OST-00-6726 / OST-00-6728 / OST-00-6725 / Aer Lingus and American Airlines / Answer of United Air Lines / March 15, 2000

Application of

for extra-bilateral authority under the Department's "Cities Program"

Application of

for a Statement of Authorization under 14 C.F.R. Part 212

Application of

under 49 U.S.C. § 40109 for an exemption

Pursuant to 14 C.F.R. Part 212. 1 0(c), Rules 6(a) and 307 of the Department's Rules of Practice, and the parties' February 22, 2000, stipulation on answer dates, United Air Lines, Inc. ("United") files this consolidated answer to the applications of Aer Lingus Limited ("Aer Lingus") to offer extra-bilateral service to Baltimore, Maryland under the Department's "Cities Program" and to code share with American Airlines, Inc. ("American") on an extra-bilateral basis between Shannon/Dublin and Boston, Chicago,

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Los Angeles, and New York; and American's application for an underlying New York-Shannon/Dublin exemption to support the code-share service. In order to facilitate enhanced air service competition between the U.S. and Ireland, the Department should defer action on the above-captioned applications until such time as the Irish government revises its Shannon service policy to the extent necessary to permit U.S. carriers to code share to Dublin with their third-country code-share partners. In support of this Consolidated Answer, United submits the following:

1. Both the Aer Lingus/American code-share application and Aer Lingus' Cities Program application, are extra-bilateral, as the applicants concede, Grant of these applications would require an affirmative finding of comity and reciprocity and, in the case of the Cities Program application, a determination that a procompetitive agreement is in place between the U.S. and Ireland, among other things. So long as the Government of Ireland declines to authorize United to code share on flights operated by British Midland between London and Dublin unless United complies with the Shannon stop requirement, which requires United to offer the same level of service to Shannon as to Dublin, the Department has no basis for a finding of adequate comity and reciprocity or the existence of a procompetitive regime necessary to approve the applications at issue.

2. United recently approached the Irish government to discuss the Shannon restriction as it applies to third-country code-share service. Irish officials are reviewing the matter, and United is hopeful that an accommodation can be reached that would allow U.S. carriers to code share to Dublin with their alliance partners via third countries

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without being encumbered by the Shannon stop requirement. United has been seeking to code share to Dublin via London with British Midland for a number of years. On February 13, 1996, British Midland filed an application with the Department seeking authority to code share from U.S. points, via London, to Dublin, Ireland. The Department has not yet acted upon the application, pending resolution of the Shannon stop issue. Provided the Irish government decides to permit third-country code-share services to be conducted without the Shannon stop impediment, United will withdraw this objection once British Midland's pending application to engage in U.S.-Ireland code sharing with United has received all necessary governmental approvals.

3. The removal of the Shannon stop requirement with respect to thirdcountry code-share services would be a procompetitive action that would stimulate alliance competition and lead to substantial consumer benefits. As things now stand, United is prevented from offering consumers precisely the same type of code-share operations via London that United's competitors engage in today. For example, one of United's principal transatlantic competitors, British Airways, is able to freely hold out code-share service between London and Dublin without offering an equal number of services to Shannon. Indeed, British Airways is holding out online connecting service between Dublin and a number of U.S.0oints, including Baltimore, via London, by code sharing on another carrier between London and Dublin and without offering

1/ In the matter of Expanding International Air Service Opportunities to More U.S. Cities, Order 90-1-62 (January 30, 1990).

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commensurate service to Shannon. /2 This is precisely what United seeks to do with British Midland.

4. The last decade has demonstrated the consumer benefits generated by code-share alliances. In its recent report on alliances, the Department concluded that 64alliances are playing a key [role] in the evolving international aviation economic and competitive environment ... [by] providing improved, more competitive service in literally thousands of markets ... [a]nd ... [enabling] carriers to mitigate the limitations of bilateral agreements." /3 But these benefits can only be produced when alliances have the opportunity to compete on an equal footing, and the application of the Shannon stop requirement to code-share services is an impediment to -alliance competition. United's code-share service to Dublin with British Midland, for example, would compete both with direct U.S.-Ireland services and with foreign carrier online code-share operations, particularly British Airways' U.S.*-Dublin code-share service via London. If it were allowed to compete, United would offer new online service to Dublin from Boston, JFK, Newark, Chicago, Los Angeles, San Francisco and Washington (Dulles) via its code share with British Midland. United's service would also provide essential gateway-to-gateway competition for Aer Lingus' new proposed nonstop service to Baltimore. The Department should not, however, confer extra-bilateral benefits on Aer Lingus until the

2/ Other U.S. cities receiving British Airways' online code-share service to Dublin via London include Atlanta, Charlotte, Dallas/Ft. Worth, Denver, Houston, Miami, New York, Orlando, Phoenix and Tampa. Official Airline Guide Worldwide, March 2000.

