[Federal Register Volume 81, Number 239 (Tuesday, December 13, 2016)]
[Notices]
[Pages 89979-89991]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-29883]
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DEPARTMENT OF JUSTICE
Antitrust Division
United States v. Alaska Air Group, Inc., et al.; Proposed Final
Judgment and Competitive Impact Statement
Notice is hereby given pursuant to the Antitrust Procedures and
Penalties Act, 15 U.S.C. 16(b)-(h), that a proposed Final Judgment,
Stipulation, and Competitive Impact Statement have been filed with the
United States District Court for the District of Columbia in United
States of America v. Alaska Air Group, Inc., et al., Civil Action No.
1:16-cv-02377. On December 6, 2016, the United States filed a Complaint
alleging that Alaska Air Group's proposed acquisition of Virgin America
Inc. would violate Section 7 of the Clayton Act, 15 U.S.C. 18. The
proposed Final Judgment, filed at the same time as the Complaint,
requires Alaska to reduce the scope of its codeshare agreement with
American Airlines and obtain Antitrust Division approval before selling
certain assets.
Copies of the Complaint, proposed Final Judgment, and Competitive
Impact Statement are available for inspection on the Antitrust
Division's Web site at http://www.justice.gov/atr and at the Office of
the Clerk of the United States District Court for the District of
Columbia. Copies of these materials may be obtained from the Antitrust
Division upon request and payment of the copying fee set by Department
of Justice regulations.
Public comment is invited within 60 days of the date of this
notice. Such comments, including the name of the submitter, and
responses thereto, will be posted on the Antitrust Division's Web site,
filed with the Court, and, under certain circumstances, published in
the Federal Register. Comments should be directed to Kathleen S.
O'Neill, Chief, Transportation, Energy, and Agriculture Section,
Antitrust Division, Department of Justice, 450 Fifth Street NW., Suite
8000, Washington, DC 20530 (telephone: 202-307-2931).
Patricia A. Brink,
Director of Civil Enforcement.
United States District Court for the District of Columbia
United States of America, Department of Justice, Antitrust
Division, 450 Fifth Street NW., Suite 8000, Washington, DC 20530,
Plaintiff, v. Alaska Air Group, Inc., 19300 International Boulevard,
Seattle, WA 98188, and Virgin America Inc., 555 Airport Boulevard,
Burlingame, CA 94010, Defendants.
Case No.: 1:16-cv-02377.
Judge: Reggie B. Walton.
Filed: 12/06/2016.
Complaint
The United States of America (``Plaintiff''), acting under the
direction of the Attorney General of the United States, brings this
civil antitrust action to enjoin the proposed merger of Defendants
Alaska Air Group, Inc. (``Alaska'') and Virgin America Inc.
(``Virgin''), and to obtain equitable and other relief as appropriate.
The United States alleges as follows:
I. Introduction
1. The airline industry in the United States is dominated by four
large airlines--American Airlines, Delta Air Lines, United Airlines,
and Southwest Airlines--that collectively account for over 80% of
domestic air travel each year. In this highly-concentrated industry,
the smaller airlines play a critical competitive role. In order to
compete with the four largest airlines, these smaller airlines often
must offer consumers lower fares, additional flight options, and
innovative services. The proposed merger of Alaska and Virgin would
bring together two of these smaller airlines--the sixth- and ninth-
largest U.S. carriers, respectively--to create the fifth-largest U.S.
airline.
2. Alaska and Virgin both provide award-winning service and tend to
offer lower prices than the larger airlines, but they differ in at
least one critical respect. Unlike Virgin, Alaska has closely aligned
itself with American, the largest U.S. airline, through a commercial
relationship known as a codeshare agreement, which allows each airline
to market tickets for certain flights on the other's network. The
codeshare agreement began in 1999 as a limited arrangement that
permitted Alaska to market American's flights on a small number of
routes Alaska did not serve on its own. Over the years, the two
airlines have significantly expanded their relationship in size and
scope through a series of amendments to the codeshare agreement. The
most recent of these amendments was executed in April 2016--around the
same time Alaska agreed to purchase Virgin.
3. Although the codeshare agreement effectively extends Alaska's
geographic reach--potentially strengthening Alaska's ability to compete
against other carriers like Delta and United--it also creates an
incentive for Alaska to cooperate rather than compete with its larger
partner, American. Specifically, Alaska may choose not to launch new
service on routes served by American, or it may opt to compete less
aggressively on the routes that both carriers serve, to avoid upsetting
American and jeopardizing the partnership. Alaska may also decide to
rely on the codeshare relationship in lieu of entering routes already
served by American because doing so allows it to offer its customers
the benefits of an expanded network without undertaking the risk and
expense of offering its own competing service. As a result of these
incentives, Alaska and American often behave more like partners than
competitors.
4. Alaska's acquisition of Virgin would significantly increase
Alaska's network overlaps with American, and would thus dramatically
increase the circumstances where the incentives created by the
codeshare threaten to soften head-to-head competition. Roughly two-
thirds of Virgin's network overlaps with American's network, and Virgin
has aggressively competed with American on many of these overlap routes
in ways that have forced American to respond with lower fares and
better service.
5. The proposed acquisition would diminish Virgin's competitive
impact on the Virgin-American overlap routes by subjecting Virgin's
network to the incentives that arise from Alaska's codeshare agreement
with American. Virgin holds critical assets, including gates and
takeoff and landing rights (known as ``slots''), at key airports within
American's network. American divested some of these assets to Virgin as
part of the settlement of the United
[[Page 89980]]
States's antitrust challenge to American's 2013 merger with US Airways.
Once Alaska controls the Virgin assets, it likely will redeploy them in
ways that accommodate rather than challenge American in order to
preserve its codeshare agreement. To avoid competing head-to-head with
its codeshare partner, Alaska will likely reduce service, decrease
service quality, and/or raise prices on the Virgin-American overlap
routes--or exit them entirely. Alaska will also be less likely to enter
new routes in competition with American than Virgin is today. These
harms will be heightened if Alaska continues to deepen its cooperation
with American, which would have the effect of tying the nation's first-
and fifth-largest airlines even more closely together.
6. Alaska's internal planning documents demonstrate how the
incentives created by the codeshare agreement would likely reduce
competition on the routes where American and Virgin compete today. In
analyzing the proposed merger, Alaska executives reported to the
company's board of directors that certain Virgin operations ``would not
have [the] support of the American partnership.'' Accordingly, early
during the consideration process, Alaska executives developed a plan
that called for changes ``that we think would need to be made'' to
Virgin's service following the merger. The plan contemplated reducing
or eliminating service on many of the routes where Virgin and American
offer competing service today, including some of the most traveled
routes in the country.
7. For these and the reasons discussed below, the proposed merger
between Alaska and Virgin likely would lessen competition substantially
in numerous U.S. markets for scheduled air passenger service in
violation of Section 7 of the Clayton Act, 15 U.S.C. 18, and should be
permanently enjoined.
II. Jurisdiction, Interstate Commerce, and Venue
8. The United States brings this action pursuant to Section 15 of
the Clayton Act, as amended, 15 U.S.C. 25, to prevent and restrain
Alaska and Virgin from violating Section 7 of the Clayton Act, 15
U.S.C. 18. This Court has subject matter jurisdiction over this action
under Section 15 of the Clayton Act, 15 U.S.C. 25, and 28 U.S.C. 1331,
1337(a), and 1345.
9. Defendants are engaged in, and their activities substantially
affect, interstate commerce, and commerce throughout the United States.
Alaska and Virgin each annually transport millions of passengers across
state lines throughout this country, generating billions of dollars in
revenue.
10. Venue is proper under Section 12 of the Clayton Act, 15 U.S.C.
22, and 28 U.S.C. 1391(b) and (c). This Court also has personal
jurisdiction over each Defendant. Both Defendants are found and
transact business, and have consented to venue and personal
jurisdiction, in this District.
III. The Defendants and the Transaction
11. Defendant Alaska Air Group, Inc. is a Delaware corporation
headquartered in Seattle, Washington. Last year, Alaska flew over 31
million passengers to approximately 112 locations worldwide, taking in
more than $5.5 billion in revenue.
12. Alaska operates hubs in Seattle, Washington; Portland, Oregon;
and Anchorage, Alaska, and has the largest share of traffic at each of
these hubs. Alaska has maintained its status as the market share leader
throughout the Pacific Northwest, which has helped Alaska achieve
higher profit margins than most other domestic airlines for the past
several years.
13. Defendant Virgin America Inc. is a Delaware corporation
headquartered in Burlingame, California. Last year, Virgin America flew
over 7 million passengers to approximately 24 locations worldwide,
taking in more than $1.5 billion in revenue. Virgin America is one of
several entities bearing the ``Virgin'' name pursuant to a licensing
agreement with the Virgin Group, which owns approximately 18% of Virgin
America's outstanding voting common stock.
14. Virgin America was founded in 2004. Unlike Alaska, Virgin does
not have a hub-and-spoke network. Although Virgin has ``focus
cities''--Los Angeles, San Francisco, and Dallas--from which it
provides service to many destinations, Virgin does not use these focus
cities as points for transferring large volumes of connecting traffic.
