BEFORE THE DEPARTMENT OF TRANSPORTATION WASHINGTON, D.C. ANSWER OF DELTA AIR LINES, INC.

Transcription

1 BEFORE THE DEPARTMENT OF TRANSPORTATION WASHINGTON, D.C LOS ANGELES-BEIJING FREQUENCY ALLOCATION PROCEEDING ) ) ) ) ) ) ) ) ) ) ANSWER OF DELTA AIR LINES, INC. Communications with respect to this document should be addressed to: Robert J. Cortelyou Senior Vice President Network Planning DELTA AIR LINES, INC Delta Boulevard Atlanta, Georgia Alexander Krulic Managing Director and Associate General Counsel Regulatory & International Affairs Christopher Walker Director Regulatory & International Affairs DELTA AIR LINES, INC New York Avenue, N.W. Washington, D.C (202) alex.krulic@delta.com chris.walker@delta.com Kenneth P. Quinn Amna Arshad Christopher K. Leuchten PILLSBURY WINTHROP SHAW PITTMAN, LLP th Street, N.W. Washington, D.C (202) kquinn@pillsburylaw.com amna.arshad@pillsburylaw.com christopher.leuchten@pillsburylaw.com Counsel for DELTA AIR LINES, INC. May 31, 2016

2 Answer of Delta Air Lines, Inc. Docket DOT-OST Page 2 TABLE OF CONTENTS I. Executive Summary... 1 II. Los Angeles Is the Largest Asian Market from the United States and Should Have Vigorous Competition, Not One Dominant Carrier... 5 III. A. Intra-Gateway Competition at LAX Provides the Greatest Benefit to the U.S. Public... 5 B. Intra-Gateway Competition Is Particularly Relevant at LAX, because of Its Location... 9 C. American Could Operate From Other West Coast Gateways but Has Been Unwilling To Do So Delta s Proposed LAX-PEK Service Benefits the U.S. Traveling Public By Providing Far Greater Connections Beyond Beijing, Better Beijing Demand Coverage from the Western United States, and Reliable Capacity A. Delta Offers Far Greater Connections Beyond Beijing than American B. Unlike American, Delta Provides Reliable Capacity in the China Market IV. Delta Has Grown Substantially and Continues to Invest in LAX A. Delta is Committed to Growth at LAX B. Delta s Investment in Seattle Does Not Diminish the Importance of its Los Angeles Operations V. American s Application Is Designed To Block Competition to Asia at LAX VI. A. American Waited Years to Apply for these Frequencies B. American s Application Continues to Change, Showing that the Application was Reactive and Lacks of Any Clear Plan or Business Rationale for the Route C. LAX is American s Third-Priority Behind DFW and ORD D. Delta s Application Supports Competition, While American s Does Not American s Competition Argument Ignores Partnerships, Hong Kong, and Current Traffic Data to Asia A. American s Partners in Asia Ignoring Joint Venture Agreement with JAL and Codeshare Agreement with Cathay Pacific While Downplaying Codeshare Agreement with Hainan B. American Invents a New Market for Its Convenience: the Northeast Asian Market C. American Claims to Be Disadvantaged Based on Irrelevant History and Dated Quotes from the Department VII. American Mischaracterizes Delta s Network Decisions A. Investing in Beijing does not Negate Efforts in Shanghai and Vice Versa... 28

3 Answer of Delta Air Lines, Inc. Docket DOT-OST Page 3 B. American s Claims About Japan Are Irrelevant to Delta s Future Success in LAX-PEK VIII. Conclusion CERTIFICATE OF SERVICE TABLE OF EXHIBITS... 33

