Order 97-5-13 / American and British Airways

Served: May 16, 1997

Issued by the Department of Transportation on the 16th day of May, 1997

Joint Application of

under 49 U.S.C. Sections 41308 and 41309 for approval of and antitrust immunity for alliance agreement (Docket OST-97-2058)

Applications of

for exemptions, certificate authority, undocketed foreign air carrier permit authority, and statements of authorization (Dockets OST-97-2054, 2055, 2056, 2057

By memorandum dated November 26, 1996, the Department's staff provided the prospective Joint Applicants with preliminary guidance in the form of an advisory evidence request on what documents and information they should include, in the event they decided to file an application for antitrust immunity. In that memorandum, the staff also informed the carriers that an application for antitrust immunity would likely require the Department to seek additional information.

The staff has now completed its preliminary review of the application, including 15 boxes of documents for which the applicants have sought confidential treatment under Rule 39, and has determined that (1) filings of certain reports, meeting notes, and studies must be updated, (2) certain documents and reports require clarification and further explanation of relevant details and/or key assumptions, and (3) certain documents or analyses must be supplemented or expanded to include additional material. /1 We find that each of the items is relevant to our determination as to both the public benefits and the competitive impact of the proposed alliance.

1. We direct American Airlines, Inc. and British Airways PLC to provide the additional information and evidence described in the attachment to this order.

By:

CHARLES A. HUNNICUTT

Assistant Secretary for Aviation and International Affairs

(SEAL)

1/ The documents previously submitted indicate that much of the material required for this request has already been compiled by the Joint Applicants for various internal analyses and briefings, or is otherwise readily available. The time periods for the data used in these analyses were often not indicated and copies of some internal analyses in the submissions to the Department appear to be preliminary drafts of work then in progress.

NOTE: We cite below the document reference citations (REF), applicant (AA = American Airways; BAP = British Airways; JA = Joint Application), page numbers or page number range, together with the document/table title and the item date where disclosed.

1. (REF: BAP 100127): American Airlines - British Airways Alliance Joint Policy Group Meeting, November 13, 1996. Provide subsequent updates for all Alliance Policy Group meetings held between November 13, 1996, and the date of your response to this request for additional information. In addition, provide all documents addressing any and all subject areas identified in the November 26, l 996, DOT evidence request that have been produced between that date and the date of your response to this request for information.

2. (REF: AA0003634.0): US-KU Summer l99S Weekly Frequencies for Carriers with US-London Service and USAir and EU Carriers with No US-London Service. Provide an update of this list for the Summer 1997 season, based on available schedules.

3. (REF: JA-9): Analysis of American's Traffic in Overlap Markets for the Year Ended October 1996. Provide a copy of this document on a disk (preferably in Microsoft Excel format).

4. (REF: JA-10): British Airways On-line and Interline Revenue Passengers in Overlap Markets. While BA's list only distinguishes between on-line and interline traffic for each market, AA's list of the same data (REF: JA-9) is subdivided as requested by our November 26, 1996, evidence request, distinguishing between true on-line connections, code share, interline with code-share partner, and other interline, along with a total for each market. To facilitate accurate analysis, BA's list should be further subdivided among passenger categories as was requested. Provide a printed copy of this revised document, as well as a copy on a disk (preferably in Microsoft Excel format).

5. (REF: AA0005114.0 - 0005115.0): AA states that it would continue its relationships with certain U.S. and foreign airlines. Provide additional information (including copies of commercial agreements in final, or in draft if there is no final agreement) on these partnerships, particularly on their role in the proposed AA/BA alliance in terms of corporate strategy, marketing, yield and capacity management, and pricing. AA also identified certain U.S. and foreign airlines as potential future partners. Provide information on the content, scope, and status of each of these alliance discussions and how these partners may be integrated into the corporate strategy, code-sharing, yield management, and pricing of the AA/BA alliance, if approved.

6. (REF: BAP 131568 - 131592 and AA 0007382.0 - AA 0007387.0, etc.). Fully identify and explanation all code names used in the documents submitted and the status of each arrangement.

7. (REF: BAP 130189): "OC Growth Spa @ LHR with AA and BA Both Sharing Citypairs". Provide a thorough explanation of this table, including date of preparation, basis of assumptions for "OC", and any subsequent revisions.

8. (REF: AA 0007014.0): Behind Market Share Analysis AA-BA. Provide a complete explanation of the assumptions used in this analysis, particularly the determinants of the before and after US-UIC open-skies scenario analyses (assumptions concerning additional service in specific markets by competing carriers; assumptions concerning capacity, pricing, and yield management, both of AA/BA and of other carriers and alliances, etc.). Also provide an explanation of the components of the Quality of Service Index (QSI) (and any studies used as the basis for its construction and/or assessment) used in calculating market share of the AA-BA interline agreement under an unchanged US/UK bilateral and after a US/UK open-skies agreement. Fully explain analytical conclusions reached as to QSI levels and market shares. In your presentation, explain changes in average yields and revenues in moving from an AA-BA interline agreement under the present bilateral to an immunized AA/BA alliance under an open-skies agreement.