Instead, the bulk of Virgin's passengers fly on nonstop flights in
markets where Virgin is typically not the dominant carrier.
15. On April 1, 2016, Alaska and Virgin agreed to merge for $2.6
billion in cash and the assumption of $1.4 billion in liabilities.
IV. Competition Between American, Alaska, and Virgin Today
A. The Formation and Expansion of the Codeshare Relationship Between
American and Alaska
16. Although codeshare agreements can take various forms, they
generally allow for flights operated by one airline to be marketed and
sold by another airline under the marketing airline's own brand. A
codeshare agreement can extend an airline's network by enabling
passengers to seamlessly book a connecting itinerary consisting of
flights operated by different airlines. For example, a passenger
seeking to fly from Walla Walla, Washington to Charlotte, North
Carolina could purchase tickets for the entire trip through Alaska,
using an Alaska flight from Walla Walla to Seattle that connects to an
American flight from Seattle to Charlotte. This arrangement allows
Alaska to rely on the codeshare agreement with American to offer
service to Charlotte, instead of having to launch its own competing
service between Seattle and Charlotte in order to serve the customer.
17. The codesharing partnership between Alaska and American began
in 1999. The initial scope of the agreement was very limited: It
allowed Alaska to market American's flights on only 88 routes where
Alaska did not otherwise provide service, and did not permit American
to market any Alaska flights. Since 1999, however, Alaska and American
have repeatedly expanded their codeshare arrangement, enabling American
to also market certain Alaska flights and increasing the number of
flights each partner may sell on behalf of the other.
18. American and Alaska most recently expanded the codeshare
agreement in April 2016, around the same time that Alaska was
concluding its agreement to acquire Virgin. In agreeing to the
amendment, Alaska chose to continue to expand its partnership with
American even though it planned to grow its own network by acquiring
Virgin. This April 2016 expansion further increased the number of
routes included in the agreement, allowing Alaska to market American
flights on over 250 routes, and American to market Alaska flights on
about 80 routes.
19. The April 2016 expansion of the codeshare agreement also
enabled American and Alaska to sell one another's flights on certain
overlap routes where both companies offer competing nonstop service.
Under this new arrangement, instead of strictly competing against one
another to sell tickets between, for example, Seattle and Los Angeles,
American and Alaska began selling each other's tickets for these routes
as well. This type of codesharing on nonstop overlap routes, by
definition, does not expand either airline's network. Instead, it
provides them the opportunity to closely coordinate their service
offerings on a
[[Page 89981]]
route where they would otherwise be competing at arm's length for
business. Such close contact between competing airlines on routes they
both serve can diminish competition and facilitate collusion.
B. The Codeshare Relationship Incentivizes Alaska To Cooperate Rather
Than Compete With American
20. Today, Alaska is stronger than American in the Pacific
Northwest, where American is comparatively weak, whereas American is
stronger than Alaska throughout the rest of the United States. Through
the codeshare agreement, Alaska offers its customers flights to more
destinations, which helps Alaska retain the loyalty of frequent fliers
who prefer to use one airline but want the ability to travel to
domestic cities that Alaska does not serve independently. American
derives similar benefits from the codeshare agreement--loyal American
customers are provided greater ability to travel throughout the Pacific
Northwest using Alaska's network.
21. Although the codeshare agreement provides both carriers
commercial benefits by linking the Alaska and American networks, the
agreement also makes Alaska dependent on American in a way that
discourages competition between the two airlines. Specifically,
American has significant leverage over Alaska because Alaska derives
considerable value from using the American network to provide service
throughout many areas of the United States it does not otherwise serve,
while American relies on Alaska to provide access to far fewer
destinations. To avoid undermining this lucrative partnership, Alaska
may forego launching new service on routes served by American, or it
may opt to compete less aggressively on the routes they both serve.
22. In addition, Alaska may choose to rely on the codeshare
agreement in lieu of entering some routes already served by American
because doing so allows it to offer its customers the benefits of an
expanded network without undertaking the risk and expense of commencing
its own competing service. By relying on an American flight to provide
its customers service, Alaska can boast a more extensive network
without actually launching service in competition with American. In
essence, by choosing to rely on the codeshare agreement, Alaska is
forgoing entry that would likely provide lower prices and more flight
options to consumers.
23. The incentives created by the codeshare agreement are
illustrated by the five-year growth plan that Alaska prepared prior to
agreeing to acquire Virgin. The plan envisioned further cooperation
between Alaska and American, calling for Alaska to ``strengthen the
[American] partnership by trying to grow LA in a way that is
complimentary [sic] to AA rather than competitive.'' But competitors
are supposed to compete with, not complement, each other. Alaska would
likely continue this strategy of avoiding growth that challenges
American if it were to complete the merger. When Alaska was weighing
whether to acquire Virgin, for example, a senior Alaska executive
recognized that ``LAX . . . expansion may be counterproductive to our
relationship with AA.''
C. Unhindered by a Codeshare Relationship, Virgin Competes Aggressively
With American
24. In contrast to Alaska, Virgin has served as one of American's
fiercest competitors. Virgin competes directly with American on twenty
nonstop routes, which constitute approximately two-thirds of Virgin's
entire network. In total, passengers spend about $8 billion per year to
travel on these routes.
25. Virgin and American vigorously compete on so many nonstop
routes in part because Virgin controls critical assets in cities where
American maintains a hub. These assets include gates and/or takeoff and
landing rights at airports such as Los Angeles International Airport,
Washington Reagan National Airport, and Dallas Love Field. Virgin's
presence at these important airports provides a critical alternative
for consumers and helps keep American's prices lower than they
otherwise would be.
26. Virgin's ownership of these assets and aggressive competition
with American is no coincidence--consumers were promised the benefits
of expanded Virgin service to counteract the anticompetitive effects
threatened by the 2013 merger between American and US Airways. To
resolve the United States's challenge to that merger, American agreed
to divest a host of critical assets to low-cost competitors, including
Virgin, at key U.S. airports. As contemplated by the settlement, Virgin
has used the assets to compete directly with American. For instance,
Virgin has utilized the two airport gates it acquired at Dallas Love
Field to launch aggressive new service against American, forcing
American to respond with lower prices. Virgin has estimated that its
entry at Love Field caused American to lower certain fares on flights
out of Dallas by more than 50%.
V. The Relevant Markets
27. Scheduled air passenger service enables consumers to travel
quickly and efficiently between various cities in the United States.
Air travel offers passengers significant time savings and convenience
over other forms of travel. For example, a flight from Washington, DC
to Detroit takes just over an hour of flight time. Driving between the
two cities takes at least eight hours. A train between the two cities
takes more than fifteen hours.
28. Due to time savings and convenience afforded by scheduled air
passenger service, few passengers would substitute other modes of
transportation (car, bus, or train) for scheduled air passenger service
in response to a small but significant industry-wide fare increase.
Another way to say this, as described in the Department of Justice and
Federal Trade Commission's Horizontal Merger Guidelines (2010), and
endorsed by courts in this Circuit, is that a hypothetical monopolist
of all scheduled air passenger service likely would increase its prices
by at least a small but significant and non-transitory amount.
Scheduled air passenger service, therefore, constitutes a line of
commerce and a relevant product market within the meaning of Section 7
of the Clayton Act.
29. Moreover, most passengers book flights with their origins and
destinations predetermined. Few passengers who wish to fly from one
city to another would switch to flights between other cities in
response to a small but significant and non-transitory fare increase. A
hypothetical monopolist of all scheduled air passenger service on any
particular route between two destinations likely would be able to
profitably increase its prices by at least a small but significant and
non-transitory amount. Accordingly, scheduled air passenger service
between each origin and destination pair constitutes a line of commerce
and section of the country under Section 7 of the Clayton Act.
30. Scheduled air passenger service on those twenty routes on which
Virgin and American compete today, and the routes on which they would
have likely competed in the future, are relevant markets within the
meaning of Section 7 of the Clayton Act.
VI. The Transaction's Likely Anticompetitive Effects
A. The Merger Is Likely To Lessen Competition on the Routes Where
Virgin and American Compete Today
31. Alaska's acquisition of Virgin's network will extend the
incentives
[[Page 89982]]
created by the codeshare agreement to the extensive overlaps between
Virgin and American, and will therefore reduce the vigorous competition
that Virgin is presently providing against American on some of the
nation's largest nonstop routes. Specifically, the merger is likely to
substantially lessen competition on each of the twenty nonstop routes
on which Virgin and American currently compete because Alaska will have
an incentive to avoid aggressive head-to-head competition in order to
preserve its codeshare relationship with American. Once Alaska has
control of Virgin, it is likely to reduce capacity, decrease service
quality, and/or raise prices on these routes. In some cases, Alaska may
completely stop serving the routes with its own flights, instead simply
marketing American's flights between the destinations, thereby
eliminating a meaningful competitive choice for millions of consumers.
32. Alaska itself has recognized that its acquisition of Virgin's
assets will likely reduce competition on the Virgin-American overlap
routes. As part of Alaska's early analysis of a possible acquisition of
Virgin, Alaska executives developed a plan for post-merger changes to
Virgin's service that specifically called for reducing--and in some
instances completely eliminating--service on many of the routes where
Virgin and American compete today, including routes that are among the
most heavily traveled in the country. If carried out, these service
reductions would not only cost consumers tens of millions of dollars
each year, they would deprive consumers of some of the competitive
benefits enabled by the American-US Airways merger settlement.
