BEFORE THE

U.S. DEPARTMENT OF TRANSPORTATION

Joint Application of

 

DELTA AIR LINES, INC. and

WESTJET

 

Under 49 U.S.C. §§ 41308 and 41309 for Approval of and Antitrust Immunity for Alliance Agreements

 

 

 

     Docket DOT-OST-2018-0154

ANSWER OF THE DELTA MASTER EXECUTIVE COUNCIL

OF THE AIR LINE PILOTS ASSOCIATON, INTERNATIONAL

 

 

 

 

 

 

 

 

 

 

December 11, 2019

Ryan Schnitzler, Chairman

Delta Master Executive Council

AIR LINE PILOTS ASSOCIATION,

   INTERNATIONAL

100 Hartsfield Centre Parkway, Suite 800

Atlanta, Georgia 30354

(404) 763-4923

Ryan.Schnitzler@alpa.org

Kathy.Hunt@alpa.org

BEFORE THE

U.S. DEPARTMENT OF TRANSPORTATION

Joint Application of

 

DELTA AIR LINES, INC. and

WESTJET

 

Under 49 U.S.C. §§ 41308 and 41309 for Approval of and Antitrust Immunity for Alliance Agreements

 

 

 

    Docket DOT-OST-2018-0154

ANSWER OF THE DELTA MASTER EXECUTIVE COUNCIL

OF THE AIR LINE PILOTS ASSOCIATON, INTERNATIONAL

On behalf of the more than 14,000 pilots who fly for Delta Air Lines, Inc., the Air Line Pilots Association, International’s Delta Master Executive Council (MEC) files this Answer to the Application of Delta and WestJet[1](collectively, the Parties) for approval of and antitrust immunity (ATI) for the Delta-WestJet joint venture (the JV).[2]  As the MEC has explained in other proceedings,[3] while immunized alliances like the JV have the potential to grow both US carrier capacity and US aviation jobs, they can also be misused to effectively outsource US flying operations to foreign carriers—a result fundamentally inconsistent with the Department’s statutory objectives and international policy statement.[4]  Consistent with those objectives, and to ensure that both the Delta and WestJet operations share equitably in the benefits of the joint venture, the MEC respectfully urges the Department to approve the JV subject to conditions analogous to those recently imposed on Delta’s “Blue Skies” joint venture in Order 2019-11-14.[5]

Specifically, the Department should require that the Parties specifically report on the JV’s impact on the balance of flying, growth, and US aviation jobs in joint venture markets, and should also incorporate those factors into the Department’s own comprehensive review and assessment of the alliance.  To confirm progress on these metrics, the MEC strongly urges that the Parties be directed to address the same subject matter in their standard annual progress reports to the Department, and that those reports be made available to interested parties, including labor interests, subject to the Department’s standard Rule 12 procedures.  Including this information in the Parties’ annual ATI reports imposes no material additional burden on the JV, but will substantially enhance transparency, ensuring that the Department and other interested parties have adequate notice of potential concerns, and that Parties have the opportunity to correct any identified harms before the Department undertakes its comprehensive review.

A.    The Public Interest Requires Equitable Allocations of Flying and Growth

The Department’s two-step analysis to review an application for antitrust immunity involves both a (i) “competitive effects analysis” and (ii) “public benefits analysis” under 49 U.S.C. §§ 41308 and 401309, respectively.  SeeOrder at 4.  In conducting its public interest analysis, the Department’s policy is to strengthen the competitive position of US air carriers relative to foreign air carriers, and to encourage fair wages and working conditions.  49 U.S.C. §§ 40101(a)(5), (a)(15), and (e)(1).[6]

Unlike codesharing, where each partner maintains its own profit motives, and the incentive to operate its own flights, a metal neutral joint venture significantly reduces those incentives.  As the Parties explained:

The JV Agreement provides for sharing of incremental profits and losses, and is carefully structured so that the JV Partners will be indifferent as to which airline’s aircraft operates any particular U.S.-Canada route, since they will share incremental profits derived from the services offered on such routes; hence the use of the term “metal-neutral”.

Joint Application at 3.[7]  When joint venture partners share equally in the growth enabled by an immunized alliance, they can protect, enhance, and grow US jobs and careers.  However, those objectives are not served by a joint venture that—like the prior Delta-Virgin Atlantic alliance[8]—fails to equitably allocate production and growth among partner carriers and effectively enables the outsourcing of US aviation jobs to a foreign partner.[9]

In Order 2019-11-14, which approved and granted ATI to the Blue Skies joint venture, the Department expressly recognized that the public has a reasonable interest in knowing how a joint venture impacts US aviation jobs and the balance of flying and growth opportunities generated in joint venture markets. Order 2019-11-14, at 10. Accordingly, the conditions imposed by the Department require the joint venture partners to specifically address those topics in the mandatory self-assessment prepared in anticipation of the Department’s five-year review of the alliance.  Id. at 10, 12 (¶ 1.b.).  As described below, the circumstances of the JV at issue here warrant the imposition of analogous conditions.

