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OST-99-6680

United Air Lines, Inc. and Air New Zealand Limited

Counsel:  United and Kirkland Ellis, Bruce Rabinovitz, 202-879-5116

United Air Lines, Inc. and Air New Zealand Limited

Notice advising that the Department will grant immediate interim access to all documents covered by the Rule 39 Motions to counsel and outside experts for interested parties who file appropriate affidavits with the Department in advance. Moreover, the Department finds it appropriate to grant interim access to any subsequent materials filed in this docket under a Rule 39 Motion to counsel and outside experts for interested parties who file appropriate affidavits with the Department in advance, unless the party filing the motion objects.  As an initial matter, we find that the application is now substantially complete.2 Therefore, in order to provide all interested parties sufficient time to analyze adequately and comment fully on all material in the public and non-public record, under conditions agreed to by the joint applicants and imposed by the Department under similar recent circumstances, we will grant immediate interim access to all documents covered by the Rule 39 Motions to counsel and outside experts for interested parties who file appropriate affidavits with the Department in advance. Moreover, we find it appropriate to grant interim access to any subsequent materials filed in this docket under a Rule 39 Motion to counsel and outside experts for interested parties who file appropriate affidavits with the Department in advance, unless the party filing the motion objects. Finally, we will require that answers to the application be filed no later than 21 days from the service date of this notice, and that replies be filed no later than 7 business days after the last day for filing an answer.

By:  Bradley Mims

United Air Lines, Inc. and Air New Zealand Limited

Air Pacific conditionally opposes approval of UA and ANZ's application. The expansion of the United/Air New Zealand relationship and the grant of antitrust immunity to the relationship will strengthen UA/ANZ alliance's market power in the South Pacific. ANZ has established a dominant position in the Pacific Islands. The protection of antitrust immunity and the enhanced alliance will provide UA/ANZ with the resources to keep other carriers from competing effectively with it on its dominant routes in the Pacific Islands unless they too obtain antitrust immunity should they wish to compete to those Pacific Islands. In their joint application, UA/A-NZ seem to be trying to portray the Air Pacific, Qantas, American, British Airways relationship as similar to the relationship proposed by UA/ANZ in their application, which it is not. First of all, Air Pacific and its codeshare partners do not have antitrust immunity. Also, contrary to UA/ANZ's claim, Air Pacific is not managed by Qantas. Air Pacific makes its own marketing and operations decisions. Finally, Air Pacific is not a member of the oneworld alliance. Its dealings with Qantas, American and British Airways are on a purely commercial basis. UA/ANZ also seems to suggest that it is Air Pacific that is the dominant carrier in the Pacific Islands, which it is not. Air Pacific pales in size compared to ANZ. ANZ operates 470 scheduled flights a day versus Air Pacific's sixteen (16). ANZ's network gives UA a sizeable advantage over American Airlines, which codeshares with Air Pacific only on flights between Nadi and Honolulu/Los Angeles. That codeshare does not enjoy antitrust immunity.

Counsel:  Condon Forsyth, Thomas Whalen, 202-289-0500

United Air Lines, Inc. and Air New Zealand Limited

Air Pacific has advanced no public interest justification for denying the public the efficiencies and service benefits that would be derived from an immunized Air New Zealand/United alliance. Rather, Air Pacific "conditionally" opposes approval of a coordinated Air New Zealand/United alliance unless it can also obtain antitrust immunity for its own alliance operations. Notably, Air Pacific has not filed an application seeking immunity for its American/Qantas relationships, although it is free to do so. Any such application would be analyzed on the same statutory public interest standards as the Air New Zealand/United application.

Contrary to Air Pacific's claim, competition between the United States and the Pacific Islands will not be reduced by a grant of immunity for the Air New Zealand/United alliance. United itself has never conducted operations that directly compete with either Air Pacific or Air New Zealand on such Pacific Island routes. Thus, Air Pacific's claim that the grant of immunity would lead to the alliance being "dominant" on these routes is wholly illusory. Indeed, the United/Air New Zealand code sharing is already in place in the Pacific Islands, competing with Air Pacific's substantial joint operations with American and Qantas. What Air Pacific apparently hopes to avoid is competing with the more efficient, coordinated service that Air New Zealand and United could produce under an immunized alliance. But these are precisely the type of service enhancements that generate the public benefits upon which grants of immunity are predicated. As the Department stated in its recent report on international alliances, immunized alliances operating in the transatlantic are "providing improved and more competitive services," "stimulating demand," and "leading to procompetitive changes in the industry structure.", These are among the benefits that will be generated in the South Pacific from a grant of immunity to Air New Zealand/United.

Counsel:  Wilmer Cutler, Bruce Rabinovitz, 202.663.6960, brabinovitz@wilmer.com

United Air Lines, Inc. and Air New Zealand Limited

We tentatively fmd that approving and granting antitrust immunity to the proposed Alliance Agreement is in the public interest, as limited and conditioned. If made final, we will require -the Joint Applicants (1) to withdraw from all IATA tariff conference activities relating to through prices between the United States and New Zealand, as well as between the United States and the homeland(s) of foreign airlines participating with U.S. airlines in other immunized alliances; (2) to file all subsidiary and subsequent agreement(s) with the Department for prior approval; and (3) to resubmit for review their Alliance Agreement within five years of the issuance of a final decision in this case. We also tentatively fmd it in the public interest to direct Air New Zealand to report full-itinerary O&D Survey data for all passenger itineraries that contain a point in the United States (similar to the O&D data already reported by United Air Lines).

• United operates daily nonstop flights between Los Angeles and Auckland; and it code shares on flights operated by Air New Zealand in the Honolulu-Auckland market. American Airlines offers daily nonstop code-share service in the Los Angeles-Auckland market on flights operated by its Oneworld Alliance partner Qantas Airways, an Australian airline.
• Air New Zealand operates daily nonstop flights in the Los Angeles-Auckland and Honolulu-Auckland markets. Qantas Airways operates daily nonstop flights in the Los Angeles-Auckland market. British Airways offers daily nonstop code-share service in the Los Angeles-Auckland market on flights operated by its Oneworld Alliance partner Qantas Airways. Finally, Ansett Australia and Lufthansa German Airlines offer daily nonstop code-share service in the Los Angeles-Auckland market on flights operated by their partner Air New Zealand.
• United operates daily nonstop flights in the Los Angeles-Melbourne/Sydney and the San Francisco-Sydney markets. American Airlines offers nonstop code-share service in the Honolulu-Sydney and the Los Angeles-Melbourne/Sydney markets on flights operated by its Oneworld Alliance partner Qantas.
• ANZ operates daily nonstop flights in the Los Angeles-Sydney market; and it code shares on flights operated by United in the Los Angeles-Melbourne/Sydney and the San Francisco-Sydney markets. Qantas offers daily nonstop service in the Honolulu-Sydney and the Los Angeles-Melbourne markets; and it offers nonstop service in the Los Angeles-Sydney market, three times a week. Finally, Air Canada offers nonstop service in the Honolulu-Sydney market.
• Air Pacific operates nonstop flights between Honolulu/Los Angeles and Nadi, Fiji. Qantas offers nonstop code-share service in the Honolulu/Los Angeles-Nadi, Fiji markets on flights operated by its partner Air Pacific. American Airlines offers nonstop code-share service in the Los Angeles-Nadi, Fiji market on flights operated by its partner Air Pacific.
• ANZ operates nonstop flights between Honolulu/Los Angeles and Nadi, Fiji. United offers nonstop code-share service in the Honolulu/Los Angeles-Nadi, Fiji markets on flights operated by its partner ANZ.

As for the Los Angeles-Sydney market, at least in the short-term, our tentative actions will reduce the number of competitors from three to two. However, as discussed below, our evaluation of the U.S.-Australia market tentatively indicates that the likelihood of potential entry from Los Angeles could provide competitive discipline for the partners' operations, if they should provide inadequate service or supra-competitive prices, except as to certain time-sensitive passengers.

In terms of passengers transported, ANZ's U.S.-South Pacific nonstop passenger market share was 25.8 percent. The alliance (including United, at 22.3 percent) would have a market share of 48.1 percent. United is the largest U.S.-flag airline in the U.S.-South Pacific market, and third overall. In contrast, Qantas and its oneworld partners (including American) had a 30.2 percent passenger market share; Continental Micronesia had a 7.3 percent market share; and Air Pacific had a 4.9 percent market share. Moreover, we note that other U.S. and third-country airlines offered nonstop service in the market; they had a combined market share of 9.4 percent. We therefore tentatively find that the U.S.-South Pacific market is competitive in terms of service, and that the alliance if immunized, would not substantially reduce this competition.

Another competitive issue concerns ownership interests that the Joint Applicants may have in competing CRSs. United and Air New Zealand have ownership and/or marketing ties with Galileo and Sabre, competing CRS firms. As with the Delta Air Lines - -Austrian-Sabena-Swissair (see Order 96-5-26 at 31-32) and the Northwest-KLM (see Order 92-11-27 at 16) arrangements, the proposed integration of marketing operations of the Joint Applicants presents a risk that CRS competition may be reduced. In view of these factors, we tentatively find that any grant of antitrust immunity for the Alliance Agreement should exclude the carriers' CRS interests and operations.

By:  Susan McDermott

United Air Lines, Inc. and Air New Zealand Limited

Final Order 2001-4-2 grants approval and antitrust immunity to the Alliance Agreement between United Air Lines, Inc and Air New Zealand, subject to provision that the antitrust immunity will not cover any activities of the Joint Applicants as owners of Sabre and Galileo computer reservations system businesses, and subject to the proposed limits and conditions imposed in Order 2001-3-4 and specified in Appendix A.

By:  Susan McDermott

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