B. The Merged Firm Will Be Less Likely To Enter Into New Competition
With American Than Virgin Would Be Standing Alone
33. Alaska's acquisition of Virgin will also lessen competition
because Alaska is likely to enter fewer new routes in competition with
American post-merger than Virgin would if Virgin remained a standalone
airline. Alaska may avoid entering a route in competition with American
for two reasons related to the codeshare: (1) It will fear endangering
its lucrative relationship with American, and (2) it can already offer
tickets on the route through the codeshare agreement. Virgin has no
such inhibitions. In fact, Virgin's standalone growth plan called for
the airline to enter several nonstop routes currently served by
American but not Alaska. Alaska presently relies on its codeshare
relationship with American to serve some of these routes, as well as
others that may have been served by an independent Virgin in the
future. Post-merger, Virgin's independent decision-making will be lost,
and Alaska may avoid entering these types of routes. As a result,
consumers will be deprived of the benefits of the future competition
that Virgin would have provided.
VII. Absence of Countervailing Factors
34. New entry, or expansion by existing competitors, is unlikely to
prevent or remedy the merger's likely anticompetitive effects. New
entrants into a particular market face significant barriers to success,
including difficulty in obtaining access to slots and gate facilities;
the effects of corporate discount programs offered by dominant
incumbents; loyalty to existing frequent flyer programs; an unknown
brand; and the risk of aggressive responses to new entry by the
dominant incumbent carrier. In addition, entry is highly unlikely on
routes where the origin or destination airport is another airline's
hub, because the new entrant would face substantial challenges
attracting sufficient local passengers to support service.
35. Defendants cannot demonstrate acquisition-specific and
cognizable efficiencies that would offset the proposed acquisition's
likely anticompetitive effects.
VIII. Violation Alleged
36. The United States hereby incorporates the allegations of
paragraphs 1 through 35 above as if set forth fully herein.
37. The effect of the proposed merger, if approved, likely will be
to lessen competition substantially, or tend to create a monopoly, in
interstate trade and commerce in the numerous U.S. markets for
scheduled air passenger service identified above, in violation of
Section 7 of the Clayton Act, 15 U.S.C. 18.
38. Unless enjoined, the proposed merger likely would have the
following effects in the relevant markets, among others:
(a) Actual and potential competition in the relevant markets would
be eliminated, including competition between Virgin and American;
(b) ticket prices and other fees would be higher than they
otherwise would;
(c) industry capacity would be lower than it otherwise would; and
(d) service quality would be lessened.
IX. Request for Relief
39. Plaintiff requests:
(a) That Alaska's proposed merger with Virgin be adjudged to
violate Section 7 of the Clayton Act, 15 U.S.C. 18;
(b) that Defendants be permanently enjoined from and restrained
from carrying out the planned merger of Alaska and Virgin or any other
transaction that would combine the two companies;
(c) that Plaintiff be awarded its costs of this action; and
(d) that Plaintiff be awarded such other relief as the Court may
deem just and proper.
Dated: December 6, 2016
Respectfully submitted,
FOR PLAINTIFF UNITED STATES:
_____/s/_____
RENATA B. HESSE (D.C. Bar #466107)
Acting Assistant Attorney General
_____/s/_____
JUAN A. ARTEAGA
Deputy Assistant Attorney General
_____/s/_____
JONATHAN SALLET
Deputy Assistant Attorney General
_____/s/_____
PATRICIA A. BRINK
Director of Civil Enforcement
_____/s/_____
KATHLEEN S. O'NEILL
Chief
Transportation, Energy & Agriculture Section
_____/s/_____
ROBERT A. LEPORE
Assistant Chief
Transportation, Energy & Agriculture Section
_____/s/_____
KATHERINE CELESTE *
Attorney
Antitrust Division
U.S. Department of Justice
450 Fifth Street N.W., Suite 8000
Washington, DC 20530
Telephone: (202) 532-4713
Facsimile: (202) 307-2784
Email: [email protected]
MICHELE B. CANO
J. RICHARD DOIDGE
BRIAN E. HANNA
RACHELLE R. KETCHUM
AMANDA D. KLOVERS
CHRISTOPHER M. WILSON
Attorneys for the United States
* Attorney of Record
United States District Court for the District of Columbia
United States of America, Plaintiff, v. Alaska Air Group, Inc.
and Virgin America Inc., Defendants.
Case No.: 1:16-cv-02377.
Judge: Reggie B. Walton.
Filed: 12/06/2016.
Competitive Impact Statement
Plaintiff United States of America (``United States''), pursuant to
Section
[[Page 89983]]
2(b) of the Antitrust Procedures and Penalties Act (``APPA'' or
``Tunney Act''), 15 U.S.C. 16(b)-(h), files this Competitive Impact
Statement relating to the proposed Final Judgment submitted for entry
in this civil antitrust proceeding.
I. Nature and Purpose of the Proceeding
On April 4, 2016, Alaska Air Group, Inc. (``Alaska''), the sixth-
largest domestic airline, agreed to acquire Virgin America, Inc.
(``Virgin''), the ninth-largest domestic airline, for $2.6 billion in
cash and the assumption of $1.4 billion in liabilities.
The airline industry in the United States is dominated by four
large airlines--American Airlines, Delta Air Lines, United Airlines,
and Southwest Airlines--that collectively account for over 80% of
domestic air travel each year. In this highly-concentrated industry,
the smaller airlines play a critical competitive role. In order to
compete with the four largest airlines, these smaller airlines often
must offer consumers lower fares, additional flight options, and
innovative services.
Although Alaska would become only the fifth-largest domestic
airline as a result of the proposed merger, its extensive codeshare
agreement with the largest domestic airline, American, threatens to
blunt important competition supplied by Virgin today. A codeshare
agreement is a commercial relationship that allows each airline to
market tickets for certain flights on the other's network. Although the
codeshare agreement effectively extends Alaska's geographic reach--
potentially strengthening Alaska's ability to compete against other
carriers like Delta and United--it also creates an incentive for Alaska
to cooperate rather than compete with American.
Alaska's acquisition of Virgin would significantly increase
Alaska's network overlaps with American, and would thus dramatically
increase the circumstances where the incentives created by the
codeshare threaten to soften head-to-head competition. Roughly two-
thirds of Virgin's network overlaps with American's network, and Virgin
has aggressively competed with American on many of these overlap routes
in ways that have forced American to respond with lower fares and
better service. Unless the codeshare is substantially modified, the
proposed merger would diminish the important competition Virgin has
provided on these routes.
On December 6, 2016, the United States filed a civil antitrust
Complaint seeking to enjoin the proposed acquisition. The Complaint
alleges that Defendants' proposed merger would likely lessen
competition substantially for scheduled air passenger service in
numerous markets throughout the United States in violation of Section 7
of the Clayton Act, 15 U.S.C. 18. Specifically, the Complaint alleges
that following the merger, Alaska, as a result of its extensive
codesharing relationship with American, would likely exit or compete
less aggressively on routes where Virgin and American compete today,
and would be less likely to enter new routes in competition with
American in the future than Virgin would be standing alone.
At the same time the Complaint was filed, the United States filed a
Stipulation and Order and proposed Final Judgment, which are designed
to eliminate the likely anticompetitive effects of the acquisition.
Under the proposed Final Judgment, which is explained more fully below,
Alaska would be obligated to substantially reduce the scope of its
codeshare agreement with American in order to enhance Alaska's
incentive to compete with American after the merger.
The United States and Defendants have stipulated that the proposed
Final Judgment may be entered after compliance with the APPA. Entry of
the proposed Final Judgment would terminate this action, except that
the Court would retain jurisdiction to construe, modify, or enforce the
provisions of the proposed Final Judgment and to punish violations
thereof.
II. Description of the Events Giving Rise to the Alleged Violation
A. The Defendants and the Transaction
Defendant Alaska Air Group, Inc. is a Delaware corporation
headquartered in Seattle, Washington. Last year, Alaska flew over 31
million passengers to approximately 112 locations worldwide, taking in
more than $5.5 billion in revenue. Alaska operates hubs in Seattle,
Washington; Portland, Oregon; and Anchorage, Alaska, and has the
largest share of traffic at each of these hubs.
Defendant Virgin America Inc. is a Delaware corporation
headquartered in Burlingame, California. Last year, Virgin America flew
over 7 million passengers to approximately 24 locations worldwide,
taking in more than $1.5 billion in revenue. Virgin America is one of
several entities bearing the ``Virgin'' name pursuant to a licensing
agreement with the Virgin Group, which owns approximately 18% of Virgin
America's outstanding voting common stock.
Virgin America was founded in 2004. Unlike Alaska, Virgin does not
have a hub-and-spoke network. Although Virgin has ``focus cities''--Los
Angeles, San Francisco, and Dallas--from which it provides service to
many destinations, Virgin does not use these focus cities as points for
transferring large volumes of connecting traffic. Instead, the bulk of
Virgin's passengers fly on nonstop flights in markets where Virgin is
typically not the dominant carrier.
