undocketed / OST-97-2965 / OST-97-2966 / American and Iberia / Answer of TWA / October 17, 1997

Joint Application of

AMERICAN AIRLINES, INC. and IBERIA LINEAS AEREAS DE ESPANA, S.A.

For Statements of Authorization under 14 CFR Parts 207 and 212 (Reciprocal Codeshare Services)

Application of

AMERICAN AIRLINES, INC.

under 49 USC 40109 for exemption (U.S.-Spain and beyond; code sharing with Iberia)

Application of

IBERIA LINEAS AEREAS DE ESPANA, S.A.

under 49 USC 40109 for exemption (U.S.-Spain and beyond; code sharing with American Airlines)

ANSWER OF

TRANS WORLD AIRLINES, INC.

TWA Answer

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By applications, dated October 2, 1997, American and Iberia have filed a joint code share application and supporting exemption applications. In its application, American and Iberia have presented an extremely limited explanation of their relationship and the actual operation of the American/Iberia and related alliances. TWA hereby answers /1 and requests that action on the proposed code share be deferred. The Department should establish an investigation of the proposed Alliance, to proceed in conjunction with its on-going investigations of the American/British Airways and American/TACA alliances. In support of its answer, American states as follows:

1. American's proposed Alliance with Iberia is another step in its campaign to use the concept of code sharing to achieve joint monopolization of major markets to Europe and South America. The basic idea of code sharing, which the Department has found to be in the public interest, is the extension of carrier networks through joint service with connecting airlines. American, however, has used code shares in an attempt to achieve market dominance of the sectors between the United States and the foreign countries. The Department is intensely concerned about this program, and has instituted an investigation of the American/TACA relationship, as well as American/British Airways. The AA/Iberia alliance requires equally detailed analysis.

1/ TWA is filing a consolidated answer to the applications on the date for answers to the exemption applications. To the extent that this pleading may be late with respect to one of the AA/Iberia papers -- the application for statements of authorization under Parts 207 and 212 -- TWA hereby moves for leave to file a late-filed answer.

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2. The American/Iberia Alliance contains at least three elements, only one of which the parties have presented here:

(a) A triple alliance between American, Iberia, and Aerolineas Argentinas. American will purchase a 10% share of Aerolineas from Iberia, which will continue to own 10% of the airline. American will enter into code share alliance with Aerolineas and Iberia.

(b) Iberia will enter into a code share alliance with American's transatlantic partner, British Airways, forming, in effect, a triple alliance on the Atlantic.

(c) American and Iberia create another triple alliance in Central America, as American adds a code share with Iberia to its proposed code share with TACA. America will presumably have the code of both the TACA group and Iberia on its Miami-Central America flights. This gives American control of almost 100% of Miami-Central America traffic. It is unclear whether Iberia will continue to operate its own aircraft in the market after it implements the code share with American.

In order to avoid a comprehensive investigation of its plans, American has attempted to compartmentalize the proceedings by filing separate applications. The Department should not be taken in by this, but should consider the American/Iberia Alliance jointly with both American/British Airways and American/TACA. TWA is not suggesting a single proceeding involving all three alliances, particularly because the investigation of the American/TACA

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alliance is already well under way. Rather, the Department should consider dividing its consideration of American/Iberia into two parts -- Latin America and transatlantic. The Department could then consider each element of the alliance in conjunction when the other alliances to which it is directly related.

3. There are numerous questions about the proposed alliance that need to be answered before the Department can consider granting approval. For example,

What will happen in U.S.-Central America markets? American and TACA are already the dominant carriers in the market, and Iberia, which provides the only alternative between Miami and Central America, will join the alliance. Will the code of all three carriers be placed on the same aircraft? Is there a separate understanding that Iberia will withdraw entirely from these markets and place its code on American's aircraft? Will Iberia continue to maintain its isolated DC-9 fleet, which achieves very low utilization, at Miami? ,

What will happen in the Miami-Madrid market where American and Iberia are the major carriers (the only alternative is Air Europa, which provides only three frequencies per week in summer and two in winter)? With American controlling all the feed from Central America and most of the connecting traffic from South American, the potential for entry of another U.S. flag carrier is limited.

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How will this Alliance relate to American/British airlines? AA/BA are combining their sales force. Will Iberia retain a separate sales force in the U.S., or will it be represented by AA/BA? Will American base its travel agent overrides on the combined volume of American, British Airways, and Iberia? American will serve several beyond points in Europe by code shares with both BA and Iberia, including Lisbon, Rome, Geneva, and Vienna. How will it allocate traffic between BA and Iberia?

These questions only scratch the surface. Before it approves this Alliance, the Department must conduct as thorough an investigation as in the AA/BA and AA/TACA cases.

4. If the Department were to consider approving the transatlantic portion of the Alliance, there is one other matter that TWA must raise. On October 16, TWA signed a code share agreement with Air Europa, which will be submitted to the Department in due course. Like American/Iberia, the TWA/Air Europa agreement include numerous U.S. domestic code share points to which Spain is entitled under the bilateral. As shown by the attached Exhibit, most points are common to both Alliance agreements. However, there are several cities that are unique to each Alliance. The Department should not approve the proposed American/Iberia code share service to any point that is not also proposed by TWA/Air Europa. TWA understands that the Spanish government has not yet provided the U.S. a list of designated code share cities. It will be up to Spain to choose between the competing claims of AA/Iberia and TWA/Air Europa, unless an extra-bilateral accommodation can be

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reached. Until Spain makes that determination, the Department should withhold its approval of unique AA/Iberia code share points.

Respectfully submitted,

Richard J. Fahy,

Attorney for Trans World Airlines, Inc.

October 17, 1997