4 BEFORE THE DEPARTMENT OF TRANSPORTATION WASHINGTON, D.C LOS ANGELES-BEIJING FREQUENCY ALLOCATION PROCEEDING ) ) ) ) ) ) ) ) ) ) I. Executive Summary ANSWER OF DELTA AIR LINES, INC. Delta 1 submits this Answer to the Supplemental Application of American Airlines, Inc. ( American ) 2 for Los Angeles ( LAX )-Beijing ( PEK ) frequency allocations under the Department s Instituting Order in the 2016 Los Angeles-Beijing Frequency Allocation Proceeding. 3 The Department should award the frequencies to Delta over American because Delta s service will maximize benefits to the traveling public by providing needed intra-gateway competition in Los Angeles, the largest Origin and Destination ( O&D ) market to Asia and China in the United States, which American currently dominates, both directly and together with its alliance partners Japan Air Lines (JAL), Cathay Pacific Airways, Ltd ( Cathay Pacific ), and Hainan Airlines ( Hainan ). Delta s Application is superior to American s for the following reasons: 1 Except as defined herein, all terms shall have the same meaning as defined in Delta s Supplemental Application. DELTA AIR LINES, INC., SUPPLEMENTAL APPLICATION OF DELTA AIR LINES, INC. FOR A FREQUENCY ALLOCATION (May 23, 2016) ( Delta Supplemental Application ) (). 2 AMERICAN AIRLINES, SUPPLEMENT TO APPLICATION, DIRECT TESTIMONY AND EXHIBITS OF AMERICAN AIRLINES (May 23, 2016) ( American Supplemental Application ) (). 3 DEPARTMENT OF TRANSPORTATION, Order , ORDER INSTITUTING PROCEEDING (May 12, 2016).

5 Answer of Delta Air Lines, Inc. Docket DOT-OST Page 2 First, American has not provided any credible competitive benefits to support its proposal. American s chief argument appears to be that the world s largest airline, with the largest presence at LAX, is entitled to claim and control LAX because United flies to PEK from SFO, and Delta serves PEK from SEA. Yet, LAX is by far the West Coast s largest O&D market. American s dominance at LAX actually reveals the critical need for additional intra-gateway competition at LAX, which Delta s proposal provides. By contrast, an award to American would exacerbate the competitive imbalance at LAX. Second, Delta s proposal offers the most connections beyond Beijing and ensures consistent aircraft capacity. Exhibits DL-A By contrast, American s application offers limited traffic beyond Beijing. American s decisions on aircraft capacity in China have also been inconsistent: first, after seeing on March 14, 2016 that Delta proposed to enter the market with a B ER, with a seating capacity of 291, American filed its application on March 28, 2016, also proposing a B ER, but with a 247-person seating capacity. Then, seven weeks later, American filed its Supplemental Application, with different flight times and aircraft, with a seating capacity of 289. American knew what plane Delta was proposing since the beginning of the proceeding, yet changed its proposal mid-way through the process, belatedly realizing Delta was offering larger capacity in the market. Third, the Department should be skeptical about American s newfound attestations of LAX-PEK being the cornerstone 4 of its Asia strategy. If that were so, American would not have waited four years and until after Delta filed for LAX-PEK to pursue these 4 American Supplemental Application at AA Testimony T-1, Testimony of Andrew P. Nocella.

6 Answer of Delta Air Lines, Inc. Docket DOT-OST Page 3 unused frequencies, or submitted such a hastily assembled application. American s efforts to establish other transpacific flights also demonstrate that LAX-PEK is far from its top priority. Not only did American prioritize service from Chicago O Hare International ( ORD ) and Dallas/Ft. Worth International ( DFW ) to both Shanghai and Beijing, but American prioritized LAX-Shanghai service over LAX-Beijing. Exhibit DL- A-201. American s Supplemental Application has not answered the fundamental question: if this route was so important to American, why did it allow the frequencies to remain dormant, and not apply for these China Zone 1 frequencies until Delta did? 5 Fourth, while Delta s Application/Supplement reflects careful planning and preparation to serve the LAX-PEK route, American s evolving Supplemental Application is now a materially different proposal from its original Application. Exhibits DL-A These changes reveal that American s true intent is simply a blocking strategy prevent Delta from growing at LAX in whatever form. Based on American s apparent lack of forethought and planning on this route, the Department cannot be assured that American will execute on its proposals. These scarce and valuable assets should be awarded to Delta, the carrier that has carefully planned and will provide the best service on this route. 6 Exhibit DL-A-203. Fifth, American ignores its metal-neutral, immunized joint venture partnership with JAL and its codeshare relationship with two leading Chinese carriers, Hainan and Cathay Pacific all of which provide access to China and beyond. As it has in the Haneda proceeding, American arbitrarily defines new geographic markets that ignore country 5 See Section III.A, infra. 6 See Section III.B, infra.