On April 1, 2016, Alaska and Virgin agreed to merge for $2.6
billion in cash and the assumption of $1.4 billion in liabilities.
B. Alaska's Codeshare Agreement With American
Although codeshare agreements can take various forms, they
generally allow for flights operated by one airline to be marketed and
sold by another airline under the marketing airline's own brand. A
codeshare agreement can extend an airline's network by enabling
passengers to seamlessly book a connecting itinerary consisting of
flights operated by different airlines. For example, a passenger
seeking to fly from Walla Walla, Washington to Charlotte, North
Carolina could purchase tickets for the entire trip through Alaska,
using an Alaska flight from Walla Walla to Seattle that connects to an
American flight from Seattle to Charlotte. This arrangement allows
Alaska to rely on the codeshare agreement with American to offer
service to Charlotte, instead of having to launch its own competing
service between Seattle and Charlotte in order to serve the customer.
The codesharing partnership between Alaska and American began in
1999. The initial scope of the parties' codeshare agreement was very
limited: it allowed Alaska to market American's flights on only 88
routes where Alaska did not otherwise provide service, and did not
permit American to market any Alaska flights. Since 1999, however,
Alaska and American have repeatedly expanded their codeshare
arrangement, enabling American to also market certain Alaska flights
and steadily increasing the number of flights each partner may sell on
behalf of the other. American and Alaska most recently expanded the
codeshare agreement in April 2016. As a result of the most recent
expansion, Alaska is able to market American flights on over 250
routes, and American is able to market Alaska flights on about 80
routes. The April 2016 expansion also enabled American and Alaska to
sell one another's flights on certain overlap routes where both
companies offer competing nonstop service.
[[Page 89984]]
C. Virgin's Aggressive Competition With American
Virgin has served as one of American's fiercest competitors. Virgin
competes directly with American on twenty nonstop routes, which
constitute approximately two-thirds of Virgin's entire network. These
twenty routes represent about $8 billion in commerce annually.
Virgin and American vigorously compete on numerous nonstop routes
in part because Virgin controls critical assets in cities where
American maintains a hub. These assets include gates and/or takeoff and
landing rights at airports including Washington Reagan National
Airport, Dallas Love Field, and Los Angeles International Airport.
Virgin's presence in these markets provides a critical alternative for
consumers and helps keep American's prices lower than they otherwise
would be.
Virgin's ownership of many of these assets and aggressive
competition with American is no coincidence--consumers were promised
the benefits of expanded Virgin service to counteract the
anticompetitive effects threatened by the 2013 merger between American
and US Airways. To resolve the United States's challenge to that
merger, American agreed to divest a host of critical assets at key
airports where the two firms had a significant presence to low-cost
competitors, including Virgin. See Final Judgment, United States v. US
Airways Group, Inc., Case No. 1:13-cv-01236 (CKK) (Dkt. No. 170)
(D.D.C. Apr. 25, 2014). As contemplated by the settlement, Virgin has
used the assets to compete directly with American. For instance, Virgin
has utilized the two airport gates it acquired at Dallas Love Field to
launch aggressive new service against American, forcing American to
respond with lower prices. Virgin has estimated that its entry at Love
Field caused American to lower certain fares on flights out of Dallas
by more than 50%.
D. The Transaction's Likely Anticompetitive Effects
1. Relevant Markets
As alleged in the Complaint, scheduled air passenger service
enables consumers to travel quickly and efficiently between various
cities in the United States. Air travel offers passengers significant
time savings and convenience over other forms of travel. For example, a
flight from Washington, DC to Detroit takes just over an hour of flight
time. Driving between the two cities takes at least eight hours. A
train between the two cities takes more than fifteen hours.
Due to time savings and convenience afforded by scheduled air
passenger service, few passengers would substitute other modes of
transportation (car, bus, or train) for scheduled air passenger service
in response to a small but significant industry-wide fare increase.
Another way to say this, as described in the Department of Justice and
Federal Trade Commission's Horizontal Merger Guidelines (2010), and
endorsed by courts in this Circuit, is that a hypothetical monopolist
of all scheduled air passenger service could profitably increase its
prices by at least a small but significant and non-transitory amount.
The Complaint alleges, therefore, that scheduled air passenger service
constitutes a line of commerce and a relevant product market within the
meaning of Section 7 of the Clayton Act.
Moreover, most passengers book flights with their origins and
destinations predetermined. Few passengers who wish to fly from one
city to another would switch to flights between other cities in
response to a small but significant and non-transitory fare increase. A
hypothetical monopolist of all scheduled air passenger service on any
particular route between two destinations likely would be able to
profitably increase its prices by at least a small but significant and
non-transitory amount. Accordingly, scheduled air passenger service
between each origin and destination pair constitutes a line of commerce
and section of the country under Section 7 of the Clayton Act.
The Complaint alleges that scheduled air passenger service on those
twenty routes on which Virgin and American compete today, and the
routes on which they would have likely competed in the future, are
relevant markets within the meaning of Section 7 of the Clayton Act.
2. Competitive Effects
The codeshare agreement between Alaska and American creates an
incentive for Alaska to cooperate rather than compete with American.
Alaska's acquisition of Virgin's network would extend this incentive to
the extensive overlaps between Virgin and American, and will therefore
likely reduce the vigorous competition that Virgin is presently
providing against American. Specifically, the Complaint alleges that
the merger is likely to substantially lessen competition on each of the
twenty nonstop routes on which Virgin and American currently compete
because Alaska will have an incentive to avoid aggressive head-to-head
competition in order to preserve its codeshare relationship with
American. Once Alaska has control of Virgin, it is likely to reduce
capacity, decrease service quality, and/or raise prices on these
routes. In some cases, Alaska may completely stop serving the routes
with its own flights, and instead simply market American's flights
between the destinations, thereby eliminating an independent and
meaningful competitive choice for millions of consumers. The Complaint
further alleges that Alaska's acquisition of Virgin will likely lessen
competition because Alaska is likely to enter fewer new routes in
competition with American than Virgin would if Virgin remained a
standalone airline.
3. Entry and Expansion
As alleged in the Complaint, new entry, or expansion by existing
competitors, is unlikely to prevent or remedy the merger's likely
anticompetitive effects. New entrants into a particular market face
significant barriers to success, including difficulty in obtaining
access to slots and gate facilities; the effects of corporate discount
programs offered by dominant incumbents; loyalty to existing frequent
flyer programs; an unknown brand; and the risk of aggressive responses
to new entry by the dominant incumbent carrier. In addition, entry is
highly unlikely on routes where the origin or destination airport is
another airline's hub, because the new entrant would face substantial
challenges attracting sufficient local passengers to support service.
III. Explanation of the Proposed Final Judgment
As alleged in the Complaint, Alaska's acquisition of Virgin
threatens to substantially lessen competition on the routes where
Virgin and American compete today, and would likely compete in the
future, because Alaska's existing codeshare agreement with American
creates significant incentives for Alaska to reduce--or eliminate--its
competition with American on these routes.
The codeshare agreement incentivizes Alaska to avoid competition
with American in two ways. First, the overall scale of the codeshare
agreement and Alaska's dependence on it creates an incentive for Alaska
to compete less aggressively with American in order to avoid upsetting
American and jeopardizing the codeshare partnership. Second, the
opportunity to market American's flights on particular routes creates
an incentive for Alaska to rely on the codeshare to provide service to
[[Page 89985]]
its customers rather than undertaking the risk and expense of
initiating its own service. Alaska's acquisition of Virgin would
significantly increase Alaska's network overlaps with American, and
would thus dramatically increase the circumstances where these
incentives threaten to soften head-to-head competition.
As explained in more detail below, the relief set forth in the
``Prohibited Conduct'' section of the proposed Final Judgment would
substantially reduce each of these incentives. First, through
prohibitions on codesharing in a variety of circumstances, it would
substantially reduce the overall size and scope of the codeshare
partnership between Alaska and American, which, in turn, would decrease
Alaska's reliance on the codeshare and enhance Alaska's incentive to
compete on those routes where Virgin and American compete today.
Second, it would prohibit Alaska from substituting to codeshare service
on routes that Virgin already serves or would otherwise be likely to
serve.
At the same time, because the codeshare between Alaska and American
may benefit consumers in some circumstances by enabling Alaska and
American to offer their customers service that neither airline would
provide on its own, the proposed Final Judgment does not categorically
prohibit all codesharing. Instead, the proposed Final Judgment focuses
on reducing codesharing where it is likely to blunt Alaska's incentives
to compete with American after the merger.
In addition, the proposed Final Judgment provides protections for
the assets that Virgin acquired from American as part of the settlement
of the lawsuit challenging the merger of American and US Airways to
ensure the continued use of these assets in competition with American.
Finally, the proposed Final Judgment includes notification, monitoring,
and enforcement provisions so that Defendants comply with all of their
obligations.
A. By Prohibiting Codesharing in Certain Circumstances, the Proposed
Final Judgment Incentivizes the Merged Firm To Compete Aggressively
To reduce Alaska's dependence on the codeshare agreement with
American, Section IV.A of the proposed Final Judgment requires Alaska
to cease codesharing in four different scenarios no later than sixty
days after the closing of the transaction. Together, the restrictions
on codesharing will reduce by approximately 50% the volume of Alaska
passengers flying on American flights.