B.    Conditions Are Warranted to Safeguard US Transborder Capacity and US Aviation Jobs.

For calendar year 2019, Delta and WestJet are projected to fly 46.3% and 53.7%, respectively, of their combined US-Canada transborder[10] block hours.[11]  The Parties estimate that JV will yield “new or expanded service on at least 20 nonstop routes,” “[i]ncrease transborder capacity on the combined Delta/WestJet network by over 20%” and therefore “be positive for all the existing employees and for the creation of new jobs.”  Joint Application, at 3, 4, & App’x 4, at 5.  The JV provides for the “50-50 sharing of incremental profits and losses generated by the JV,” regardless of how that incremental flying is distributed between the Parties.  Joint Application App’x 2, at 2.

The potential benefits of the JV do indeed appear promising, provided that Delta and WestJet maintain a roughly equal balance of transborder flying and both carriers realize an equitable share of whatever growth is generated within the JV.  However, while Delta and WestJet have expressed a qualified general intent to grow their joint venture operations equitably, it remains to be seen whether the Parties will ultimately adopt or abide by any concrete production balance or growth metric that would ensure that result.  Moreover, elements of the Joint Application itself indicate that the Parties intend to use the JV to shift existing transborder flying from Delta to WestJet.  Specifically, the Joint Application asserts (at 45) that, “[o]n certain other transborder routes, particularly in smaller short-haul markets, the JV Partners can replace Delta’s regional jets with WestJet’s efficient Q400 aircraft, which will maintain and ensure sustainable service in otherwise unprofitable markets.”  It is not clear that this redistribution would be offset by a comparable shift of transborder flying from WestJet to Delta, or by enough new Delta transborder flying to maintain the existing balance of flying.

Delta’s previous failure to deliver on promises of equitable growth in its joint venture with Virgin Atlantic, seeMEC Comment, at 4-7, also give cause to question the reliability of similar assurances here.  Troublingly, recent comments from Delta executives appear to confirm that the Company’s use of that alliance to effectively outsource growth to a foreign carrier was not an aberration, but part of a deliberate business strategy.  As one executive explained:[12]

Through the alliance network, our joint ventures, which are unique in the industry, what we are able to do is really broaden that network internationally and globally with a much more effective return on invested capital formula that it would be for us to buy widebody airplanes and go out and grow that organically. And you see that with investments in Virgin Atlantic, you see that with investments in Aeroméxico, the most recent investment we made with Korean; as well as the announcement that is pending regulatory approval of a new partnership and a 20% interest in LATAM in South and Latin America.

Baird Presentation, at 8:12-9:17.

As such, in the absence of a meaningful commitment by the Parties to equitably allocate flying and growth within the JV, the alliance represents a potential risk to both to Delta-operated capacity in the US-Canada transborder market, and to associated job and career opportunities for US aviation workers.

Consistent with the Department’s statutory objectives, the MEC therefore respectfully urges the Department to impose reporting and review conditions analogous to those recently applied to the Blue Skies joint venture in Order 2019-8-2[13] and Order 2019-11-14.  Specifically, the MEC asks the Department to subject the JV to a comprehensive time-limited review “consist[ing] of both a self-assessment by the parties, as well as an internal examination by the Department,” Order 2019-8-2, at 12, to assess (1) how the JV has affected the balance of flying and growth between US and foreign carriers in joint venture markets, and (2) the impact of the JV on US aviation jobs and career opportunities in those markets.  See Order 2019-11-14, at 10, 12 (¶ 1.b.).  The review should quantitatively document the JV’s impact on US labor and US carrier operations in US-Canada markets, including through calculation of frequencies, block hours, and ASMs generated by Delta under the joint venture, Delta’s joint venture operations and capacity relative to WestJet, and Delta’s absolute and relative share of incremental flying opportunities realized under the joint venture.

The MEC also strongly urges that the Parties discuss the balance of flying and growth opportunities within the JV in their annual progress reports to the Director of the Office of Aviation Analysis, see id. at 12 (¶ 3), and that those reports also be made available to interested parties, including the MEC, subject to the Department’s standard Rule 12 confidentiality procedures.

