that in order for a new entrant to offer effective
competition carriers must retain slots at “commercially viable” times:
The only truly relevant slots are those that are commercially viable for
U.S.-Heathrow service by new entrant U.S. carriers. Current service
patterns by U.S. carriers at London Gatwick, where carriers have the
ability to obtain slots at desired times, indicates that , in order to be
DCDOCS-9470-01
7
commercially viable, arrival slots need to be between 0500 and 1059 and
departure slots must be between 1000 and 1559. Exhibit NW-30.
Therefore, it is the availability of slots during these time windows that is
relevant to an analysis of the likelihood of substantial new entry at
Heathrow.
(Answer of Northwest Airlines, OST-01-10387, 10388, p 23)
The European Commission has spoken out on the need to open markets in order
to ensure competition. According to the European Commission Deputy Head of Unit
DG:
. . . alliances between airlines operating hub-and-spoke networks will
normally enhance demand for the network as a whole and increase the
market power of the network, especially at its hub airports. This entails
the risk of rendering still more difficult new entry into the network’s
markets to the detriment of both international and domestic competition.
The development and maintenance of effective competition in the airline
industry requires both effective liberalisation of markets and effective
competition enforcement.
(11/5/99 Presentation)
The Department must recognize that access to domestic markets is just as critical
as access to Heathrow. There are fewer carriers today at LaGuardia and National than
there were one year ago, and fewer carriers than at any time since deregulation. At the
same time, operations and competition at Heathrow has grown. Department officials
have acknowledged that an American/British Airways relationship would only be
approved if Heathrow is opened to all carriers. The European Commission is also taking
steps to open up markets to allow for effective competition. If they all agree that
Heathrow, the United Kingdom, and Europe must be open, shouldn’t the Department be
taking those same steps in domestic markets? Shouldn’t passengers throughout the U.S.
should have access to competitive choices?
DCDOCS-9470-01
8
IV.
Conclusion
Whatever steps the Department takes to address the international competitive
impacts of the latest American/British Airways proposal, it must give equal weight to the
competitive impacts that yet another alliance/merger will have on the people and
businesses of small, medium and large communities from throughout this country. The
Department must not forget:
Maine
Bangor
Portland
Vermont
Burlington
Rhode Island
Providence
Connecticut
Hartford
Springfield
New York
Syracuse
Rochester
Buffalo
Newburgh/Stewart
Pennsylvania
Harrisburg
Maryland
Baltimore
Virginia
Richmond
Norfolk
Newport News/Williamsburg
DCDOCS-9470-01
9
North Carolina
Raleigh/Durham
Salem
Charlotte
South Carolina
Greensville/Spartansburg
Georgia
Atlanta
Savannah/Hilton Head
Florida
Jacksonville
Orlando
Tampa
Fort Myers
West Palm Beach
Ft. Lauderdale
Miami
Ft. Myers
Melbourne
Alabama
Huntsville/Decateur
Birmingham
Mobile
Louisiana
New Orleans
Baton Rouge
Lafayette
Shreveport
Mississippi
Jackson
Tennessee
Memphis
Jackson
Nashville
Knoxsville
Chattanooga
DCDOCS-9470-01
10
Kentucky
Louisville
Lexington
Paducah
Owensboro
Ohio
Cincinnati
Columbus
Dayton
Toledo
Cleveland
Indiana
Indianapolis
Ft. Wayne
South Bend
Evansville
Champaign
Illinois
Peoria
Moline/Quad Cities
Bloomington
Springfield
Urbana
Decatur
Marion
Quincy
Michigan
Traverse City
Grand Rapids
Detroit
Kalamazoo
Wisconsin
Green Bay
La Crosse
Madison
Milwaukee
DCDOCS-9470-01
11
Iowa
Waterloo
Cedar Rapids
Iowa City
Des Moines
Burlington
Sioux City
Missouri
Kirksville
Kansas City
St. Louis
Columbia
Fort Leonard Wood
Springfield
Cape Girardeau
Joplin
Arkansas
Fayetteville/Bentonville
Little Rock
Fort Smith
Oklahoma
Tulsa
Oklahoma City
Lawton/Ft. Sill
While residents of these and other cities may want to take an occasional trip to
Europe, they will have greater needs to travel domestically to visit friends, family, take
business trips, attend weddings, and enjoy the spirit of America.
DCDOCS-9470-01
12
WHEREFORE, ACAA respectfully requests that the Department suspend on the
American and British Airways application until appropriate steps have been taken by the
Department to ensure that domestic competition survives.
Respectfully Submitted,
_________________________
Edward P. Faberman
Executive Director
Michelle M. Faust
Legislative Counsel
Air Carrier Association of America
1500 K Street, N.W., Suite 250
Washington, DC 20005
Telephone: (202) 639-7502
Fax: (202) 639-7505
DCDOCS-9470-01
13
CERTIFICATE OF SERVICE
I hereby certify that on November 9, 2001, a copy of the Reply of the Air Carrier
Association of America was served upon the parties on the attached service list.
________________________
Jessica A. Quast
DCDOCS-9470-01
14
Carl B. Nelson, Jr.
