OST-97-2965 / OST-97-2966 / Undocketed / American and Iberia / Exemptions and Statements of Authorization / Response of United and Motion for Leave to File / November 6, 1997

Applications of

AMERICAN AIRLINES, INC. and IBERIA LINEAS AEREAS DE ESPANA, S.A.

for exemptions under 49 U.S.C. §40109 and Statements of Authorization under 14 CFR Parts 207 and 212

 

RESPONSE OF UNITED AIR LINES, INC.

AND MOTION FOR LEAVE TO FILE

 

United Air Lines, Inc. ("United") submits the following response to the Joint Reply of American Airlines, Inc. ("American") and Iberia Lineas Aereas De Espana, S.A. ("Iberia") dated October 28, 1997, in the above-captioned proceeding: /1

1/ United seeks leave to file to address arguments raised by American and Iberia with regard to their code share between Miami and Central America and with regard to extrabilateral elements of their code share. These arguments contain references to legal precedents that are misleading and receipt of United's response will provide a more balanced record on these issues.

 

Response of United and

Motion for Leave to File

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1 . Miami -Central America Code Share

United has urged that that portion of the American/Iberia request seeking authority to code share between Miami and Central America be consolidated into the Department's ongoing investigation of American's proposed code shares with the TACA Group of carriers in that and other U.S.-Central America markets. (Docket OST-96-1700) Other commenting carriers have made similar requests.

One important issue that must be investigated in that proceeding is the impact the American/Iberia code share would have on competition between Miami and Central America. American and Iberia note that "so long as Iberia operates Fifth-Freedom services in the local Miami-Central America markets, American and Iberia will remain vigorous competitors for such traffic..." This, of course, begs the question of whether Iberia intends to continue to operate its own services between Miami and Central America. That question is further begged when American states that, "for its part, [American] is in no position to know whether these operations are economically viable or feasible for Iberia, or what Iberia's future plans may be ..." (Joint Reply at 4). Iberia itself is a joint participant in the reply and

 

Response of United and

Motion for Leave to File

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obviously would possess relevant information on this relevant issue. Notwithstanding Iberia's joint participation, however, that carrier has refused to address its future plans for Miami-Central America service. /2

The fact that these carriers have failed to address

this critically important issue relating to competition in the Miami-Central America market demonstrates why it is necessary for the Department to consolidate the Miami-Central America portion of their applications into the ongoing American/TACA Group investigation. Unless American and Iberia are directed to answer questions relating to their plans in the Miami-Central America market, the Department cannot know what effect approval of that portion of their code share will have on competition in these markets. Indeed, as United noted in its answer, if the American/Iberia and American/TACA Group code shares are approved and Iberia drops its own services, these approvals would have

2/ Iberia refers to its plans "to introduce new nonstop services between Spain and points in Central America." These plans have caused Iberia "to evaluate whether the carriage of such traffic via Miami remains economically sensible." (Joint Reply at 4). The Department's investigation of the American/Iberia Miami-Central America code share in Docket OST-96-1700 (as urged by United and other carriers) should focus in part on the results of Iberia's evaluation.

 

Response of United and

Motion for Leave to File

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created a monopoly in most of the Miami-Central America markets. Consolidated Answer of United, dated October 17, 1997 at 2-3. /3

American and Iberia seek to overcome this problem by citing certain cases where Delta Air Lines, Inc. ("Delta") was allowed to code share in markets where it was discontinuing its own services. In those cases, however, Delta discontinued its own services in certain markets but continued to offer services under its own designator code on aircraft operated by its partners in those same markets. Here, if Iberia discontinues its Miami-Central America services, no such competition would continue because American has not agreed to allow Iberia to sell tickets under the "IB*" code to local Miami-Central America

3/ American and Iberia claim (Joint Reply at 16) that United is somehow taking a position on Iberia's Miami-Central America service in this case that is inconsistent from the position it has taken in the American/TACA Group proceeding. This is simply not the case. The Iberia services between Miami and Central America are, indeed, "marginal" when compared to those of American and the TACA Group. Their continuation would in no way justify approval of the American/TACA Group code share, nor has United suggested as much. The point is that if the American/Iberia plus the American/TACA Group code shares were approved, those approvals would in themselves create a total monopoly in all but one Miami-Central America market. The need to assess the cumulative impact of these code shares on competition is the reason the Department should consolidate them for contemporaneous consideration in Docket OST-96-1700.