3/ International Aviation Developments: Global Deregulation Takes Off (First Report), U.S. Department of Transportation, Office of the Secretary, December 1999, at 2.

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Irish government confirms that its Shannon stop requirement will no longer apply to third-country code-share operations. 5. American itself has vehemently opposed the grant of the very same authority it now seeks. In its February 13, 1996, opposition to the Delta/Aer Lingus code share, American stated:

American Answer, dated February 13, 1996 (Joint Application of Delta Air Lines, Inc. and Aer Lingus PLC for Statement of Authorization, undocketed) (emphasis added). The fact that American has replaced Delta as Aer Lingus' code-share partner of choice and Aer Lingus is intent on joining the oneworld alliance does not alter this conclusion.

6. The proposed Aer Lingus code share would complete American's acquisition of code-share partners from European countries that continue to force U.S. carriers to operate under the yoke of restrictive bilateral agreements. During the past decade, most major countries in the world have embraced open, competitive aviation regimes, with a few notable exceptions. By taking advantage of the opportunity to lockup code-share agreements with airlines whose homelands cling to the vestigial remains of the old-style restrictive era, American and the oneworld alliance members intend to garner their own share of the one-sided benefits these restrictive agreements generate and

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keep other U.S. competitors and alliances at bay, all at the cost of competition and consumer benefits.

The oneworld alliance has a foothold in every EU market that does not have an open skies agreement with the U.S. In addition to Aer Lingus, American has alliances with British Airways and Iberia. Notably, Ireland, Spain and the U.K. are the last western European holdouts against open skies or other market-opening agreements. Greece is the only other member of the E.U. without such an agreement, and, not coincidentally, its major carrier is managed by Speedwings, a British Airways affiliate. /4 If the Department approves the American/Aer Lingus applications without securing the modification of the Shannon service policy necessary to facilitate alliance competition to Ireland, it would substantially dissipate any leverage it may possess to encourage progressive change in these markets.

7. Faced with similar circumstances in the past, the Department has opted to defer approval of extra-bilateral code-share operations until competitive entry can be gained for other code-share alliances. In the case of American/LOT, for example, the Department deferred action until the Polish government was prepared to allow other U.S. carriers to code share with third-country carriers to points in Poland. This strategy paid off. The Department has similarly withheld approval for American's proposed joint operations with El Al, Avianca, and Transaero until onerous restrictions imposed by these carriers' homeland governments are lifted. By the same token, the Department should

4/ American has recently announced a code-share agreement with Turkish Airlines, a carrier which is based in yet another country with at least a foothold in Europe that does not allow other code-share alliances to compete.

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defer action on the Aer Lingus/American applications until the Shannon service policy is revised, consistent with United's proposal..

8. United empathizes with the desire of the State of Maryland to increase its access to international air service. The Department's "Cities Program" is not, however, structured to enable a foreign carrier to launch new extra-bilateral international service when its homeland continues to embrace restrictive, anti-competitive agreements. Quite to the contrary, the Cities Program requires that "there is a procompetitive agreement in place with the homeland country and thus a basis does not exist for a traditional aviation trade to obtain benefits for U.S. airlines." Order 90-1-62 at 1. The pending extrabilateral Aer Lingus applications and Aer Lingus' desire to enter the oneworld alliance provide just such an opportunity for the Department to offer a "traditional aviation trade" for a modification of the Shannon stop requirement as it applies to code-share service. Until the Shannon stop requirement is revised, it will remain an "overriding public interest reason[] for denying the requested authority," precluding a Cities Program grant of authority to Aer Lingus. Id.

WHEREFORE, until such time as the government of Ireland revises its Shannon service policy to permit code-sharing to Dublin via London, and United is fully authorized to offer such service with British Midland, the Department should defer

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approval of the extra-bilateral Aer Lingus and American applications pending in the above-captioned dockets.

Respectfully submitted,

JEFFREY A. MANLEY

CATHLEEN P. PETERSON

WILMER, CUTLER & PICKERING

2445 M Street, N.W.

Washington, D.C. 20037-1420

(202) 663-6670 (phone)

(202) 663-6363 (fax)

Counsel for UNITED AIR LINES, INC.

Dated: March 15, 2000