Associate General Counsel
American Airlines, Inc.
carl.nelson@aa.com
Robert D. Papkin
Squire, Sanders & Dempsey L.L.P.
(bmi british midland)
rpapkin@ssd.com
Rachel B. Trinder
Jol A. Silversmith
Zuckert, Scoutt & Rasenberger, L.L.P.
(City of Houston)
rbtrinder@zsrlaw.com
jasilversmith@zsrlaw.com
Robert E. Cohn
Alexander Van der Bellen
Shaw Pittman
(Delta)
robert_cohn@shawpittman.com
alexander_van_der_bellen@shawpittman.com
Rebecca Lynn Taylor
Leftwich & Douglas, P.L.L.C.
(City of Houston/Greater Houston Partnership)
rltaylor@ldpllc.com
Donald T. Bliss
O’Melveny & Myers LLP
(US Airways)
dbliss@omm.com
Edgar N. James
Marie Chopra
James & Hoffman, P.C.
(Allied Pilots Association)
ejames@jamhoff.com
mchopra@jamhoff.com
Sheila C. Cheston
Wilmer, Cutler & Pickering
(Lufthansa)
scheston@wilmer.com
Don H. Hainbach
Boros & Garofalo, P.C.
(British Airways Plc)
dhainbach@bgairlaw.com
Nathaniel P. Breed, Jr.
Shaw Pittman
(Federal Express)
nathaniel_breed@shawpittman.com
Megan Rae Rosia
Managing Director, Government Affairs,
and Asscociate General Counsel
Northwest Airlines, Inc.
megan.rosia@nwa.com
Nancy S. Sparks
Senior Attorney, Legal and Regulatory Affairs
Federal Express Corporation
nssparks@fedex.com
DCDOCS-9470-01
15
Charles Simpson
Zuckert, Scoutt & Rasenberger, L.L.P.
(Northwest)
cisimpson@zslaw.com
Ronald P. Brower
Hogan & Hartson L.L.P.
(Virgin Atlantic)
rpbrower@hhlaw.com
Hugh M. Ford
General Manager, Legal
Virgin Atlantic Airways Limited
hugh.m.ford@fly.virgin.com
Russell E. Pommer
Associate General Counsel and
Director, Regulatory Affairs
Atlas Air, Inc.
rpommer@atlasair.com
Jeffrey A. Manley
Wilmer, Cutler & Pickering
(United)
jmanley@wilmer.com
Alfred J. Eichenlaub
Senior Vice President & General Counsel
Polar Air Cargo, Inc.
aleich@polaraircargo.com
Michael F. Goldman
Silverberg, Goldman & Bikoff, L.L.P.
(Air France)
(Dallas/Ft. Worth International Airport)
mgoldman@sgbdc.com
Marshall S. Sinick
Squire, Sanders & Dempsey L.L.P.
(Florida West)
msinick@ssd.com
Richard P. Taylor
Steptoe & Johnson LLP
(St. Louis Parties)
rtaylor@steptoe.com
David L. Vaughan
Kelley Drye & Warren LLP
(United Parcel Service)
dvaughan@kelleydrye.com
Cindy Swinson
General Counsel & Corporate Secretary
World Airways, Inc.
Cswinson@woa.com
Stephen H. Lachter
1150 Connecticut Ave, N.W.
(DHL)
lachter@erols.com
DCDOCS-9470-01
16
Brian T. Hunt
General Counsel
American Trans Air
brian.hunt@iflayata.com
John L. Richardson
Crispin & Brenner, P.L.L.C.
(Amerijet)
jricharson@crispinandbrenner.com
James W. Tello
(Air Transport International)
jamestello@earthlink.net
Joanne W. Young
Baker & Hostetler, LLP
(America West)
jyoung@bakerlaw.com
Paul M. Ruden
Senior Vice President-Legal & Industry Affairs
American Society of Travel Agents, Inc.
paulr@astahq.com
First Secretary (Transport)
British Embassy
3100 Massachusetts Avenue, N.W.
Washington, DC 20008
Jonathan Blank
Preston Gates Ellis & Rouvelas Meeds LLP
(State of Maryland Aviation Administration)
jblank@prestongates.com
Ava L. Mims
Deputy Director, AFS-2
Flight Standards Service
Federal Aviation Administration
ava.l.mims@faa.gov
Roger F. Fones
Chief, Transportation, Energy & Agriculture Section
Antitrust Division
Department of Justice
roger.fones@usdoj.gov
U.S. TRANSCOM/TCJ5-AA
Attention: Air Mobility Analysis
508 Scott Drive
Scott AFB, IL 62225-5357
James Cole
Head of Coordination
Airport Coordination Limited
james.cole@acl-uk.org
Alan Cruickshank
Head of Aviation Policy
BAA plc
alan_cruickshank@baa.com
DCDOCS-9470-01
17
David S. Stempler
President
Air Travelers Association
5335 Wisconsin Avenue, N.W.
Washington, DC 20015-2034
DCDOCS-9470-01
Office of Aviation Negotiations
Department of State
2201 C Street, N.W.
Room 5531
Washington, DC 20520
18