OST-97-2965/2966 and Undocketed / OST-96-1700 ? OST-97-2058 / OST 97-2054-2057 / American Airlines and Iberia / Answer of Delta Air Lines / October 17, 1997
Applications of
AMERICAN AIRLINES, INC. and IBERIA LINEAS AERES DE ESPANA, S.A.
for exemptions and Statements of Authorization
(U.S.-Spain and beyond code-sharing)
AMERICAN AIRLINES, INC., et al. and THE TACA GROUP RECIPROCAL CODE-SHARE SERVICES PROCEEDING
Joint Application of
AMERICAN AIRLINES, INC. and BRITISH AIRWAYS PLC
under 49 U.S.C. §§ 41308 and 41309 for approval of and antitrust immunity for alliance agreement
Joint Application of
AMERICAN AIRLINES, INC. and BRITISH AIRWAYS PLC
for exemptions, certificate authority, foreign air carrier permit authority, and statements of authorization
ANSWER OF DELTA AIR LINES, INC.
TO APPLICATIONS OF
AMERICAN AIRLINES, INC. and
IBERIA LINEAS AERES DE ESPANA, S.A.
Answer of Delta Air Lines, Inc.
Page 2
On October 2, 1997, American Airlines, Inc. ("American") and Iberia Lineas Aereas de Espana, S.A. ("Iberia") applied for exemption authority and statements of authorization to implement a reciprocal code-share arrangement affecting American/Iberia services (1) between points in the United States and points in Spain, including additional extrabilateral points in each country; (2) to points beyond the United States in Latin America; and (3) to points beyond Spain in Europe.
Delta hereby submits this answer in opposition to the American/Iberia applications. First, Delta opposes the applications to the extent the American and Iberia propose to provide extra-bilateral service -- and in particular thirdcountry code-share service -- when Spain does not allow such service. Second, and more importantly, the Department should consider the American/Iberia alliance only after a thorough evaluation of its competitive impact in the context of the pending American/British Airways and American/TACA alliances. The American/Iberia alliance is an integral part of American's global strategy to pool and consolidate traffic among its partners moving between the United States, Europe and Latin America. The instant application should therefore be consolidated with the American/British Airways and American/TACA proceedings.
Answer of Delta Air Lines, Inc.
Page 3
[Confidential]
Answer of Delta Air Lines, Inc.
Page 4
End Confidential Section]
In light of the foregoing, Delta submits that the American/Iberia proposal, like the American/British Airways proceeding, "is an exceptional case, posing a unique set of issues. . ." warranting oral hearing procedures. Order 97-9-4 at 16. The potential anticompetitive impact of the American/Iberia alliance is aggravated by the announcement that British Airways has entered into an alliance with Iberia and that British Airways may also be investing in Iberia.
The Department should require American and Iberia to submit complete and detailed information on the proposed alliance and its relation to American's alliances with British Airways, the TACA Group, Aerolineas Argentinas, Austral, and LAN Chile. By Notice dated August 22, 1997 in Docket OST-96-1700, the Department has already required American and TACA to provide similar supplemental information. However, as explained by Delta and Continental in their September 11, 1997 comments in Docket OST-96-1700, the supplementary information supplied by American and TACA was perfunctory and dismissive of the concerns sought to be addressed by the Department's
Answer of Delta Air Lines, Inc.
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Notice. The Department should require a thorough evidence submission here as detailed by Continental in its September 11, 1997 Comments in Docket OST-96-1700 at p.7. Furthermore, in view of the potential anticompetitive impacts of the arrangements, the Department should provide for an oral evidentiary hearing before an Administrative Law Judge with opportunities for cross-examination.
Turning to the Latin American side of the equation, it is important to bear in mind that if American is successful in consummating its intended alliances, American and its partners would control an incredible 97% of U.S.-Central America flights and capacity at the key Miami gateway, and 74% of all U.S.-Central America flights.
Whatever minimal competitive discipline the American/TACA alliance would face at American's strategic stronghold in Miami would have been provided by Iberia -- the only other carrier serving a significant number of Central American destinations nonstop from Miami. The American/Iberia codeshare applications spell out the two carriers' plans to code-share on American's Miami-Central America flights, as well as on Spain-Latin America and Europe-Latin America routes via Miami, where American and Iberia are principal competitors. These services would also intersect at Miami with British Airways, further increasing the potential of American's multiple-alliance grouping to dominate Europe-Latin America traffic. [confidential]
[end
Answer of Delta Air Lines, Inc.
Page 6
[confidential] In these circumstances, it is probable that approval of the American/Iberia code-share pact would have a detrimental effect on competition in the important overlap markets covered by the proposed agreement.
As was the case with the TACA Group, American's proposed relationship with Iberia involves substantial amounts of reciprocal code-sharing on overlapping route networks, which would not create any new meaningful service or competitive benefits for consumers. Delta has already demonstrated that American's primary motivation for entering into an alliance with the TACA Group is to further entrench its already dominant position in the U.S.-Central American marketplace. The American/Iberia arrangement, particularly when viewed in light of the evidence in the American/TACA docket, suggests that one of American's primary objectives in creating this alliance is to further eliminate competition with its principal Central American competitors. The Department should thoroughly probe these troubling competitive concerns by conducting a full evidentiary hearing on the issues.
When the Department instituted the American-TACA proceeding, it stated that "the arrangement presents serious competitive issues that need investigation before we can conclude approval will be consistent with the public interest." The Department further noted the "dominant positions held by American and the foreign carriers involved in the alliance in the Central American market" underscoring that "those carriers were the largest carriers in the markets at issue, and American was the only U.S. airline with a hub at Miami, the
Answer of Delta Air Lines, Inc.
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dominant gateway for U.S.-Central America service." see Order 97-1-15 at 4; Order 96-11-12. The American/Iberia and American/British Airways proposals raise similar and closely related "serious competitive issues" that require thorough regulatory scrutiny.
Conclusion
The American/Iberia, American/British Airways and American/TACA alliances are all part of a comprehensive and integral plan designed by American to dominate traffic moving between the United States, Europe and Latin America. The vital competition, policy and public interest issues raised by the proposed arrangements compel a thorough evaluation of the interrelationships between the new alliance with Iberia and the American-TACA and American/British Airways alliances now pending before the Department.
Furthermore, the extrabilateral third-country code-share services proposed by American and Iberia are not supported by sufficient reciprocity on the part of Spain.
The present record does not provide the Nepal talent with an adequate basis to consider the extent to which the participants in the American/Iberia and American's other intended alliances may integrate traffic flows and increase their domination of U.S.-Latin America, U.S.-Europe, U.S.-Spain and U.S.-UK routes, to the detriment of competition in these important U.S. aviation markets. Like the American/British Airways proceeding, the complex issues raised by the American/Iberia alliance require the submission of further supplementary
Answer of Delta Air Lines, Inc.
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information and consolidated consideration in an oral evidentiary hearing, which should include the opportunity for cross examination.
Respectfully submitted,
Robert E. Cohn
Alexander Van der Bellen
SHAW PITTMAN POTTS & TROWBRIDGE
2300 N Street, N.W.
Washington, D.C. 20037
(202) 663-8060
Counsel for DELTA AIR LINES, INC.