First, Section IV.A.1 of the proposed Final Judgment prohibits
Alaska and American from codesharing on routes where Virgin and
American both offer competing nonstop service today, irrespective of
network changes that either carrier makes in the future. By eliminating
Alaska's ability to replace Virgin's service with codeshare flights on
American, this provision will ensure that if Alaska wishes to offer its
customers service on these routes, it will need to continue to compete
head-to-head with American as Virgin does today.
Second, Section IV.A.2 of the proposed Final Judgment further
reduces the overall scope of the codeshare relationship by prohibiting
codesharing on all routes on which Alaska and American both offer
competing nonstop service. Prohibiting codesharing on the Virgin/
American overlap routes alone is insufficient to prevent harm from the
merger because Alaska would retain the broader incentive to avoid
endangering the partnership and could still choose to reduce or
eliminate service on the routes where Virgin and American compete
today. To adequately address this broader incentive, the proposed Final
Judgment also prohibits codesharing on Alaska/American overlap routes
because, as previously recognized by both the U.S. Department of
Transportation and the Department of Justice, such codesharing can
diminish competition and facilitate collusion by, for example, creating
opportunities for the airlines to communicate about fares and closely
coordinate their service offerings. Such codesharing is also especially
unlikely to benefit consumers because it does not extend the reach of
either carrier's network.
Third, in order to ensure that Alaska uses the Virgin assets to
grow in ways that continue to enhance competition following the merger,
the proposed Final Judgment prohibits Alaska from marketing American
flights on routes that it is most likely to serve itself and prohibits
Alaska from permitting American to market Alaska flights on routes that
American is most likely to serve itself. Airlines are most likely to
enter routes that emanate from one of their hubs or focus cities, and
thus, Section IV.A.3 of the proposed Final Judgment prevents both
Alaska and American from marketing each other's flights on routes that
touch their respective hubs or focus cities, defined as ``Key Alaska
Airports'' and ``Key American Airports'' in Definitions II.L and II.M
of the proposed Final Judgment, respectively.
Finally, Los Angeles International Airport (``LAX''), which is not
included as a ``Key Alaska Airport'' or ``Key American Airport,'' is a
special case because both carriers will have significant operations at
this airport post-merger. If Section IV.A.3 applied to LAX, it would
eliminate all codesharing at this airport, including potentially
beneficial codesharing on routes the two airlines would be unlikely to
serve independently. Section IV.A.4 of the proposed Final Judgment
therefore prohibits either carrier from codesharing on routes between
LAX and either an American or Alaska hub or focus city, as the airlines
are more likely to serve these routes on a standalone basis, but allows
for codesharing on routes between LAX and other cities.
B. The Proposed Final Judgment Provides Additional Protections for
Assets American Divested to Virgin as Part of the American-US Airways
Merger Settlement
As alleged in the Complaint, Virgin aggressively competes with
American on several routes using assets that American divested to
Virgin to settle the United States's challenge to American's 2013
merger with US Airways. These assets, which include gates and takeoff
and landing rights (known as ``slots''), are located at constrained
airports in several of American's strongholds. Although the proposed
Final Judgment strongly incentivizes Alaska to continue competing with
American on routes that Virgin serves today through limitations on
codesharing, Alaska may decide for independent reasons that these
assets do not fit into its business or network plans and seek to sell
or lease them to another carrier. Section IV.B of the proposed Final
Judgment prohibits Alaska from allowing American to acquire or use the
assets, which would circumvent the purpose of the American/US Airways
settlement. In addition, Section IV.B of the proposed Final Judgment
requires Alaska to obtain the United States's approval of a buyer or
lessee if the combined company chooses to sell or lease these assets to
a carrier other than American. This provision allows the United States
to ensure that American does not have undue influence over the
disposition of these assets. Section IV.C of the proposed Final
Judgment permits Alaska to allow another airline to use the assets in
limited circumstances that are routine, short-term, or necessary for
operational or safety reasons and thus highly unlikely to harm
competition--for example, when an airport orders Alaska to permit
another airline to use an asset to prevent a potentially dangerous
situation. Section IV.C also
[[Page 89986]]
permits Alaska to make one-for-one trades of slots or gates at the same
airport, which is also highly unlikely to harm competition.
C. The Proposed Final Judgment Includes Robust Notification,
Monitoring, and Enforcement Provisions
The proposed Final Judgment includes several provisions designed to
allow the United States to assess the implementation and effectiveness
of the proposed Final Judgment and ensure Alaska's compliance with its
requirements. To this end, Section V.A requires Defendants to inform
pertinent personnel of the Defendants' obligations under the proposed
Final Judgment. Section V.B requires Defendants to comply with Section
IV.A.2 no later than sixty days after Alaska or American enters a new
route that creates a new competitive overlap. Section V.D of the
proposed Final Judgment imposes annual reporting requirements regarding
the scope of the codeshare relationship, including the identity of the
routes subject to the codeshare, the number of passengers that have
purchased tickets pursuant to the codeshare, and the amount of revenue
Alaska has received from the codeshare. Section V.E also requires
Alaska to notify the United States in advance if Alaska seeks to modify
its contractual relationship with American as a means of providing the
United States an opportunity to take action if the modification would
threaten competition. In addition, Section VII of the proposed Final
Judgment expressly reserves the right of the United States to take
enforcement action to enjoin the codeshare agreement should changes in
the competitive landscape or the networks or incentives of these
airlines warrant such action.
IV. Remedies Available to Potential Private Litigants
Section 4 of the Clayton Act, 15 U.S.C. 15, provides that any
person who has been injured as a result of conduct prohibited by the
antitrust laws may bring suit in federal court to recover three times
the damages the person has suffered, as well as costs and reasonable
attorneys' fees. Entry of the proposed Final Judgment will neither
impair nor assist the bringing of any private antitrust damage action.
Under the provisions of Section 5(a) of the Clayton Act, 15 U.S.C.
16(a), the proposed Final Judgment has no prima facie effect in any
subsequent private lawsuit that may be brought against Defendants.
V. Procedures Available for Modification of the Proposed Final Judgment
The United States and Defendants have stipulated that the proposed
Final Judgment may be entered by the Court after compliance with the
provisions of the APPA, provided that the United States has not
withdrawn its consent. The APPA conditions entry upon the Court's
determination that the proposed Final Judgment is in the public
interest.
The APPA provides a period of at least sixty (60) days preceding
the effective date of the proposed Final Judgment within which any
person may submit to the United States written comments regarding the
proposed Final Judgment. Any person who wishes to comment should do so
within sixty (60) days of the date of publication of this Competitive
Impact Statement in the Federal Register, or the last date of
publication in a newspaper of the summary of this Competitive Impact
Statement, whichever is later. All comments received during this period
will be considered by the United States Department of Justice, which
remains free to withdraw its consent to the proposed Final Judgment at
any time prior to the Court's entry of the judgment. The comments and
the response of the United States will be filed with the Court. In
addition, comments will be posted on the U.S. Department of Justice,
Antitrust Division's internet Web site and, under certain
circumstances, published in the Federal Register.
Written comments should be submitted to: Kathleen O'Neill, Chief,
Transportation, Energy & Agriculture Section, Antitrust Division,
United States Department of Justice, 450 Fifth Street NW., Suite 8000,
Washington, DC 20530.
The proposed Final Judgment provides that the Court retains
jurisdiction over this action, and that the parties may apply to the
Court for any order necessary or appropriate for the modification,
interpretation, or enforcement of the Final Judgment.
VI. Alternatives to the Proposed Final Judgment
The United States considered, as an alternative to the proposed
Final Judgment, a full trial on the merits against Defendants. The
United States could have sought preliminary and permanent injunctions
against Alaska's acquisition of Virgin. The United States is satisfied,
however, that the remedies described in the proposed Final Judgment
will effectively address the transaction's likely anticompetitive
effects and preserve competition for the provision of scheduled air
passenger service in the relevant markets identified by the United
States. Thus, the proposed Final Judgment would achieve all or
substantially all of the relief the United States would have obtained
through litigation, but avoids the time, expense, and uncertainty of a
full trial on the merits of the Complaint.
VII. Standard of Review Under the APPA for the Proposed Final Judgment
The APPA requires that proposed consent judgments in antitrust
cases brought by the United States be subject to a sixty-day comment
period, after which the court shall determine whether entry of the
proposed Final Judgment is ``in the public interest.'' 15 U.S.C.
16(e)(1). In making that determination, the court, in accordance with
the statute as amended in 2004, is required to consider:
(A) The competitive impact of such judgment, including
termination of alleged violations, provisions for enforcement and
modification, duration of relief sought, anticipated effects of
alternative remedies actually considered, whether its terms are
ambiguous, and any other competitive considerations bearing upon the
adequacy of such judgment that the court deems necessary to a
determination of whether the consent judgment is in the public
interest; and
(B) the impact of entry of such judgment upon competition in the
relevant market or markets, upon the public generally and
individuals alleging specific injury from the violations set forth
in the complaint including consideration of the public benefit, if
any, to be derived from a determination of the issues at trial.
