Docket OST-97-2068 / Docket OST-97-2054, 2055, 2056, 2057 / OST-96-1700 / American and British Airways / American and TACA / July 18, 1997

Joint Application of

under 49 U.S.C. §§ 41308 and 41309 for approval of and antitrust immunity for alliance agreement

Joint Application of

for exemptions, certificate authority, undocketed foreign air carrier permit authority, and statements of authorization:

American /1 has announced that it is investing in and entering into an alliance with Aerolineas Argentinas and Austral, and that it and its proposed partner, British Airways, have entered into alliances with Iberia. Additionally, SEPI has

1/ Common names of carriers are used.

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announced that there may be further investment in Iberia by both American and British Airways. These alarming announcements indicate that there will be significant expansion in the global mega-alliance planned by American and British Airways. Combining American, one of the largest U.S. airlines, with British Airways, Aerolineas Argentinas, Iberia, Austral, and the TACA Group will perpetuate American's stranglehold on the U.S.-Latin America market, ally all the carriers providing any significant services between Miami and Central America, permit the alliance to dominate the U.S.-Spain and U.S.-Argentina markets, and preempt future alliances between other carriers that might seek to compete in these markets. Worse still, if American and British Airways were themselves allowed to combine and given immunity from the antitrust laws, incorporating these other carriers into their quest for global domination would allow them to crush competitors throughout the U.S., Europe and Latin America. The Department must not endorse the American/British Airways effort to squelch competition on a piecemeal basis without considering the interrelationships among these alliances, particularly when they intersect at American's Miami mega-hub.

Continental moves the Department to require American, British Airways and the TACA Group to submit supplemental information in both the American/British Airways and American/TACA proceedings related to their joint investments in and alliances with Aerolineas Argentinas, Austral, and Iberia, give

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interested parties adequate opportunity to comment on those submissions and suspend further proceedings in the interim.

In support of its motion, Continental states as follows:

1. On July 18, 1997, American announced that it had agreed to purchase a 10 percent interest in the holding company of both Aerolineas Argentinas and Austral. Additionally, it was announced that American is planning to increase this stake in Aerolineas Argentinas and Austral, and that American and British Airways will be able to invest jointly in Iberia. It was also announced that code-share agreements between the five partners are planned. American, Iberia and the TACA Group already control virtually all (96%) of the Miami-Central America services and the lion's share (73%) of all U.S.-Central America services. Similarly, American and Aerolineas Argentinas control 72% of the Miami-Argentina nonstop seats and 70% of the nonstop U.S.-Argentina seats. Like American's just approved code-share with TAM and its proposed code-shares with the TACA Group, Avianca, Aero California, and LAPSA, American's investment in Aerolineas Argentinas and Iberia is intended to preempt entry or expansion by other U.S. carriers. Iberia is the only competitor to the American/TACA combine at Miami for virtually all Central America destinations today. In addition, an American/Iberia alliance would control 97% of the Miami-Madrid seats. The investments in and alliances with Aerolineas Argentinas, Austral and Iberia demonstrate that American and British Airways are

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attempting to monopolize both transatlantic and U.S.-Latin America service by preempting alliances among smaller airlines to prevent those airlines from competing with American and British Airways. The investments will have a cumulative effect on the dominance of American and the TACA Group in Central America and of American and British Airways in transatlantic services. Because American already holds a commanding portion of U.S.-flag service in the U.S.-Central America and U.S.-U.K. markets, the investment and alliance are related directly to the public interest analysis in both the American/British Airways and American/TACA cases, and the implications of these agreements for the proposed American/British Airways and American/TACA Group alliances must be examined. /2

2. American's acquisition of a stake in Aerolineas Argentinas and Iberia is related directly to the concerns at issue in the American/TACA proceeding, and British Airways' potential acquisition of a similar interest increases those concerns exponentially. The Department has already recognized that the proposed

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would bracket gateways served by other carriers. Additional Latin-American traffic will strengthen the partners' dominance in U.S.-U.K, U.S.-Spain, U.S.-transatlantic markets because it will add traffic at hub gateways where the partners are already dominant, making it even more difficult for other carriers to compete.

3. The investments and alliances by American and British Airways with Aerolineas Argentinas, Austral, and Iberia also make the proposed American/British Airways mega-alliance even more anticompetitive. Their own proposed alliance requires the strictest scrutiny and a full documentary record, since the alliance is unprecedented in scope, adverse effect on competition and controversy. American and British Airways are seeking not only global code-share authority but also immunity from all U.S. antitrust laws. The announcement that the Joint Applicants will ally with Aerolineas Argentinas, Austral, and Iberia makes it clear the record must be supplemented with information concerning the global expansion plans being implemented by American and British Airways and the effects of those plans on competition in the U.S.-Europe and U.S.- South America markets. These new announcements also show that an oral evidentiary hearing should be required. The proposed agreements with Aerolineas Argentinas, Austral and Iberia will affect directly competition not only in U.S.-South America markets but also in U.S.-Europe markets, where American and British Airways are already planning how they can freeze out transatlantic

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competition. British Airways is the largest carrier in the U.S.-U.K. market, and American is the second largest. Together American and British Airways control 60% of the seats in U.S.-London markets, and their dominance is even greater in the Miami-London (63%), JFK-London (67%), Dallas/Ft. Worth-London (100%) markets. American concentrates its U.S.-Latin America service at Miami. With dominance at Miami, New York (JFK), and Dallas/Ft. Worth, American, British Airways and their additional partners will be able to join forces and squeeze out other U.S. gateways like Houston and Newark. The alliance partners will control not only key U.S. gateways, but also major European gateways (U.K. and Spain) and many points in Latin America (Argentina, Belize, Costa Rica, E1 Salvador, Guatemala, Honduras, Nicaragua, Panama, as well as Brazil with TAM, Colombia with Avianca and Paraguay with LAPSA). With their dominance at the three major U.S. gateways further enhanced by Latin American feed, American and British Airways will gain additional traffic for their transatlantic services, thus making it more difficult for other carriers to compete in U.S.-Europe markets while at the same time further inhibiting competition in Latin America markets.

