OST-97-2982 / Undocketed / OST-96-1700 / American and Lan Chile / American and TACA Group / Answer of Delta / October 22, 1997
Applications of
AMERICAN AIRLINES, INC. and LINEA AEREA NACIONAL CHILE, S.A.
for an exemption and Statements of Authorization
AMERICAN AIRLINES, INC. et al and THE TACA GROUP RECIPROCAL CODE-SHARING SERVICES PROCEEDINGS
ANSWER OF
DELTA AIR LINES, INC.
On October 7, 1997, American Airlines, Inc. ("American") and Lineas Aereas Nacional de Chile ("Lan Chile") jointly filed for
Statements of Authorization and Lan Chile filed for exemption authority to implement a reciprocal code-share agreement affecting services between the United States and Chile. Delta Air Lines, Inc. ("Delta") hereby answers in opposition to the American/Lan Chile applications.
Answer of Delta Air Lines, Inc.
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The Department must give careful consideration to the potential anticompetitive impact of this arrangement, particularly considering that Chile maintains an extremely restrictive bilateral regime that excludes potential U.S.Chile competitors, such as Delta, from freely sewing Chile. Furthermore, the American/Lan Chile Alliance must be evaluated in the context of American's numerous interrelated alliances that combine virtually all the dominant carriers sewing U.S.-Latin American routes.
On
September 11, 1997, United Air Lines, Inc. ("United") filed a motion in the above-captioned proceedings requesting the Department to require American Airlines, Inc. ("American") and the TACA Group to submit information and documents relating to their alliance agreements with Lan Chile. This motion was fully supported by Delta and Continental. The Department has yet to rule on that motion, and the Department cannot proceed to evaluate the American/Lan Chile applications, or the American-TACA alliance, in the absence of this important information. By Notice dated August 22, 1997 in Docket OST-96-1700, the Department has already determined that similar information was required with respect to American's similar arrangements with Iberia, Lineas Aereas de Espana S.A. ("Iberia"); Aerolineas Argentinas ("Aerolineas"); and Austral Lineas Aereas, S.A. ("Austral"). Furthermore, as pointed out by Delta in its September 22, 1997 answer in Docket OST-96-1700,
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these complex and interrelated relationships demand oral evidentiary hearings to examine adequately the parties' true competitive motivations for entering into reciprocal marketing agreements over such tightly controlled and overlapping route networks.
Thus far, American has submitted applications or announced plans to establish code-share alliances with some eleven Latin American carriers. When viewed in the context of American's burgeoning alliance proposals with nearly every major South and Central American carrier, and the significant overlap of the carriers' route systems, it is immediately apparent that these arrangements, taken as a whole, could have serious detrimental consequences for U.S.-Latin American competition.
The Department has already instituted proceedings to examine the public interest and competition issues relating to the proposed alliances between American and the TACA Group, finding that the proposed arrangement raises "serious competitive issues". American has also sought approval of a marketing alliance with Avianca (a Colombian-flag carrier), Aerocalifornia (a Mexican-flag carrier), Lapsa (a Paraguayan-flag carrier), Iberia (a Spanish-flag carrier) and Aerolineas (an Argentine-flag carrier) and the Department has recently approved a code-share alliance between American and TAM (a Brazil-flag carrier). Now,
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American proposes to add yet another Latin American carrier, Lan Chile, to this extensive list.
Before proceeding with an evaluation of the pending American/Lan Chile alliance, it is imperative for the Department to receive information and documents with respect to the planned marketing arrangements between American and Lan Chile, to examine, among other issues, the interrelationships between the proposed American-TACA alliances and American/TACA-Aerolineas, Iberia, and Austral alliances.
As Delta has already shown in the American- TACA proceeding, American's principle reason for entering into an alliance with the TACK Croup is to further entrench its already dominant position in the U.S.-Central American marketplace. American's plan to join forces with Lan Chile, its largest competitor between the United States and Chile, represents American's Am effort to strengthen its dominant position and solidify its stranglehold on routes between the United States and Latin America.
In instituting the American-TACA proceeding, the Department determined that "the arrangement presents serious competitive issues that need investigation before we can conclude approval will be consistent with the public interest." The Department further noted the "dominant positions held by American and the foreign carriers involved in the alliance in the Central
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American market" underscoring that "those carriers were the largest carriers in the markets at issue, and American was the only U.S. airline with a hub at Miami, the dominant gateway for U.S.-Central America service." See Order 97-1-15 at 4; Order 96-1 1-12. The American-LAN Chile proposal raises similar "serious competitive issues" that require close regulatory scrutiny.
The Department should not entertain the American/Lan Chile proposal In the absence of an open skies between the U.S. and Chile. Chile maintains a severely restricted bilateral regime with very limited opportunities for U.S. carriers. Delta is currently embattled in a carrier selection proceeding with Continental and United for the scant seven weekly frequencies that are available for U.S. carrier service to Chile under the restrictive bilateral agreement. These limited opportunities for new entry cannot provide sufficient competitive discipline to the American/Lan Chile alliance, which would control an incredible 83 percent of the limited frequencies available for service between the United States and Chile.
Of additional concern is the apparent overlap of the American-TACA-Iberia-Aerolineas-Austral agreements with the proposed arrangement with Lan Chile. These carriers hold an overwhelming majority of frequencies and capacity between the U.S. and Central and South America. Because of the
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apparent anti-competitive impact of the proposal, the Department should require full disclosure by American and extensively scrutinize the planned arrangement.
The Department should also consider the public interest and competition issues relating to the Lan Chile, Aerolineas Argentinas, Iberia and American-TACA alliances in the context of the pending American-British Airways proceedings. The relevant markets include not only U.S.-Latin America, but also Europe-Latin America, particularly since America's proposal with British Airways, Iberia, and its other Latin America partners all intersect at the key Miami gateway where American already dominates service. A consolidated inquiry would be consistent with the Department's decision (
Order 97-6-30) to require United and Air Canada to submit supplemental information relating to the proposed Star Alliance and the Department's Notice date August 22, 1997 requiring supplemental information on American's arrangements with Aerolineas Argentinas and Iberia.As the Department noted in the American-British Airways proceeding ~ [t]his is an exceptional case, posing a unique set of issues . . . " warranting oral hearing procedures.
Order 97-9-4 at 16. Due to the serious potential anticompetitive effects of the American and Lan Chile arrangements, the Department should provide for an oral evidentiary hearing before an
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Administrative Law Judge and allow interested parties the opportunity for cross-examination.
In light of the important competition and public policy issues raised by the proposed arrangements between American and Lan Chile, the public interest compels a thorough evaluation of the interrelationships between the new alliance proposal and American's other troubling alliances presently pending before the Department.
WHEREFORE, for the foregoing reasons, Delta urges the Department to dismiss or defer action on the American/Lan Chile applications, to require the submission of supplemental information, and to institute further proceedings which will allow the Department and interested parties to explore more fully the consequences of proposed interrelated alliances.
Respectfully submitted,
Robert E. Cohn
Alexander Van der Bellen
SHAW PITTMAN POTTS & TROWBRIDGE
2300 N Street, N.W.
Washington, D.C. 20037
(202) 663-8060
Counsel for DELTA AIR LINES, INC.