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OST-99-5573

Delta Air Lines, Inc. and Aerovias de Mexico, S.A. de C.V.

On or about July 1, 1999, Delta plans to implement first daily nonstop service between Atlanta and Guadalajara. Aeromexico plans to commence competitive nonstop service between Atlanta and Guadalajara that same day by codesharing on Delta's new nonstop service.  

Counsel:  Verner Liipfert, William Evans, 202-371-6030 for Aeromexico / Delta and Shaw Pittman, Robert Cohn, 202-216-0700 for Delta

Delta Air Lines, Inc. and Aerovias de Mexico, S.A. de C.V.

For whatever reason, the Department has failed to grant long-pending applications submitted by American and Aero California for broad U.S.-Mexico codesharing rights, as explicitly authorized in the Memorandum of Consultations signed by representatives of the United States and Mexico on January 26, 1999. See joint application of American and Aero California (undocketed) for blanket statements of authorization for behind and beyond codesharing, February 5, 1999; American's application for amended exemption authority (OST-97-2477), February 5, 1999; and Aero California's application for exemption authority (OST-99-5112 and OST-99-5113), February 12, 1999. American and Aero California urge prompt and favorable treatment on all pending U.S.-Mexico codesharing applications. But until the Department is prepared to do so, it should not grant piecemeal authorizations in individual city-pair markets to individual U.S.-Mexico codesharing partnerships. Accordingly, the request by Delta and Aeromexico, seeking to jump the queue, should be denied.

Counsel:  American, Carl Nelson, 202-496-5647, carl_nelson@amrcorp.com / Steptoe Johnson, David Coburn, 202-429-8063 for Aero California

Delta air Lines, Inc. and Aerovias de Mexico, S.A. de C.V.

If the Department were to give any preference to one codeshare partnership over another in terms of timing, clearly it should prefer codesharing between two U.S. carriers entering new U.S.-Mexico markets over codesharing between U.S. and Mexican carriers. A preference for Continental’s codesharing with Alaska and Northwest would not be "unfair" to Delta and Aeromexico, particularly since Aeromexico has not even filed its application for the underlying Atlanta-Guadalajara authority necessary to engage in the codesharing proposed. For the foregoing reasons, Continental urges the Department to grant immediately the applications of Continental and its codeshare partners for U.S.-Mexico authority and to dismiss the joint Delta/Aeromexico application or defer action on it pending receipt of an application by Aeromexico for underlying Atlanta-Guadalajara authority.

Counsel:  Continental and Crowell Moring, Bruce Keiner, 202-624-2615

Delta Air Lines, Inc. and Aerovias de Mexico, S.A. de C.V.

For what ever reason the Department has decided to defer action on the respondent's applications, there is no basis under the bilateral for the Department to withhold authority to allow Aeromexico to codeshare on Delta's Atlanta-Guadalajara flights. Similarly, there is no basis in the amendment that supports the argument of American, Aero California and Continental that the Department should not act on the Joint Application until it acts on their applications. Joint Applicants do not oppose the American/Aero California codeshare proposals that are pending before the Department; however, the fact that the Department has not acted on their blanket request does not warrant delay in acting upon the limited request of the Joint Applicants in this proceeding, especially when a grant of the authorization clearly is in the public interest. Indeed, none of the respondents refute the public interest bases for the grant of the Delta/Aeromexico application. The Department was successful in its efforts to reach an agreement with Mexico, which is acceptable to both. governments and the respective airlines, and it should not now act in a manner that is inconsistent with the objectives of that agreement by delaying approval of the present application.

Counsel:  Delta and Shaw Pittman, Robert Cohn / Verner Liipfert, William Evans

Delta Air Lines, Inc. and Aerovias de Mexico, S.A. de C.V. / Aerovias de Mexico, S.A. de C.V.

United and Mexicana have been waiting since January to implement the provisions of the new MOC. Indeed, in their amendment and supplement filed in Docket OST-97-3237, United and Mexicana identify each of the routes that will receive new United/Mexicana codeshare service as soon as the approvals are granted. United and Mexicana narrowed their city-pair code-share requests to conform to the terms of the new MOC and in order to expedite the grant of their long-pending application. The public benefits generated by the United/Mexicana operations on these routes are at least as valuable as those anticipated by Delta/Aeromexico for their Atlanta/Guadalajara service. It would be unfair to United and Mexicana and contrary to the public interest to allow the Delta/Aeromexico alliance to implement increased transborder services in advance of the new transborder services proposed by other alliances, such as United/Mexicana. The Department has long recognized that public benefits under code-share networks are maximized when these networks compete with each other.

Counsel:  United and Kirkland Ellis, Jeffrey Manley, 202-879-5161

Delta Airlines, Inc. and Aerovias de Mexico, S.A. de C.V.

Before turning to the specifics of the Delta/Aeromexico arrangement, Delta would like to reiterate its serious reservations regarding the Department's new policy of redrafting commercial agreements to eliminate exclusivity clauses. Proposed codeshare arrangements either benefit competition and the public interest and should be approved, or they are detrimental and should be denied. The Delta/Aeromexico codeshare arrangement has injected substantial new competition in the U.S.-Mexico marketplace since its approval in 1994, and there is no reason the Department's public interest evaluation of the relationship should be affected by the subsequent addition of an exclusivity clause. Placing limits on carriers' freedom of contract choices is undesirable because it diminishes the level of commitment that can be achieved between the parties, which is an important component in forming a comprehensive long term commercial relationship. Moreover, while striking exclusivity clauses unnecessarily limits the benefits that can be achieved through an alliance or codeshare agreement, this remedy has proved to be an ineffective means to addressing the Department's competitive concerns.

Counsel:  Verner Liipfert, William Evans for Aeromexico / Shaw Pittman, Robert Cohn for Delta

Delta Air Lines, Inc. and Aerovias de Mexico, S.A. de C.V.

By failing to articulate a rational explanation for the imposition of an anti-exclusivity condition, and by retroactively nullifying the Delta-Aeromexico exclusive marketing agreement, the Department’s decision violates the arbitrary and capricious standard of the Administrative Procedure Act and constitutes an abuse of discretion.

Counsel:  Delta and Shaw Pittman, Robert Cohn, 202-663-8060

United Air Lines Inc and All Nippon Airways Co., Ltd. and Air France and Delta Air Lines, Inc. and Continental Airlines, Inc. and Continental Express, Inc. and Aerovias de Mexico, S.A. de C.V. and Compania Mexicana de Aviacion, S.A. de C.V.

We reject arguments that we should adopt a laissez-faire approach to exclusive dealings between and among airlines in international air transportation. It is not in the public interest to ignore any feature of a code-share agreement that could interfere with competition or otherwise undermine the ability of consumers to benefit from the opportunities created by our aviation relationships. For that reason, we will continue to assess the merits of code-share exclusivity provisions on a case-by-case basis in light of the terms of the overall arrangement and of the special facts and circumstances affecting each market, such as its structure, the positions of the parties in those markets, and the nature of the bilateral aviation relationship governing it.

By:  Brad Mims

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