7 Answer of Delta Air Lines, Inc. Docket DOT-OST Page 4 boundaries. In this case, American excludes Hong Kong and Hainan province from China, which would be news to the over 15 million people residing in these regions. 7 Exhibit DL-A-202. When properly tabulated, American and its partners operate more routes, more frequencies, more seats, and more Available Seat Miles ( ASMs ) than Delta and its partners between the U.S. and China. Exhibit DL-A-403. Finally, the Department should consider American s commitment to its evolving proposal of a 289-seat aircraft in the context of its past down-gauging regarding capacity to China. While Delta has increased capacity to China, American has a history of shrinking capacity. Exhibit DL-A-303. On four of American s five current U.S.-China routes, American is not providing the capacity it promised, including on its two most recently established routes from DFW. Exhibit DL-A-303. Given American s up-gauging of aircraft in only a matter of weeks during this proceeding, coupled with its pattern of down-gauging after winning rights in this huge, restricted-entry market, considerable doubt must be cast on American s commitment to follow through on its proposal. Exhibit DL-A-303. In the end, American s attempts to denigrate Delta s proposed service, along with its alliances with Chinese carriers China Eastern and China Southern, as a three-headed dragon, are both factually and culturally misguided. American mangles the metaphor mixing by making pejorative something positive. 8 Ignoring this rhetoric, and looking empirically at traffic 7 Hainan Airlines is based in Hainan, a Chinese province. Cathay Pacific is the flag carrier of Hong Kong, a Special Administrative Region of China. 8 JAMES LEGGE, SACRED BOOKS OF THE EAST 59 (1879).

8 Answer of Delta Air Lines, Inc. Docket DOT-OST Page 5 patterns, customer demand, and network maps, Delta remains confident that the public interest is better served by a grant to Delta in this proceeding. II. Los Angeles Is the Largest Asian Market from the United States and Should Have Vigorous Competition, Not One Dominant Carrier A. Intra-Gateway Competition at LAX Provides the Greatest Benefit to the U.S. Public When evaluating public interest factors, one of the primary benefits of Delta s LAX-PEK proposal is the increased intra-gateway competition for transpacific flights from LAX to Asia. Delta s LAX-PEK proposal would offset American s significant lead in international and Asia service at LAX and offer passengers the benefits of Delta s competition in the LAX-Asia market. Although American avoids the topic of intra-gateway competition in its Application and Supplement, American has recognized the importance of intra-gateway competition in past proceedings, including as recently as the U.S.-Haneda proceeding in January Because Los Angeles is, by far, the largest continental U.S. market to Tokyo and Haneda... there is a need for enhanced competition on the Los Angeles-Haneda route. Enhancing intra-gateway competition is an important policy objective and decisional criteria of the Department. 10 American currently operates roughly half 49 percent of the total LAX-Asia ASMs, and American s proposal would increase its share to over half 56 percent of the total LAX- Asia ASMs AMERICAN AIRLINES, INC., APPLICATION OF AMERICAN AIRLINES at Testimony of Scott Kirby, President (Jan. 5, 2015)(Docket DOT-OST ) (Jan. 5, 2015) (describing American s Application as fulfilling the Department s overriding objective of maximizing the public benefits by providing new intra-gateway competition at LAX )(emphasis added). 10 American cites to a 2005 DOT Order for the proposition that the Department relied on inter-gateway, intragateway and inter-alliance competition in selecting American to provide Chicago-Shanghai service. AMERICAN AIRLINES, INC., CONSOLIDATED REPLY OF AMERICAN AIRLINES at Delta Supplemental Application at Exhibit DL-204.

9 Answer of Delta Air Lines, Inc. Docket DOT-OST Page 6 American s proposal would also increase American s advantage compared to Delta in transpacific seats from LAX from 79 to 112 percent. 12 Exhibits DL-A Such an increase would exacerbate the existing competitive imbalance, to the detriment of consumers. Source: OAG December 2016; Does not Include AA s JL or QF Joint Business Partners and DL s VA JV Partner 12 These numbers would be even more disparate if Delta were to include American s metal-neutral joint business partner, JAL, in the transpacific numbers.

10 Answer of Delta Air Lines, Inc. Docket DOT-OST Page 7 Intra-gateway competition is important for all markets, but crucial here due to the size of the LAX-Asia market. The LAX market is the largest Asia and China O&D market in the United States and in North America. Exhibit DL-A-105. LAX, with almost 6 million Asia- Pacific passengers, is nearly six times the size of the Seattle market and has nearly twice the traffic as SFO. No airline has the right to an exclusive Asia gateway at LAX to the detriment of other carriers and the traveling public. Exhibit DL-A-105. In fact, the opposite is true: the size of the LAX market and demand for Asia makes it crucial to foster robust competition from multiple carriers. Delta s LAX-PEK proposal is the only one that can help balance American s sizeable lead in service from Los Angeles to Asia. Furthermore, the Department considers intra-gateway competition as an important factor in its route proceedings, which American ignores in its Application and Supplement. American selectively references only inter-gateway competition, 13 failing to mention that the Department 13 See American Supplemental Application at 4-5.

