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Complete text: Declaration by DOJ on the Alaska Air Virgin America Fusion
On Tuesday, the US Department of Justice released a proposal for a compromise that would allow Alaska Airlines to continue its takeover of Virgin America. Fairness did not demand that Alaska Air sell any asset, but it asks Alaska Airlines to cut back its code share agreement with American Airlines. Scour down to see the full text of the Department of Justice's explanation of its suggested arrangement for the Alaska Airlines Virgin America deals.
Alaska Air Group Inc. to significantly scale back its code -share deal with American Airlines, the world's leading carrier, so that Alaska can finalize its $4 billion takeover of Virgin America Inc. Saying these changes will make sure Alaska has the incentives to aggressively contest the Americans, the division said Virgin is doing today.
Anti-Trust Division of the Department of Justice today brought a class-action anti-trust complaint in the U.S. District court for the District of Columbia to suspend the transaction, along with a proposal for resolution that, if accepted by the courts, would eliminate the adverse effect on competition claimed in the complaint. Alaska and Virgin would merge the sixth and nine biggest carriers respectively in the country to form the fifth biggest US airline.
Both Alaska and Virgin have a tendency to provide lower fares and better services than the major airline companies. On the other hand, the complainant claims that the code share arrangement currently allowing Alaska to commercialise US services on more than 250 city-pairs encourages Alaska to be less aggressive on city-pairs and to refrain from introducing new services in competitive terms with the Americans.
The outcome of these inducements, the complainant claims, is that Alaska and the Americans often act more like spouses than like rivals. Unlike Alaska, Virgin - with a highly overlapping U.S. and U.S. network alike - has been competing aggressive with the U.S. one. Virgin in particular has faced strong competition from the Americans on 20 non-stop services operated by both carriers.
As a result of this competitive environment, Americans have been compelled to provide lower fares and better services to some of the country's busiest destinations. Allegedly, the significant head-to-head competitive situation between Virgin and America on these trades is in part due to the fact that Virgin has substantial and limited asset holdings, which include airports doors and take-off and landing facilities, known as slot facilities, in major US capitals.
Virgina purchased some of these properties, among them gate holdings at Dallas Love Field Airport and slot holdings at Washington Reagan National Airport and New York LaGuardia Airport, as part of the resolution of the Department's action against the 2013 American/US Airways acquisition. Alaska' s complainant claims that the large code-share between Alaska and the Americans would result in Alaska competing less strongly with the Americans than Virgin does today, resulting in lower levels of customer satisfaction and/or higher fares on the lines on which Virgin and American currently do.
It also claims that the code share would make Alaska less likely than Virgin to offer new services in face-to-face with the Americans. In order to remedy the likely adverse effect of the operation on competitors, the planned arrangement will require Alaska to significantly decrease the size of the code -share arrangement. In order to mitigate Alaska's overall code-share dependency and to restrict Alaska's incentive to co-operate with the United States, the proposal bans Alaska and the United States from code-sharing on those lines on which Virgin and Americans currently operate and on those lines on which Alaska would otherwise be likely to introduce a new route in free trade with the United States after the operation.
Simultaneously, the comparison allows Alaska and American to pursue code-sharing in restricted conditions if it is unlikely to result in a disadvantage to competition and to provide some advantages to the consumer. The agreement would, for example, allow one of the two airlines to depend on the code share to operate to targets that would otherwise be unlikely to fly alone in the short run.
In order to maintain the commercial advantage gained by Virgin from the divestitures under the American and US Airways arrangement, the suggested arrangement would require Alaska to obtain the Department's consent before it sells or leases the gate (s) or slot(s) sold to Virgin, and explicitly forbids Alaska from assigning any interest in the asset(s) to American.
These requirements ensure that American does not directly or indirectly recover back ownership of the asset that Virgin sold to solve the division's challenges related to the American-U. S. Airways acquisition. Delaware is an Alaska-based company based in Seattle. Alaska last year flown over 31 million passenger to about 112 destinations around the world and generated revenues of more than $5.5 billion.
Virgina is a Delaware company with headquarters in Burlingame, California. Virgin last year flown over 7 million passenger to approximately 24 destinations around the world, generating revenues of more than $1.5 billion. Virgina is one of several companies named "Virgina" under a license contract with Virgin Group, which holds approximately 18% of Virgin's remaining ordinary shares with the right to vote.
Even though other carriers, such as Virgin Atlantic Airways, are called Virgin, they are operating separate from Virgin America. Pursuant to the Tunney Act, the suggested arrangement will be filed with the Federal Register together with the Ministry's competition effect declaration. Within 60 working days of the date of disclosure, any individual may send to Kathleen O'Neill, Chief, Transportation, Energy, and Agriculture Section, Antitrust Division, U.S. Department of Justice, 450 Fifth Street, N.W., Suite 8000, Washington, D.C. 20530 his or her comment on the Proposed Settlement in writing.