9. (REF: AA 0005509 - 0005526): Incremental Traffic Beyond London/Heathrow. (a) Provide a thorough explanation of this table including, but not limited to, how "incremental" is defined, what "market share points" and "percentages" mean in terms of numbers of passengers, incremental revenue, yields, etc., and precisely what is included in the category "other;" and (b) provide subsequent revisions to this table (data is based on a July 1995 schedule).

10. (REF: BAP 130666, 130671): Provide an explanation and update of these tables, expanding the services to include connections of less than three hours on all carriers. Each airline serving each market should have three columns: one giving the number of nonstop services per day, the next giving the number of one-stop connecting services per day having a connecting time of less than three hours at a US or a European hub or both, and a total for all flights for that carrier and market.

11. (REF: BAP 135645 - 135650 and BAP 135232 - 135233): WORLD Booking Share on UK-USA. Provide a complete explanation of these tables including, but not limited to, definitions of booking volume and booking share and an explanation of the various booking and share codes used.

12. (REF: AA0007159.0 - 0007160.0): CONCRS Booking Data Year End May 1996. Provide a complete explanation of these tables.

13. (REF: AA0005334.0 AA/BA Code Share AA 0000217.0): This document refers to a commercial agreement between AA and a foreign airline Provide a copy of that agreement (either in final or in draft form if not final). Provide a detailed explanation, including all documents analyzing the proposed commercial arrangement and the role that the foreign air carrier would play in the proposed AAIBA alliance in terms of corporate strategy, marketing, yield management, capacity management, and pricing.

14. (REF: AA 0002303): Europe Load Factor By Cabin. Provide an update of this table to cover the entire 1996 summer season and an explanation of each cabin designation (i.e., F. C, Y). In addition, provide the average yield and the actual unrestricted M dollar-denominated fare for each cabin in each market and the percentage of total seats in each cabin sold at that fare. Using historical CRS, e.g., Ticket Control Number (TCN)/Marketing Information Data Tape (MIDT) data, also provide the average market fares (aggregated from all unrestricted airline fares available in each of the three equivalent AA cabin designations) for all transatlantic markets served by AA. If there is more than one unrestricted fare, provide all of the data requested above for each unrestricted fare in each cabin in each market. British Airways is requested to submit an identical table in an identical format for all of its transatlantic services for the same period. /1

15. (REF: BAP 050891 - 050896): AA on BA Beyond London Ranking of Codeshare Destinations and Competition in the Market. Provide a complete explanation of this table and the time frame used for the analysis. Include definitions for all terms as used in the table: market size, market share, connections in both directions, potential connection, potential market, PPDEW, etc. Expand the tables on BAP 050892, -50893, -50894, -50895, and -50896 to include all of the information as presented in -50891, as appropriate. In addition, indicate the actual numbers of competing flights (in both directions) for every other carrier/alliance serving each market, distinguishing between nonstop and connecting services (having a less than three hour connecting time at a US or European hub or both). Provide this information in printed form and on a disk (preferably in Microsoft Excel format).

16. (REF: JA-11): O&D Survey of Airline Passenger Traffic for Top 100 British Airways Markets that Involve a US Origin, Destination, or Connecting Point. Use this list as a basis to construct a table which includes the following additional information: percentage change 1995/1994, total BA passengers carried each year in each market (for the years 19941996 inclusive), total passengers carried by AA in each market for each year (for the years 1994-1996 inclusive), combined AAIBA market shares for each market and year (for the years 1994-1996 inclusive), numbers of AA and BA nonstop and connecting flights (having a connection time of less than three hours at either a North American or a European hub or both) in each market for the years 1994-1996 and for the summer season 1997. Service data for AA and BA should be listed in separate columns for the years 1994-1996 and combined using the proposed summer 1997 schedules. Additional columns for each competing carrier's nonstop and connecting flights (having a connection time of less than three hours at either a North American or a European hub or both) in each market for each year should also be

1/ Consistent with Order 95-11-5, we have determined that information and data dealing with revenue, operating and financial results to be relevant to our public interest determinations in these cases.

added. Service data for all competing carriers serving each market should be based on schedules flown for the years 1994-1996 and currently available schedules for the summer 1997 season. In reporting on AA and BA service, as well as other carrier service, disaggregate nonstop from connecting services in two columns for each carrier and provide a third column which totals all service for that carrier and market; include all partner airlines as appropriate. In the case of the AA/BA service levels for summer 1997, this would include (but would not necessarily be limited to) British Midland, Canadian, TAT, Air Liberte and Deutsche BA, such that all possible connections via LHR, LOW, ORY, and MUC as well as connections via all North American gateways, would all be included. In addition to a printed copy of this expanded table, include a disk that includes the table in Microsoft Excel format.