Id. at Sec. 16(e)(1)(A) & (B). In considering these statutory factors,
the court's inquiry is necessarily a limited one as the government is
entitled to ``broad discretion to settle with the defendant within the
reaches of the public interest.'' United States v. Microsoft Corp., 56
F.3d 1448, 1461 (D.C. Cir. 1995); see generally United States v. SBC
Commc'ns, Inc., 489 F. Supp. 2d 1 (D.D.C. 2007) (assessing public
interest standard under the Tunney Act); United States v. US Airways
Group, Inc., 38 F. Supp. 3d 69, 75 (D.D.C. 2014) (noting that the
court's ``inquiry is limited'' because the government has ``broad
discretion'' to determine the adequacy of the relief secured through a
settlement); United States v. InBev N.V./S.A., No. 08-1965 (JR), 2009-2
Trade Cas. (CCH) ] 76,736, 2009 U.S. Dist. LEXIS 84787, at *3 (D.D.C.
Aug. 11, 2009) (noting that the court's review of a consent judgment is
limited and only inquires ``into whether the government's determination
that the proposed
[[Page 89987]]
remedies will cure the antitrust violations alleged in the complaint
was reasonable, and whether the mechanism to enforce the final judgment
are clear and manageable'').\1\
---------------------------------------------------------------------------
\1\ The 2004 amendments substituted ``shall'' for ``may'' in
directing relevant factors for courts to consider and amended the
list of factors to focus on competitive considerations and to
address potentially ambiguous judgment terms. Compare 15 U.S.C.
16(e) (2004), with 15 U.S.C. 16(e)(1) (2006); see also SBC Commc'ns,
489 F. Supp. 2d at 11 (concluding that the 2004 amendments
``effected minimal changes'' to Tunney Act review).
---------------------------------------------------------------------------
As the United States Court of Appeals for the District of Columbia
Circuit has held, a court conducting inquiry under the APPA may
consider, among other things, the relationship between the remedy
secured and the specific allegations set forth in the government's
complaint, whether the decree is sufficiently clear, whether
enforcement mechanisms are sufficient, and whether the decree may
positively harm third parties. See Microsoft, 56 F.3d at 1458-62. With
respect to the adequacy of the relief secured by the decree, a court
may not ``engage in an unrestricted evaluation of what relief would
best serve the public.'' United States v. BNS, Inc., 858 F.2d 456, 462
(9th Cir. 1988) (quoting United States v. Bechtel Corp., 648 F.2d 660,
666 (9th Cir. 1981)); see also Microsoft, 56 F.3d at 1460-62; United
States v. Alcoa, Inc., 152 F. Supp. 2d 37, 40 (D.D.C. 2001); InBev,
2009 U.S. Dist. LEXIS 84787, at *3. Courts have held that:
[t]he balancing of competing social and political interests
affected by a proposed antitrust consent decree must be left, in the
first instance, to the discretion of the Attorney General. The
court's role in protecting the public interest is one of insuring
that the government has not breached its duty to the public in
consenting to the decree. The court is required to determine not
whether a particular decree is the one that will best serve society,
but whether the settlement is ``within the reaches of the public
interest.'' More elaborate requirements might undermine the
effectiveness of antitrust enforcement by consent decree.
Bechtel, 648 F.2d at 666 (emphasis added) (citations omitted).\2\ In
determining whether a proposed settlement is in the public interest, a
court ``must accord deference to the government's predictions about the
efficacy of its remedies, and may not require that the remedies
perfectly match the alleged violations.'' SBC Commc'ns, 489 F. Supp. 2d
at 17; see also US Airways, 8 F. Supp. 3d at 75 (noting that a court
should not reject the proposed remedies because it believes others are
preferable); Microsoft, 56 F.3d at 1461 (noting the need for courts to
be ``deferential to the government's predictions as to the effect of
the proposed remedies''); United States v. Archer-Daniels-Midland Co.,
272 F. Supp. 2d 1, 6 (D.D.C. 2003) (noting that the court should grant
due respect to the government's prediction as to the effect of proposed
remedies, its perception of the market structure, and its views of the
nature of the case).
---------------------------------------------------------------------------
\2\ Cf. BNS, 858 F.2d at 464 (holding that the court's
``ultimate authority under the [APPA] is limited to approving or
disapproving the consent decree''); United States v. Gillette Co.,
406 F. Supp. 713, 716 (D. Mass. 1975) (noting that, in this way, the
court is constrained to ``look at the overall picture not
hypercritically, nor with a microscope, but with an artist's
reducing glass''). See generally Microsoft, 56 F.3d at 1461
(discussing whether ``the remedies [obtained in the decree are] so
inconsonant with the allegations charged as to fall outside of the
`reaches of the public interest' '').
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Courts have greater flexibility in approving proposed consent
decrees than in crafting their own decrees following a finding of
liability in a litigated matter. ``[A] proposed decree must be approved
even if it falls short of the remedy the court would impose on its own,
as long as it falls within the range of acceptability or is `within the
reaches of public interest.' '' United States v. Am. Tel. & Tel. Co.,
552 F. Supp. 131, 151 (D.D.C. 1982) (citations omitted) (quoting United
States v. Gillette Co., 406 F. Supp. 713, 716 (D. Mass. 1975)), aff'd
sub nom. Maryland v. United States, 460 U.S. 1001 (1983); see also US
Airways, 38 F. Supp. 3d at 76 (noting that room must be made for the
government to grant concessions in the negotiation process for
settlements (citing Microsoft, 56 F.3d at 1461)); United States v.
Alcan Aluminum Ltd., 605 F. Supp. 619, 622 (W.D. Ky. 1985) (approving
the consent decree even though the court would have imposed a greater
remedy). To meet this standard, the United States ``need only provide a
factual basis for concluding that the settlements are reasonably
adequate remedies for the alleged harms.'' SBC Commc'ns, 489 F. Supp.
2d at 17.
Moreover, the court's role under the APPA is limited to reviewing
the remedy in relationship to the violations that the United States has
alleged in its Complaint, and does not authorize the court to
``construct [its] own hypothetical case and then evaluate the decree
against that case.'' Microsoft, 56 F.3d at 1459; see also US Airways,
38 F. Supp 3d at 75 (noting that the court must simply determine
whether there is a factual foundation for the government's decisions
such that its conclusions regarding the proposed settlements are
reasonable); InBev, 2009 U.S. Dist. LEXIS 84787, at *20 (concluding
that ``the `public interest' is not to be measured by comparing the
violations alleged in the complaint against those the court believes
could have, or even should have, been alleged''). Because the ``court's
authority to review the decree depends entirely on the government's
exercising its prosecutorial discretion by bringing a case in the first
place,'' it follows that ``the court is only authorized to review the
decree itself,'' and not to ``effectively redraft the complaint'' to
inquire into other matters that the United States did not pursue.
Microsoft, 56 F.3d at 1459-60. As this Court confirmed in SBC
Communications, courts ``cannot look beyond the complaint in making the
public interest determination unless the complaint is drafted so
narrowly as to make a mockery of judicial power.'' 489 F. Supp. 2d at
15.
In its 2004 amendments, Congress made clear its intent to preserve
the practical benefits of utilizing consent decrees in government
antitrust enforcement actions, adding the unambiguous instruction that
``[n]othing in this section shall be construed to require the court to
conduct an evidentiary hearing or to require the court to permit anyone
to intervene.'' 15 U.S.C. 16(e)(2); see also US Airways, 38 F. Supp. 3d
at 76 (indicating that a court is not required to hold an evidentiary
hearing or to permit intervenors as part of its review under the Tunney
Act). This language codified what Congress intended when it enacted the
Tunney Act in 1974, as, Senator Tunney, the author of this legislation,
unambiguously explained: ``The court is nowhere compelled to go to
trial or to engage in extended proceedings which might have the effect
of vitiating the benefits of prompt and less costly settlement through
the consent decree process.'' 119 Cong. Rec. 24,598 (1973) (statement
of Sen. Tunney). Rather, the procedure for the public interest
determination is left to the discretion of the court, with the
recognition that the court's ``scope of review remains sharply
proscribed by precedent and the nature of Tunney Act proceedings.'' SBC
Commc'ns, 489 F. Supp. 2d at 11. A court can make its public interest
determination based on the competitive impact statement and response to
public comments alone. US Airways, 38 F. Supp. 3d at 76.\3\
---------------------------------------------------------------------------
\3\ See also United States v. Enova Corp., 107 F. Supp. 2d 10,
17 (D.D.C. 2000) (noting that the ``Tunney Act expressly allows the
court to make its public interest determination on the basis of the
competitive impact statement and response to comments alone'');
United States v. Mid-Am. Dairymen, Inc., No. 73-CV-681-W-1, 1977-1
Trade Cas. (CCH) ] 61,508, at 71,980, *22 (W.D. Mo. 1977) (``Absent
a showing of corrupt failure of the government to discharge its
duty, the Court, in making its public interest finding, should . . .
carefully consider the explanations of the government in the
competitive impact statement and its responses to comments in order
to determine whether those explanations are reasonable under the
circumstances.''); S. Rep. No. 93-298, at 6 (1973) (``Where the
public interest can be meaningfully evaluated simply on the basis of
briefs and oral arguments, that is the approach that should be
utilized.'').