The Delta MEC understands and appreciates that reporting on the growth allocation and job impacts of the Blue Skies joint venture less than a month after its approval is too soon to accumulate much additional relevant information—especially given that Delta had already publicly confirmed that it would begin service on an additional Delta-operated JFK-LHR flight, as promised.  See Order 2019-11-14, at 10.  However, if no such disclosures are made until the JV’s five-year review, the Department and other interested parties would be denied adequate notice to identify and correct deficiencies or harms to US aviation interests in the interim should the Parties fail to implement equitable growth within the JV.  Because the Parties will already be required to prepare and submit ATI progress reports on an annual basis, requiring them to address a single additional issue, and to make their progress available subject to Rule 12 procedures, rather than on an ex-parte basis, will enhance transparency and impose no material additional burden on the Parties.[14]

CONCLUSION

For the reasons set forth above, the Delta MEC believes that additional conditions are necessary to ensure that Delta-operated services and US aviation workers do in fact realize the promised benefits of the JV.  The MEC therefore respectfully urges the Department to include in its scheduled review of the JV a comprehensive assessment of the alliance’s impact on the balance of flying and growth in joint venture markets and the related effect on US aviation jobs.  It likewise urges the Department to require interim reporting on the allocation of flying and growth within the JV as part of the Parties’ annual progress reports.

 

[1] Common names are used for carriers.

[2] Delta Air Lines, Inc. and WestJet Joint Application for Antitrust Immunity for Alliance Agreements, DOT OST 2018-0154-0001 (Oct. 11, 2018) (Joint Application).

[3] See Comment of the Delta Master Executive Council of the Air Line Pilots Association, International, DOT 2013-0068-0077 (Aug. 16, 2019) (MEC Comment); Consolidated Motion and Surreply of the Delta Master Executive Council of the Air Line Pilots Association, International, DOT 2015-0070-0223 (Aug. 28, 2019) (MEC Consolidated Surreply).

[4] See 49 U.S.C. 40101(a)(5), (a)(15) and (e)(1).

[5] Final Order at 10, Order 2019-11-14, DOT-OST-2013-0068 (Nov. 21, 2019) (Order 2019-11-14).  Delta’s Blue Skies joint venture consolidates and amends its prior transatlantic joint ventures with Virgin and KLM/Air France.  See MEC Comment at 1.

[6] Fittingly, as this filing is being prepared, reports indicate the imminent signing of the new US-Mexico-Canada Agreement, which is intended to further parallel policy goals.  As the US Trade Representative has explained, “One of President Trump’s principal objectives in the renegotiation is to ensure the agreement benefits American workers.”  Office of the US Trade Representative, United States-Mexico-Canada Trade Fact Sheet: Modernizing NAFTA into a 21st Century Trade Agreement, https://ustr.gov/trade-agreements/free-trade-agreements/united-states-mexico-canada-agreement/fact-sheets/modernizing# (last visited Dec. 10, 2019).

[7] The abrupt severance of American Airlines’ relationship with LATAM offers a telling illustration of how international alliances factor into US carrier decision-making about whether and where to expand their own operational service offerings.  As reported in the Miami Herald, “just days after Chile-based LATAM, Latin America’s largest airline, ditched its partnership with American in favor of a deal with Delta airlines,” American announced expanded service offerings from Miami to Latin American in 2020.  Specifically, American announced that it would be adding new daily flights on three existing routes to Lima, Peru, Santiago, Chile, and Sao Paulo, Brazil.  Taylor Dolven, American Airlines plans to expand service to Latin America in 2020, Miami Herald (Sept. 30, 2019), https://www.miamiherald.com/news/business/tourism-cruises/article235621262.html (last visited Dec. 10, 2019).

[8] See MEC Comment at 4-6.  Specifically, Virgin’s total block hours in 2018 between the United States and the United Kingdom increased 33% over those flown in 2013, while Delta’s US-UK block hours have increased by just 2%.  Virgin’s total scheduled frequencies between the US and London Heathrow (LHR) operations grew from 8,174 frequencies in 2013 to 11,453 frequencies in 2018, while Delta’s total increased only marginally from 6,341 to 6,492 in the same years.  From July 2012 to July 2018, the total number of Virgin LHR-JFK flights increased from three to six, while the total number of Delta’s LHR-JFK frequencies decreased from three to two.

[9] Elsewhere, Delta has calculated that “every daily international roundtrip flying lost” by a US carrier due to route displacement by a foreign carrier equates to “a net loss of more than 1,500 US jobs.”  Partnership for Open & Fair Skies, Subsidized Expansion by Qatar, Etihad and Emirates Threatens US Airline Jobs, http://www.openandfairskies.com (last visited Dec. 10, 2019).

[10] As used here, “transborder” includes all flying between the United States and Canada, with the exception of flying between Canada and Hawaii.

[11] OAG (data load date Oct. 10, 2019) (includes US-Canada flying performed by Delta, WestJet, and their respective regional partners; excludes flying between Canada and Hawaii).

[12] Presentation of Delta Air Lines, Baird 2019 Global Industrial Conference (Nov. 7, 2019) (Baird Presentation),http://wsw.com/webcast/baird57/dal/index.aspx (last visited Dec. 10, 2019).

[13] Order to Show Cause at 12, Order 2019-8-2, DOT-OST-2013-0068-0074 (Aug. 2, 2019) (Order 2019-8-2).

[14] The Joint Application currently before the Department addresses only transborder flying between the US and Canada, and behind and beyond flying within those territories.  Should the Parties at some point seek to expand the geographic scope of the JV to other countries or continents, such international expansion should and must be subject to de novo review.  Likewise, should WestJet seek to join the Blue Skies joint venture, de novo review would be required.

 

 

 

 

 

 

 

 

 

 

December 11, 2019

Respectfully submitted,

 

 

 /s Ryan Schnitzler                                         

Ryan Schnitzler, Chairman

Delta Master Executive Council

AIR LINE PILOTS ASSOCIATION,

   INTERNATIONAL

100 Hartsfield Centre Parkway, Suite 800

Atlanta, Georgia 30354

(404) 763-4923

Ryan.Schnitzler@alpa.org

Kathy.Hunt@alpa.org

CERTIFICATE OF SERVICE

 

I hereby certify that on December 11, 2019, the foregoing document was served on the following persons via the email addresses listed below in accordance with the Department’s Rules of Practice:

 

Allegiant: agoerlich@ggh-airlaw.com
Alaska Airlines: dheffernan@cozen.com
  jeremy.ross@alaskaair.com
American Airlines: robert.wirick@aa.com
  william.sohn@dechert.com
  paul.denis@dechert.com
Amerijet Int’l: jcanny@amerijet.com
Atlas Air: rpommer@atlasair.com
Delta Airlines: alex.krulic@delta.com
  chris.walker@delta.com
  steven.seiden@delta.com
Federal Express: nssparks@fedex.com
  gbleopard@fedex.com
Frontier Airlines: matwood@cozen.com
  howard.diamond@flyfrontier.com
Hawaiian Airlines: perkmann@cooley.com
JetBlue: robert.land@jetblue.com
  reese.davidson@jetblue.com
  adam.schless@jetblue.com
  esahr@eckertseamans.com
  dderco@eckertseamans.com
Kalitta Air:                                           matwood@cozen.com
Naitonal Airlines: mlbenge@zsrlaw.com
  jrichardson@johnlrichardson.com
Polar Air: kevin.montgomery@polaraircargo.com
Southwest Airlines: bob.kneisley@wnco.com
  leslie.abbott@wnco.com
Spirit Airlines: jyoung@yklaw.com
  dkirstein@yklaw.com
Sun Country Airlines: brandon.carmack@suncountry.com
  victoria.palpant@suncountry.com
United Airlines: dan.weiss@united.com
  steve.morrissey@united.com
  abried@jenner.com
United Parcel Service: anita.mosner@hklaw.com
  jennifer.nowak@hklaw.com
WestJet: robert.cohn@hoganlovells.com
  patrick.rizzi@hoganlovells.com
Department of Transportation: kristen.davis@dot.gov
  jeffrey.gaynes@dot.gov
  david.short@dot.gov
  brian.hedberg@dot.gov
  todd.homan@dot.gov
  peter.irvine@dot.gov
  brett.kruger@dot.gov
  laura.remo@dot.gov
  benjamin.taylor@dot.gov
  kevin.bryan@dot.gov
  jason.horner@dot.gov
Federal Aviation Administration: john.s.duncan@faa.gov
Department of Justice: Kathleen.oneill@usdoj.gov
Department of Commerce: Eugene.Alford@trade.gov
Department of State: forsbergap@state.gov
Airline Info: info@airlineinfo.com

 

 

 

 

 

/s Kathy Hunt                                                 

Kathy Hunt, Supervisor

Delta Master Executive Council

AIR LINE PILOTS ASSOCIATION,

   INTERNATIONAL

100 Hartsfield Centre Parkway, Suite 800

Atlanta, Georgia 30354

(404) 763-4924

Kathy.Hunt@alpa.org