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Aloha Airlines, Inc. and Hawaiian Airlines, Inc.

The unprecedented challenges facing the local interisland operations of both Aloha and Hawaiian, combined with the decision not to proceed with their planned merger, have compelled the filing of this application requesting approval of and the grant of antitrust immunity for an Agreement to engage in capacity coordination and a limited form of revenue balancing. Interisland services have been unprofitable for each of Hawaiian and Aloha for a period of several years, well before the tragic events of September 11, 2001. Since September 11, however, traffic levels have dramatically declined, and even with the carriers' implementation of unilateral capacity reductions, interisland financial losses have continued. When federal payments under the Air Transportation Safety and System Stabilization Act (P.L. 107-42, Sept. 22, 2001) are excluded, both carriers suffered substantial losses in the fourth quarter of 2001, and both are now operating below their now breakeven load factors for their interisland operations. Those losses have continued in 2002 with both carriers again experiencing first quarter losses. It was with this very situation in mind that Congress enacted Section 116 of the Aviation and Transportation Security Act, which became law on November 19, 2001.

Aloha and Hawaiian currently fly "wingtip to wingtip" on many of their interisland routes, with too many seats empty, but with no ability to conform capacity to actual demand because of the fear of conceding passengers to the other carrier. Such unnecessary duplication and excess capacity on key routes have raised the carriers' costs without a commensurate rise in revenue. If permitted to address this problem cooperatively, however, Aloha and Hawaiian could conform capacity more closely to consumer demand, thereby generating substantial cost savings for both carriers, without reducing output (the number of passengers carried).

Counsel:  Dow Lohnes, Jonathan Hill, 202.776.2725 and Squire Sanders, Marshall Sinick, 202.626.6651

As provided by our procedural rules for such applications, 14 C.F.R. Part 303, we have reviewed the application and determined that it is substantially complete. Answers would normally be due twenty-one days from the date of adoption of this notice. The statute. however, requires that any decision approving and granting antitrust immunity be made by October 1. 2002. To enable us to full, consider any comments and make our determination before this deadline, we will give commenters fifteen days to file answers to the application.

By:  Read Van de Water

Pacific Wings is the only other scheduled airline - and existing intrastate competitor - directly affected by the Joint Application. Any reduction in competition, capacity, or frequencies, as well as any change in schedules or change in fares, which may be authorized by the Department's approval of the joint Application, would have a substantial affect on Pacific Wings, the communities and public it serves.

Counsel:  Patton Boggs, Gregory Walden, 202.457.6135

Aloha and Hawaiian should not be penalized for Pacific Wings' failure to make even the most minimal effort to inform itself of the status of the application. Approval of Pacific Wings' motion would convey to the public that those interested in proceedings before the Department need not take seriously their responsibility to remain abreast of filings made with the Department, and that by claiming that they were unaware of an application they might conceivably obtain additional time to respond thus delaying the consideration of properly filed applications. The Department certainly must not reward such lack of diligence with additional time, especially when the Joint Applicants have complied fully with every statutory and regulatory requirement applicable to their application.

Collectively, Aloha and Hawaiian offer nearly three hundred times as many weekly nonstop seats in the Honolulu-Kahului market as Pacific Wings. The fact is that Pacific Wings, with its 8-seat Cessna aircraft, is not in any sense whatsoever a competitor of either Aloha or Hawaiian in this market notwithstanding its contrary assertion, and that the decision in this proceeding will have no detectable effect on Pacific Wings. Pacific Wings' statement that it requires additional time to ascertain the impact of approval on its "own operations", which can mean only its operations in the Honolulu-Kahului market where it operates a total of sixteen weekly nonstop flights, should be accorded no weight by the Department in deciding Pacific Wings' motion. Pacific Wings also fails to acknowledge the obvious fact that any reduction in Honolulu-Kahului service that may ensue from the agreement could only beneficially impact Pacific Wings.