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[[Page 89988]]
VIII. Determinative Documents
There are no determinative materials or documents within the
meaning of the APPA that were considered by the United States in
formulating the proposed Final Judgment.
Dated: December 6, 2016
Respectfully submitted,
_____/s/_____
Katherine Celeste
U.S. Department of Justice
Antitrust Division
Transportation Energy & Agriculture Section
450 Fifth Street NW., Suite 8000
Washington, DC 20530
Telephone: (202) 532-4713
Email: [email protected]
United States District Court for the District of Columbia
United States of America, Plaintiff, v. Alaska Air Group, Inc.
and Virgin America Inc., Defendants.
Case No.: 1:16-cv-02377.
Judge: Reggie B. Walton,
Filed: 12/06/2016,
Proposed Final Judgment
Whereas, Plaintiff United States of America (``United States'')
filed its Complaint on December 6, 2016, the United States and
Defendants, Alaska Air Group, Inc. (``Alaska'') and Virgin America Inc.
(``Virgin''), by their respective attorneys, have consented to entry of
this Final Judgment without trial or adjudication of any issue of fact
or law, and without this Final Judgment constituting any evidence
against or admission by any party regarding any issues of fact or law;
And whereas, Defendants agree to be bound by the provisions of this
Final Judgment pending its approval by the Court;
And whereas, this Final Judgment requires Defendants to undertake
certain actions and refrain from certain conduct for the purpose of
remedying the loss of competition alleged in the Complaint;
and whereas, Defendants have represented to the United States that
the actions and conduct restrictions described below can and will be
undertaken, and that Defendants will later raise no claim of hardship
or difficulty as grounds for asking the Court to modify any provisions
contained below;
Now, therefore, before any testimony is taken, without trial or
adjudication of any issue of fact or law, and upon consent of the
parties, it is ordered, adjudged and decreed:
I. Jurisdiction
The Court has jurisdiction over the subject matter of this action
and Defendants. The Complaint states a claim upon which relief can be
granted against Defendants under Section 7 of the Clayton Act, as
amended, 15 U.S.C. 18.
II. Definitions
As used in this Final Judgment:
A. ``Alaska'' means Alaska Air Group, Inc., a Delaware corporation
headquartered in Seattle, Washington, its successors and assigns, its
Affiliates, and its subsidiaries or divisions, and their respective
directors, officers, managers, agents, and employees.
B. ``Alaska/American Codeshare Agreement'' means the Amended and
Restated Codeshare Agreement entered into between Alaska and American,
dated February 15, 2015, and all predecessors, exhibits, schedules and
amendments thereto.
C. ``Alaska/American Overlap Routes'' means any routes between two
cities in the United States on which Alaska and American both provide
nonstop scheduled air passenger service. For purposes of this
definition only, the city that an airport serves will be determined by
the City Market ID assigned to each airport by the U.S. Department of
Transportation in the Airline Origin and Destination Survey (``DB1B''),
and airports with the same City Market ID will be considered to serve
the same city, except the following airports will not be considered to
serve the same city as any other airport: (1) Los Angeles International
Airport and (2) Norman Y. Mineta San Jose International Airport. The
routes covered by this definition may change over the term of this
Final Judgment as Alaska and American adjust their respective
schedules. The Alaska/American Overlap Routes as of December 6, 2016
are listed in Appendix A for illustrative purposes.
D. ``American'' means American Airlines Group Inc., a Delaware
corporation headquartered in Fort Worth, Texas, its successors and
assigns, and its subsidiaries, divisions, groups and Affiliates, and
their respective directors, officers, managers, agents, and employees.
E. ``Affiliate'' means an entity that is related to another entity
by one owning shares of the other, by common ownership, or by other
means of control, and includes any airline that operates Flights for
Alaska or American pursuant to a capacity purchase agreement, but such
airline shall only be deemed an Affiliate with respect to such Flights.
F. ``Codeshare Agreement'' means a contract between two airlines
that allows them to market one another's flights by placing their
respective unique, identifying codes on those flights. Each airline's
code is established by the International Air Transportation
Association.
G. ``Connecting Itinerary'' means a route within the United States
with at least one intermediate stop at any airport between the
origination and destination airports.
H. ``Defendants'' means Alaska and Virgin, and any successor or
assignee to all or substantially all of the business or assets of
Alaska or Virgin.
I. ``US/AA Divestiture Assets'' means all rights and interests held
by Defendants in the two gates at Dallas Love Field (``DAL''), eight
slots at Washington Reagan National Airport (``DCA''), and 12 slots at
New York LaGuardia Airport (``LGA''), acquired by Virgin pursuant to
the Final Judgment entered in United States v. US Airways Group, Inc.,
Case No. 1:13-cv-01236 (CKK) (Dkt. No. 170) (D.D.C. Apr. 25, 2014).
J. ``Flight'' means scheduled air passenger service, without any
intermediate stops, between an origin airport and destination airport,
both within the United States.
K. ``Future Alaska-American Overlap Route'' means any Alaska-
American Overlap Route created by Defendants or American commencing
service between two cities after the consummation of the Transaction.
L. ``Key Alaska Airports'' means each of the following airports:
(1) Portland International Airport (``PDX''); (2) Seattle-Tacoma
International Airport (``SEA''); (3) San Francisco International
Airport (``SFO''); and (4) Ted Stevens Anchorage International Airport
(``ANC'').
M. ``Key American Airports'' means each of the following airports:
(1) Charlotte Douglas International Airport (``CLT''); (2) Chicago
Midway International Airport (``MDW''); (3) Chicago O'Hare
International Airport (``ORD''); (4) Dallas/Fort Worth International
Airport (``DFW''); (5) Dallas Love Field (``DAL''); (6) Fort
Lauderdale-Hollywood International Airport (``FLL''); (7) John F.
Kennedy International Airport (``JFK''); (8) Miami International
Airport (``MIA''); (9) New York LaGuardia Airport (``LGA''); (10)
Philadelphia International Airport (``PHL''); (11) Phoenix Sky Harbor
International Airport (``PHX''); and (12)
[[Page 89989]]
Washington Reagan National Airport (``DCA'').
N. ``LAX'' means Los Angeles International Airport.
O. ``Market'' means to sell tickets for a Flight pursuant to a
Codeshare Agreement, either as a standalone Flight or as part of a
Connecting Itinerary.
P. ``Transaction'' means the transaction referred to in the
Agreement and Plan of Merger by and among Alaska, Alpine Acquisition
Corp., a wholly owned subsidiary of Alaska, and Virgin, dated April 1,
2016.
Q. ``Virgin'' means Virgin America Inc., a Delaware corporation
headquartered in Burlingame, California, its successors and assigns,
and its subsidiaries, divisions, groups, Affiliates, partnerships and
joint ventures, and their directors, officers, managers, agents, and
employees.
R. ``Virgin/American Overlap Routes'' means any routes on which
Virgin and American both provide nonstop scheduled air passenger
service as of December 6, 2016. The Virgin/American Overlap Routes are
listed in Appendix B and will not change over the term of this decree.
III. Applicability
A. This Final Judgment applies to Alaska and Virgin, as defined
above, and all other persons in active concert or participation with
any of them who receive actual notice of this Final Judgment by
personal service or otherwise.
IV. Prohibited Conduct
A. Beginning sixty (60) calendar days after consummation of the
Transaction, Defendants shall not directly or indirectly, under the
Alaska/American Codeshare Agreement or otherwise:
1. Market any American Flight serving a Virgin/American Overlap
Route, or permit American to Market any Alaska Flight serving a Virgin/
American Overlap Route;
2. Market any American Flight serving an Alaska/American Overlap
Route, or permit American to Market any Alaska Flight serving an
Alaska/American Overlap Route;
3. Market any American Flight that originates or terminates at any
Key Alaska Airport, or permit American to Market any Alaska Flight that
originates or terminates at any Key American Airport; and
4. Market any American Flight, or permit American to Market any
Alaska Flight, serving any route between LAX and a Key Alaska Airport
or a Key American Airport.
B. Defendants shall not directly or indirectly sell, trade, lease,
or sub-lease any of the US/AA Divestiture Assets without the prior
written consent of the United States. Defendants shall not directly or
indirectly transfer any interest in the US/AA Divestiture Assets to
American or permit American to use the US/AA Divestiture Assets.
C. Notwithstanding Section IV.B, nothing in this Final Judgment
shall prevent Defendants from (i) engaging in one-for-one trades of
slots at different times at the same airport, (ii) engaging in one-for-
one trades of gates at the same airport, (iii) continuing the subleases
of the US/AA Divestiture Assets already in place as of December 6,
2016; (iv) permitting any airline to use any slots or airport gates if
required by lawful directive of an airport authority or any other
governmental body; or (v) permitting any airline to use any slots or
airport gates on an ad hoc basis to accommodate a safety, security, or
exigent operational need.
V. Required Conduct
A. Within thirty (30) calendar days of entry of this Final
Judgment, Defendants shall certify to the United States that they have
informed (i) all of Defendants' personnel involved in the
implementation, operation, and enforcement of the Alaska/American
Codeshare Agreement and (ii) all of Defendants' officers and directors
of the obligations set forth in this Final Judgment.