17. (REF: BAP 040630 - 040633): United States - Europe Traffic by City Pair. Use the first 130 US-Europe city pairs on this list as a basis to construct a table which includes the following additional information: total BA passengers carried each year in each market (for 1995 and 1996), total passengers carried by AA in each market for each year (for 1995 and 1996), combined AA/BA market shares for each market and year (for 1995 and 1996), numbers of AA and BA nonstop and connecting flights (having a connection time of less than three hours at either a North American or a European hub or both) in each market for each year (1995, 1996, and the summer 1997 schedules). Service data for AA and BA should be listed in separate columns for 1995 and 1996 and combined for the summer 1997 schedules. Additional columns for each competing carrier's nonstop and connecting flights (having a connection time of less than three hours at either a North American or a European hub or both) in each market for 1995, 1996, and the summer schedule 1997 should also be added. Service data for all competing carriers serving each market should be based on schedules flown for the years 1995 and 1996 and currently available schedules for the summer 1997 season. In reporting on AA and BA service as well as other carrier service, distinguish nonstop from connecting services in two columns for each carrier and provide a third column which totals all service for that carrier and market; include all partner airlines as appropriate. In the case of AA/BA service levels for summer 1997, this would include but would not necessarily be limited to, British Midland, Canadian, TAT, Air Liberte and Deutsche BA, such that all possible connections via Low, LOW, ORY, and MUC as well as connections via all North American gateways, would all be included. In addition to a printed copy of this expanded table, include a disk with the table in Microsoft Excel format.

A. British Airways' transatlantic services, including partner airlines' destinations.

B. American Airlines' transatlantic services, including partner airlines' destinations.

C. British Airways' and American Airlines' transatlantic services combined as envisioned.

D. British Airways' North American (including the US, Canada, Mexico, Latin America, and the Caribbean) network including partner airline destinations (designated with a different symbol than symbols indicating its nonstop gateways). Partner destinations should include those served by American, America West, Canadian and all other airline partners.

E. British Airways' European network including destinations of all partner airlines. Partner destinations should include those of TAT, Air Liberte, Deutsche BA, and all franchise carriers.

F. British Airways' Latin American/South American/Caribbean services including partner airlines' destinations.

G. British Airways' Middle East, Africa, and Asia-Pacific network including partner airlines' destinations.

H. American Airlines' North American network (including the US, Canada, Mexico, and the Caribbean), including all partner airline destinations.

I. American Airlines' Latin American/South American/Caribbean network, including partner airlines' destinations.

J. American Airlines' Middle East, Africa, and Asia-Pacific network including partner airlines' destinations.

19. (New Item): Using your CRS Simulation Model, provide printouts showing the first six CRS integrated screen displays for all major systems (Apollo, Sabre, Worldspan, and SystemOne/Amadeus) using both the US and the European displays for each market (in both directions) listed below using local departure times of 07:00, 13:00, and 17:00. For each market there should be four sets of CRS integrated display screen printouts. The first should show the US CRS displays prior to code-sharing of AA/BA on US based CRS systems/algorithms, using summer 1997 schedules. The second should show the US based CRS displays for each market after code-sharing by AA/BA based on the proposed AA/BA summer 1997 schedule plan (submitted as BAP 030246-030256). For all other carriers, use summer 1997 schedules as a base, augmented by proposed additional US-UK service by other carriers to London airports (use same assumptions used in REF: AA 0007014.0). Provide a list of assumed additional services by other US and UK carriers following the implementation of an open-skies agreement (state and explain all assumptions). The third set of CRS screen printouts should show the display prior to code-sharing of AA1BA on European based CRS systems/algorithms, using summer 1997 schedules. The fourth should show the European CRS displays for each market after code-sharing by AA/BA based on plan submitted as BAP 030246. For all other carriers, use summer 1997 schedules as a base, augmented by proposed additional US-UK service by other carriers to London airports (use same assumptions used in REF: AA 0007014.0).

2/ According to documents previously submitted, these transparencies had been prepared by BA for the UK Office of Fair Trading.

The integrated display used should be the default display used by the majority of travel agents configured in accord with US and European CRS rules respectively. For both U.S. and European systems, identify the characteristics of the default display algorithm used. All printouts should be clearly labeled by market, CRS system, screen number and rule base (US or European). The markets to be analyzed are: