Order 01-03-4

Order 01-3-4

United Air Lines, Inc. and Air New Zealand Limited

Order 01-3-4 OST-99-6680	Issued March 2, 2001 Served March 2, 2001	Order to Show Cause	Approval of and Antitrust Immunity for Alliance Agreements
		Attachment: Conditions Governing Anti-Trust Agreement

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