11 Answer of Delta Air Lines, Inc. Docket DOT-OST Page 8 considers both inter- and intra-gateway competition and sometimes only takes intra-gateway competition into account. 14 American further relies on previous U.S.-China proceedings to support its claim that inter-gateway competition is more important, but the Department explicitly has rejected that approach. In a later Show Cause Order, the Department stated that in the 2005/2006 U.S.-China Air Services Case and Designation proceeding our decision focused primarily on the competitive benefits of new intra-gateway and inter-gateway competition. 15 In its Supplemental Application, American often repeats its principal argument that Delta s U.S. West Coast Hub is SEA Not LAX. 16 This statement is incorrect for two reasons. First, as further discussed in Section VI, Delta has topped American s growth at LAX over the last seven years. 17 Second, American s statement is wrongly focused on its own interests, not on the benefits to the traveling public. 18 Consumers across the country, and particularly consumers in the Los Angeles market, want competition on flights to Asia. They will get it from a grant of Delta s proposal See DEPARTMENT OF TRANSPORTATION, ORDER , ORDER TO SHOW CAUSE at 4 (Feb. 28, 2014); DEPARTMENT OF TRANSPORTATION, ORDER , ORDER TO SHOW CAUSE at 8 (June 20, 2013) (in each of the Show Cause Orders, the Department references enhanced intra-gateway competition as benefit for proposals). 15 DEPARTMENT OF TRANSPORTATION, ORDER , ORDER TO SHOW CAUSE at 4 (Oct. 15, 2008); see also DEPARTMENT OF TRANSPORTATION, Order , ORDER TO SHOW CAUSE at 23 (Feb. 22, 2005) (again referring to intra-gateway competitive benefits for the U.S.-China market). 16 American Supplemental Application at Exhibit Series See Section VI, infra, for further discussion on Delta s growth and commitment to LAX and the Los Angeles community. 18 Among the enumerated public interest factors, under 49 U.S.C , are maximum reliance on market forces and on actual and potential competition and ensuring consumers in all regions of the United States... have access to affordable, regularly scheduled air service both supporting robust competition in a market such as Los Angeles, where greater competition would result in greater options for consumers. 19 The public interest factors included in 49 U.S.C focus on benefits to the U.S. traveling public, including the availability of a variety of adequate, economic, efficient, and low-priced services, placing maximum reliance on competitive market forces and on actual and potential competition, and avoiding unreasonable industry concentration, excessive market domination, monopoly powers, and other conditions that would tend to allow at least one air carrier or foreign air carrier unreasonably to increase prices, reduce services, or exclude competition in air transportation.

12 Answer of Delta Air Lines, Inc. Docket DOT-OST Page 9 Rather than develop competition in the LAX-Asia market or any other U.S. gateway American argues that the West Coast should be Balkanized, with different fiefdoms for Beijing service, with United at SFO, Delta at SEA, and for the largest market by far, American would claim it as its own. 20 But carriers can and should compete from multiple gateways, providing intra- and inter-gateway competition for consumers. Only Delta s LAX-PEK proposal can offer those benefits in this proceeding. B. Intra-Gateway Competition Is Particularly Relevant at LAX, because of Its Location For most U.S. travelers, Los Angeles is a circuitous connection location to Beijing, and therefore the largest portion of transpacific travelers at LAX will not be connecting passengers. 21 Exhibit DL-A-309. Fewer connecting passengers undercuts American s sole emphasis on intergateway competition, and makes intra-gateway competition at LAX more relevant. Therefore, the Department should focus on providing balance in the LAX-PEK and LAX-Asia markets. Since Air China operates the only LAX-PEK route, on which United codeshares, and American controls half of the LAX-Asia ASMs, only Delta s proposal would add competition in both of these markets. 20 See American Supplemental Application at 2 (splitting LAX, San Francisco International ( SFO ), and Seattle- Tacoma International ( SEA ) among the network carriers). 21 Therefore, American s heavy reliance on connecting domestic service especially connecting service originating East of the Rockies is misplaced. Passengers from Logan International Airport ( BOS ), John F. Kennedy International Airport ( JFK ), Lambert-St. Louis International Airport ( STL ), and the Northwest Arkansas Regional Airport ( XNA ) are unlikely to travel via LAX. See American Supplemental Application at Exhibits AA- 201 (showing 12 East of the Rockies connections) and Exhibit AA-203 (showing 13 East of the Rockies connections).