Counsel:  Squire Sanders, Marshall Sinick, 202.626.6651, and Dow Lohnes, Jonathan Hill, 202.776.2725

We will grant Pacific Wings' request in part. As we stated in our notice, the normal comment period in this proceeding would have been twenty-one days. Pacific Wings may have a legitimate need for more time for analyzing the application. The applicants, moreover, did not serve Pacific Wings, even though it is the only other airline providing scheduled airline service in intra-Hawaiian markets. We will therefore make comments on the application due at 10 a.m. EDT on Tuesday, September 3. We are unwilling to grant Pacific Wings more time due to our need to make a decision on the application by October 1.

By:  Read Van de Water

Aloha Airlines and Hawaiian Airlines have applied under Section 116 of the Aviation and Transportation Security Act for antitrust immunity for an agreement to coordinate capacity in Hawaiian inter-island markets. The coordinated capacity reductions proposed by the carriers will result in serious harm to consumers through higher fares and poorer service in some of the most heavily traveled city pairs in the United States. There has been no showing that such collusion on capacity is necessary to preserve air service in the inter-island markets.

The proposed Inter-Island Cooperation Agreement is manifestly not in the public interest. Allowing the only two carriers serving these routes to coordinate capacity will result in serious harm to consumers traveling in the inter-island city pairs. There is no evidence whatsoever to support the claim that immunity is necessary to preserve service on the routes. Accordingly, DOJ strongly urges that the Secretary deny the application.

By:  Department of Justice, Michael Billiel, 202.307.6666, michael.billiel@usdoj.gov 

American operates substantial nonstop service to Hawaii from points in the Mainland U.S. that, by virtue of interline and codeshare arrangements with Aloha and Hawaiian, connects substantial numbers of Mainland originating passengers to points within Hawaii. American is concerned that without appropriate safeguards to ensure that sufficient capacity is maintained on intra-Hawaii routes, passengers traveling on American beyond Hawaii gateway cities may find it more diffi­cult or perhaps impossible to obtain seats when and where they want to travel on a connecting segment within Hawaii by virtue of capacity coordination among the applicants.

Counsel:  American, Carl Nelson, 202-496-5647, carl.nelson@aa.com

At a time when major US airlines have been forced to seek concessions from lessors, suppliers, creditors and labor unions, it is unreasonable to suggest that Hawaii residents should forfeit the benefits of vigorous competition so that Aloha and Hawaiian can avoid similar belt tightening while simultaneously enjoying the benefits of antitrust immunity. The proposed Inter-Island Cooperation Agreement submitted by Aloha and Hawaiian creates no incentives for the carriers to make fundamental business or management changes necessary to rationalize capacity and remain competitive, consistent with actions taken by other large airlines under similar circumstances.

Counsel:  Patton Boggs, Gregory Walden, 202-457-6135

Briefly, the oppositions of DOJ and Pacific Wings apply the wrong legal standard to the wrong "facts", and ignore the clear intent of Congress and the Hawaii Congressional delegation that approval of the Agreement is in the public interest. American does not oppose Aloha and Hawaiian's application but merely seeks the type of reassurance that the marketplace itself will provide. None of the commenters displays an understanding of the unique air transportation network in Hawaii as clearly expressed by the Governor in his Declaration, his letter of transmittal to the Secretary of Transportation or by the State's Congressional Delegation.

Pacific Wings' opposition is in large part a repetition of arguments made by DOJ. It falsely accuses the Joint Applicants of being unable to "face reality" and make belt-tightening changes that current conditions require. While these contentions simply ignore the relevant facts, Aloha and Hawaiian would draw the Department's attention to Pacific Wings' statement that considering a codesharing relationship with smaller carriers such as itself is one particular aspect of the "reality" that Aloha and Hawaiian should face.

Counsel:  Squire Sanders, Marshall Sinick, 202-626-6651 for Aloha / Dow Lohnes, Jonathan Hill, 202-776-2725 for Hawaiian

Aloha Airlines, Inc. and Hawaiian Airlines Inc. have reviewed the Surreply Comments of Pacific Wings, LLC, and Motion for Leave to File an Unauthorized Document submitted today in Docket OST­2002-13002. Since those Surreply Comments contain nothing more than a repetition of arguments previously made by Pacific Wings, and answered by Aloha and Hawaiian, we wish to advise the Department that Aloha and Hawaiian will not burden the record by responding to this latest pleading.