B. Within sixty (60) calendar days of the creation of a Future
Alaska/American Overlap Route, Defendants shall comply with the
prohibition set forth in Section IV.A(2) on that Future Alaska/American
Overlap Route.
C. Defendants shall certify to the United States annually on the
anniversary date of the entry of this Final Judgment that Defendants
have complied with all of the provisions of this Final Judgment.
D. Defendants shall notify the United States annually on the
anniversary date of the entry of this Final Judgment of:
1. The identity of routes on which Alaska Markets American Flights,
and separately for each route, whether Alaska Markets American Flights
on a standalone basis, as part of a Connecting Itinerary, or both;
2. The number of passengers that purchased tickets pursuant to the
Alaska/American Codeshare Agreement or any other Codeshare Agreement
between Alaska and American for American Flights Marketed by Alaska
during the prior calendar year; and
3. The amount of revenue that Alaska received during the previous
calendar year from American pursuant to the Alaska/American Codeshare
Agreement.
E. If Defendants amend the Alaska/American Codeshare Agreement or
enter into any new or restated Codeshare Agreement with American,
Defendants shall provide a copy of such amendment or agreement to the
United States at least thirty (30) calendar days in advance of such
amendment or agreement becoming effective, unless the United States
agrees in writing that Defendants may make such agreement(s) or
amendment(s) effective at an earlier date. Defendants shall satisfy the
obligations set forth in parts A, C, D, and E of this Section by
providing the required certifications, notifications, and copies of
agreements to the Chief of the Transportation, Energy, and Agriculture
Section, Antitrust Division, U.S. Department of Justice.
VI. Compliance and Inspection
A. For the purposes of determining or securing compliance with this
Final Judgment, or of any related orders, or of determining whether the
Final Judgment should be modified or vacated, and subject to any
legally recognized privilege, from time to time authorized
representatives of the United States Department of Justice, including
consultants and other persons retained by the United States, shall,
upon written request of an authorized representative of the Assistant
Attorney General in charge of the Antitrust Division, and on reasonable
notice to Defendants, be permitted:
1. Access during Defendants' office hours to inspect and copy, or
at the option of the United States, to require Defendants to provide
hard copy or electronic copies of, all books, ledgers, accounts,
records, data, and documents in the possession, custody, or control of
Defendants, relating to any matters contained in this Final Judgment;
and
2. To interview, either informally or on the record, Defendants'
officers, employees, or agents, who may have their individual counsel
present, regarding such matters. The interviews shall be subject to the
reasonable convenience of the interviewee and without restraint or
interference by Defendants.
B. Upon the written request of an authorized representative of the
Assistant Attorney General in charge of the Antitrust Division,
Defendants shall submit written reports or responses to written
interrogatories, under oath if requested, relating to any of the
matters contained in this Final Judgment.
C. No information or documents obtained by the means provided in
this Section shall be divulged by the United States to any person other
than an authorized representative of the
[[Page 89990]]
executive branch of the United States, except in the course of legal
proceedings to which the United States is a party (including grand jury
proceedings), or for the purpose of securing compliance with this Final
Judgment, or as otherwise required by law.
D. If at the time information or documents are furnished by
Defendants to the United States, Defendants represent and identify in
writing the material in any such information or documents to which a
claim of protection may be asserted under Rule 26(c)(1)(G) of the
Federal Rules of Civil Procedure, and Defendants mark each pertinent
page of such material, ``Subject to claim of protection under Rule
26(c)(1)(G) of the Federal Rules of Civil Procedure,'' then the United
States shall give Defendants ten (10) calendar days' notice prior to
divulging such material in any legal proceeding (other than a grand
jury proceeding).
VII. No Limitation on Government Rights
Nothing in this Final Judgment shall limit the right of the United
States to investigate and bring actions as necessary to prevent or
restrain violations of the antitrust laws relating to the Alaska/
American Codeshare Agreement, or any past, present, or future conduct,
policy, practice or agreement of Defendants.
VIII. Retention of Jurisdiction
This Court retains jurisdiction to enable any party to this Final
Judgment to apply to this Court at any time for such further orders and
directions as may be necessary or appropriate to carry out or construe
this Final Judgment, to modify any of its provisions, to enforce
compliance, and to punish violations of its provisions.
IX. Expiration of Final Judgment
Unless this Court grants an extension, this Final Judgment shall
expire ten (10) years from the date of its entry.
X. Public Interest Determination
The entry of this Final Judgment is in the public interest. The
parties have complied with the requirements of the Antitrust Procedures
and Penalties Act, 15 U.S.C. 16, including making copies available to
the public of this Final Judgment, the Competitive Impact Statement,
and any comments thereon, and the United States' responses to comments.
Based upon the record before the Court, which includes the Competitive
Impact Statement and any comments and responses to comments filed with
the Court, entry of this Final Judgment is in the public interest
DATED:_____
Court approval subject to the Antitrust Procedures and Penalties Act,
15 U.S.C. 16
United States District Judge-------------------------------------------
Appendix A
Alaska/American Domestic U.S. Overlap Routes as of December 6, 2016
------------------------------------------------------------------------
Non-directional origin and destination pairs
-------------------------------------------------------------------------
Origin Destination
------------------------------------------------------------------------
Ted Stevens Anchorage International Los Angeles International
Airport. Airport.
Ted Stevens Anchorage International Phoenix Sky Harbor
Airport. International Airport.
Chicago O'Hare International Airport... Portland International Airport.
Chicago O'Hare International Airport... Seattle--Tacoma International
Airport.
Dallas/Fort Worth International Airport Portland International Airport.
Dallas/Fort Worth International Airport Seattle--Tacoma International
Airport.
Los Angeles International Airport...... Portland International Airport.
Los Angeles International Airport...... Salt Lake City International
Airport.
Los Angeles International Airport...... Seattle--Tacoma International
Airport.
John F. Kennedy International Airport.. Seattle--Tacoma International
Airport.
Philadelphia International Airport..... Seattle--Tacoma International
Airport.
Phoenix Sky Harbor International Seattle--Tacoma International
Airport. Airport.
Phoenix Sky Harbor International Portland International Airport.
Airport.
Ronald Reagan Washington National Los Angeles International
Airport. Airport.
Baltimore--Washington International Los Angeles International
Airport. Airport.
Newark Liberty International Airport... Seattle--Tacoma International
Airport.
John F. Kennedy International Airport.. San Diego International
Airport.
Newark Liberty International Airport... San Diego International
Airport.
Miami International Airport............ Seattle--Tacoma International
Airport.
Fort Lauderdale-Hollywood International Seattle--Tacoma International
Airport. Airport.
Washington Dulles International Airport Los Angeles International
Airport.
------------------------------------------------------------------------
Appendix B
Virgin/American Domestic U.S. Overlap Routes
------------------------------------------------------------------------
Non-directional origin and destination pairs
-------------------------------------------------------------------------
Origin Destination
------------------------------------------------------------------------
Boston Logan International Airport..... Los Angeles International
Airport.
Chicago O'Hare International Airport... Los Angeles International
Airport.
Dallas Love Field Airport.............. Los Angeles International
Airport.
Dallas/Fort Worth International Airport Los Angeles International
Airport.
Fort Lauderdale--Hollywood Los Angeles International
International Airport. Airport.
Los Angeles International Airport...... Miami International Airport.
Honolulu International Airport......... Los Angeles International
Airport.
[[Page 89991]]
McCarran International Airport......... Los Angeles International
Airport.
Los Angeles International Airport...... Washington Dulles International
Airport.
Los Angeles International Airport...... Ronald Reagan Washington
National Airport.
Los Angeles International Airport...... John F. Kennedy International
Airport.
Los Angeles International Airport...... Newark Liberty International
Airport.
Los Angeles International Airport...... Orlando International Airport.
Los Angeles International Airport...... Seattle--Tacoma International
Airport.
Dallas Love Field Airport.............. San Francisco International
Airport.
Dallas/Fort Worth International Airport San Francisco International
Airport.
Fort Lauderdale--Hollywood San Francisco International
International Airport. Airport.
Miami International Airport............ San Francisco International
Airport.
John F. Kennedy International Airport.. San Francisco International
Airport.
Los Angeles International Airport...... San Francisco International
Airport.
Chicago O'Hare International Airport... San Francisco International
Airport.
Dallas Love Field Airport.............. Ronald Reagan Washington
National Airport.
Dallas/Fort Worth International Airport Ronald Reagan Washington
National Airport.
Dallas Love Field Airport.............. LaGuardia Airport.
Dallas/Fort Worth International Airport LaGuardia Airport.
Dallas Love Field Airport.............. McCarran International Airport.
Dallas/Fort Worth International Airport McCarran International Airport.
Fort Lauderdale--Hollywood John F. Kennedy International
International Airport. Airport.
Miami International Airport............ John F. Kennedy International
Airport.
Los Angeles International Airport...... Kahului Airport.
McCarran International Airport......... John F. Kennedy International
Airport.
------------------------------------------------------------------------
[FR Doc. 2016-29883 Filed 12-12-16; 8:45 am]
BILLING CODE 4410-11-P