 

Response of United and

Motion for Leave to File

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passengers. The only "IB*" passengers America has agreed to carry between Miami and Central America are those connecting passengers which Iberia transports between Miami and Europe.

The Joint Applicants have merely sought to obfuscate this competition issue. The Department cannot resolve this issue on the present record and should, therefore, consolidate the Miami-Central America portions of the American/Iberia applications into its investigation of the American/TACA Group code shares.

2. Extrabilateral Code Sharing

United has opposed any approval of the extrabilateral elements of the American/Iberia code share in circumstances where comity and reciprocity are lacking on the part of the government of Spain. As noted in United's answer, the Spanish authorities denied a code share between United and British Midland Airways between London and Mallorca.

American and Iberia argue that Spain denied the United/British Midland code share because British Midland was a third-country carrier. They go on to claim that third-country carrier code sharing is not permitted under the U.S./Spain

 

Response of United and

Motion for Leave to File

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agreement while their code sharing is. This is both false and misleading.

Code sharing between U.S. carriers and third-country carriers is covered by the U.S./Spain agreement on code sharing. Thus, "a designated airline of either Party ... may ... enter into cooperative relationships with another airline which also holds appropriate authority." U.S./Spain bilateral air services agreement, Annex I, Section E. /4 The Spanish authorities did not cite the fact that British Midland was a third-country carrier when they denied the United code share with that carrier. Rather, they cited the fact that the U.S. Spain route for which United was designated "does not include London as an

4/ American and Iberia cite (Joint Reply at 17-18) the Department's approval of a blocked-space agreement between United and Saudi Arabian Airlines ("Saudia") as support for approval of the extrabilateral elements of their code share. In the United/Saudia case, Delta objected to approval because it had been unable to gain approval of its code share to Saudi Arabia with a third-country carrier. In that case, however, the bilateral agreement between the U.S. and Saudi Arabia limited approval of blocked-space services to those involving designated carriers of one party with designated carriers of the other party. U.S./Saudi Arabia bilateral air services agreement, Annex 1, Section I, pare. (3). There was, however, no provision in that agreement that covered such services involving carriers of third countries. The United/Saudia blocked-space services were fully consistent with the bilateral agreement while those proposed by Delta were not. Order 96-10-15 at 3.

 

Response of United and

Motion for Leave to File

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intermediate point to be served by [United]." United Consolidated Answer, October 17, 1997, Exhibit WA-1, p.3.

To the same effect American and Iberia are proposing to code share on each other's services to points which are not named on the respective bilaterally-agreed routes for which they are designated. United has identified these "extrabilateral" points in its Consolidated Answer at page 9. /5 The Department should not approve these extrabilateral code-share services proposed by American and Iberia unless and until the government

5/ Because of the applications filed on October 30, 1997, by TWA and Air Europe for code-share authority to behind gateway points in the U.S., some additional U.S. points requested by American and Iberia now also exceed those available to Spanish carriers because of conflicts between the U.S. points sought by these two Spanish carriers.

 

Response of United and

Motion for Leave to File

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of Spain is prepared to approve U.S. carrier code-share services involving comparable extrabilateral elements.

Respectfully submitted,

JOEL STEPHEN BURTON

GINSBURG, FELDMAN and BRESS, CHARTERED

1250 Connecticut Avenue, N.W.

Suite 700

Washington, D.C. 20036

(202) 637-9130

Counsel for UNITED AIR LINES, INC.

DATED: November 6, 1997