4. At a minimum, the Department should require the Joint Applicants to submit: (1) a detailed explanation of the scope and timing of their investments in and arrangements with Aerolineas Argentinas, Austral and Iberia; (2) complete copies of all prospectuses, analyses, and memoranda concerning investment by American and/or British Airways in Aerolineas Argentinas, Austral and/or Iberia;

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(3) a separate description of each party's strategic objectives in investing in Aerolineas Argentinas, Austral and Iberia (4) all studies, reports, and analyses that discuss route development, internal expansion, service expansion, marketing plans or strategies, concerning air services between (a) the U S. and Argentina, and (b) the U. S. and Spain, (c) Europe and Argentina, (d) Central America and Argentina, (e) Central America and Europe, (f) air services behind and beyond these points, and (g) services at American's Miami and Dallas/Ft Worth hubs and at New York (JFK); (5) all corporate documents, dated or produced within the last two years, that address in whole or in part the subject of competition (or lack of competition or any impediments or restrictions on competition) in air travel between the U. S. and Latin America or Europe, as well as travel beyond those regions; (6) complete information on how the investments in and arrangements with Aerolineas Argentinas, Austral, and Iberia would affect operations between the U. S. and the U. K by American and British Airways with respect to passengers with an origin and destination in third countries; (7) all current investments of American and/or British Airways in other airlines (and vice versa), and all such investments which the parties are in any way contemplating; (8) complete copies of all agreements (in final, or in draft if there is no final), including marketing and other cooperative agreements between American, British Airways and/or the TACA Group, on the one hand, and Aerolineas Argentinas, Austral and/or Iberia, on the other hand; and (9) complete copies of all agreements

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(in final, or in draft if there is no final), including marketing and any other cooperative agreements, between British Airways and members of the TACA Group. /3

o. The cumulative effects on competition of the .American/Aerolineas Argentinas/Austral, American/British Airways, American/Iberia, and American/TACA Group alliances would be truly overwhelming, particularly coupled with American's Aero California (Mexico), Avianca (Colombia), LAPSA (Paraguay) and TAM (Brazil) alliances. American and British Airways already dominate U.S.-U.K. services; American, Iberia and the TACA Group control 96% of the Miami-Central America services and 73% of the U.S.-Central America services; American and Aerolineas Argentinas already dominate the U.S.-Argentina market and permitting investments or code-sharing between them, even without antitrust immunity would give them even greater dominance. In determining the public interest, the Department has a statutory mandate to "avoid . . Unreasonable industry concentration, excessive market domination, monopoly powers, and other conditions that would tend to allow at least one carrier or foreign air carrier unreasonably to increase prices, reduce services, or exclude competitions Approving the proposed American/British Airways mega-alliance, the

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American/TACA Group alliance, or an alliance between American and either Iberia or Aerolineas Argentinas/Austral would turn the statutory objective on its head Iberia is the only challenger to American/TACA at Miami and an American/Iberia alliance would control 97% of the Miami-Spain seats Aerolineas Argentinas operates 42% of the Miami-Argentina and 39% of the U. S. -Argentina nonstop seats Individually, an American/British Airways, American/TACA Group, American/Aerolineas Argentinas/Austral or American/Iberia alliance would increase American's dominance, preempt competition in the affected markets by other carriers and result in fewer service options and higher fares Allowing American to combine forces with British Airways, Aerolineas Argentinas, Austral, Iberia, and the TACA Group would destroy global competition and preclude forever the possibility of network competition by another U. S. carrier with American either directly in Central America or Argentina or through an alliance with a foreign carrier With American strengthened by additional Latin American and Europe traffic flow at Miami, New York and Dallas/Fort Worth, Continental and other U. S. carriers would be unable to compete in any market in which American maintains a stranglehold on competition Moreover, approving American's proposed alliances would signal to other carriers that they have no alternative but to join the growing American/British Airways behemoth, as Avianca, Aero California, LAPSA, TAM and now Aerolineas Argentinas, Austral and Iberia have, or be crushed by it Just as the Star Alliance among United, Air 

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Canada, Lufthansa, SAS, Thai, and Varig "involves matters relevant to" the Department's "assessment of the competitive implications" raised in the United/Air Canada proceeding, /5 the American and British Airways investments and other arrangements with Aerolineas Argentinas, Austral, and Iberia are relevant to and must be considered in addressing the competitive issues in the American/British Airways proceeding. Similarly, the investments must also be considered in the American/TACA Group proceeding because American's investment in Aerolineas Argentinas, Austral, and Iberia relates directly to U.S.-Latin America markets affected by American/TACA Group code-sharing.

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For the foregoing reasons, the Department should direct American, British Airways and the TACA Group to supplement the record as described above. When they have done so, interested parties in the American/TACA and the American/British Airways proceedings should have an opportunity to respond to the additional information. In the meantime, the Department should take no further action in either proceeding.

Respectfully submitted,

CROWELL & MORING LLP

R. Bruce Keiner, Jr.

Lorraine B. Halloway

Steven A. Mirmina

Counsel for Continental Airlines, Inc.

July 18, 1997