Counsel:  Squire Sanders, Marshall Sinick for Aloha / Dow Lohnes, Jonathan Hill for Hawaiian

Submits this surreply to the repl comments filed yesterday by the Joint Applicants Aloha Airlines and Hawaiian Airlines and served on Pacific Wings' counsel after the close of business. Pacific Wings recognizes that the Department's regulations and notices in this proceeding do nor provide for surreplies or even replies. However, Pacific Wings requests leave to submit this surreply as it believes it %vil1 further assist the Department m its deliberations on the Joint Application, vile not burdening the record, unduly delaying this proceeding, or prejudicing the joint Applicants or any other party to this proceeding.

Counsel:  Patton Boggs, Gregory Walden, 202-457-6135

We have decided to approve the Inter-Island Cooperation Agreement filed by Aloha and Hawaiian and to exempt the carriers from the provisions of 49 U.S.C. §41308 and 41309, to the extent necessary to effectuate that agreement, subject to a reporting condition with respect to the applicants' service and fares in the affected inter-island markets. We are adopting this reporting requirement because of our concern with the potential impact of this agreement on consumers, and we intend to monitor closely the schedules and fares being offered by each of the carriers in those markets. The authority will be effective immediately through October 1. 2003, unless earlier suspended, modified, or revoked, as set forth in this order.

The controversy in this case is whether approval of the agreement is in the public interest. DOJ and Pacific Wings argue that it is not. The applicants, the Governor, and the Hawaii congressional delegation argue that it is. The statutory requirement that we determine whether the agreement is consistent with the public interest requires that we consider numerous factors. We find that the agreement's approval is consistent with the public interest, because approval will give the applicants the opportunity to adjust their inter­island services in ways that will increase efficiency and reduce costs. At this point, we do not have a factual basis to find that their implementation of the agreement would inevitably result in consumer harm. The applicants have represented that the agreement's purpose is to obtain cost savings, not fare increases, and that the applicants will not jointly set fares. Furthermore, the nature of the inter-island markets should limit their ability to impose fare increases. To ensure that the agreement does not adversely affect travelers in the inter-island markets, however, we intend to review the impact on fares and service levels in the inter-island markets. To assist us in that process, we are requiring the applicants to provide monthly service and fare data by city-pair market.

By: Read C. Van de Water

Ex-Parte letter from the Secretary, Norman Y. Mineta to The Honorable Daniel Inouye on the application filed by Aloha Airlines and Hawaiian Airlines.

By: Norman Mineta

Ex Parte letter from the Secretary, Norman Y. Mineta to The Honorable Benjamin J. Cayetano regarding the letter of July 23 enclosing the declaration, as provided for in Section 116 of the Aviation and Transportation Security Act of 2001, that a joint venture agreement by Aloha Airlines and Hawaiian Airlines is necessary to ensure the continuing availability of air transportation with the State of Hawaii.

By: Norman Mineta

Order 2007-5-16
OST-1995-618 - Delta, Swiss, Sabena and Austrian - Antitrust Immunity
OST-1995-792 - American and Canadian - Antitrust Immunity - US-Canada
OST-1999-5674 - Alitalia, KLM and Northwest - Antitrust Immunity - U.S.- Italy
OST-1999-6528 - American, Swiss and Sabena - Approval and Antitrust Immunity for Agreements
OST-2000-6791 - Malaysia and Northwest - Antitrust Immunity - U.S.- Malaysia
OST-2001-10387 - American and British Airways - Approval of and Antitrust Immunity for Agreement
OST-2002-12688 - American and Swiss - Approval of and Antitrust Immunity for Alliance Agreement
OST-2002-13002 - Aloha and Hawaiian - Antitrust Immunity for Agreement
OST-2004-18613 - America West and Royal Jordanian - Approval of and Antitrust Immunity for Commercial Cooperation Agreement

Issued and Served May 24, 2007

Order Terminating Proceedings

The Department has identified several antitrust immunity proceedings as moot or inactive. In
each proceeding, applicants have terminated the alliance agreements for which they sought a
grant of immunity. Therefore, where a grant of immunity was made, it is no longer effective. It
is in the public interest for administrative management to terminate these proceedings and close
the corresponding dockets.

By: Andrew Steinberg

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