13 Answer of Delta Air Lines, Inc. Docket DOT-OST Page 10 C. American Could Operate From Other West Coast Gateways but Has Been Unwilling To Do So Rather than adding service to compete in other West Coast gateways, American has chosen to center its West Coast strategy on operations at LAX. American could add West Coast flights from Portland International Airport ( PDX ) or SEA, especially given its growing alliance with Alaska Airlines, which operates hubs at each of those airports. Instead, American asks the Department to validate its dominance of transpacific service from LAX at the expense of competition. III. Delta s Proposed LAX-PEK Service Benefits the U.S. Traveling Public By Providing Far Greater Connections Beyond Beijing, Better Beijing Demand Coverage from the Western United States, and Reliable Capacity The connectivity of Delta s proposed LAX-PEK service far surpasses American s proposal, on both sides of the Pacific Ocean. Delta s service benefits U.S. passengers by offering far superior connections beyond Beijing and providing excellent demand coverage for West Coast passengers to Beijing. A. Delta Offers Far Greater Connections Beyond Beijing than American American did not rebut Delta s superior connectivity beyond Beijing. Delta and its codeshare partners offer far more opportunities to connect to other destinations in China compared to American. Exhibit DL-A-202. For Delta, PEK can serve as a beneficial connecting point for U.S. travelers. Delta codeshares to 31 cities beyond Beijing and is co-located with its codeshare partners. 22 For American, connecting opportunities at PEK are limited. American 22 Delta Supplemental Application at DL-105

14 Answer of Delta Air Lines, Inc. Docket DOT-OST Page 11 codeshares on only five destinations beyond Beijing plus those flights are difficult to access because American and Hainan are located miles apart in separate terminals at PEK. 23 Including both codeshare and interline services, Delta and its partners offer service to 62 destinations beyond PEK, while American and Hainan offer only 35. Exhibit DL-202. For all of its claims about its efforts to prioritize PEK, American offers very few options at PEK, and little benefit for U.S. travelers. 23 See id.; Delta Supplemental Application at DL-112.

15 Answer of Delta Air Lines, Inc. Docket DOT-OST Page 12 Delta s superior connectivity beyond Beijing is a significant benefit for travelers, who are increasingly departing from or going to Interior China. U.S. point of sale Interior China demand has roughly doubled in the past five years, while Beijing demand has remained flat over that same period. Beijing also offers superior geography for connections through China compared to other major Asian cities. Exhibit DL-A-205. As Interior China continues to grow, Delta and its codeshare partners are prepared to serve this market. American s lack of connectivity at PEK prevents it from serving these travelers. B. Unlike American, Delta Provides Reliable Capacity in the China Market American s most recent iteration of its service proposal includes an operation with a 289 passenger Boeing American s initial application proposed to serve the route with a 247 seat Boeing In addition to showing American s lack of consistency in this 24 American Supplemental Application at Delta Supplemental Application at 2.

16 Answer of Delta Air Lines, Inc. Docket DOT-OST Page 13 proceeding, the Department should be aware of American s history of down-gauging its capacity in the U.S.-China market. Exhibit DL-A-311. On four of American s five current U.S.-China routes, American is not providing the capacity it promised, including on its two most recently established routes from DFW. Exhibit DL-A-311. On average, American is offering roughly 5 percent fewer daily seats to and from China than promised. American s Shrinking Capacity to China The numbers suggest that American is likely to downgauge from its proposed 289 seat Boeing 777. Even on the five U.S.-China routes American prioritized ahead of LAX-PEK, American has never promised so many seats before, and it has failed to live up to those lesser promises. Exhibit DL-A-311. In fact, on DFW-PEK, American downgauged after just 30 days of service.

17 Delta Has Increased Capacity to China Answer of Delta Air Lines, Inc. Docket DOT-OST Page 14 Delta, on the other hand, is offering a total of 8 percent more daily seats to and from China compared to what it originally proposed to the Department. Exhibit DL-A-312. In all but one case, Delta has maintained or increased the capacity on its U.S.-China service. Exhibit DL- A-312. Delta s reliability in providing capacity in the U.S.-China market contrasts starkly to American s shifts to smaller planes. IV. Delta Has Grown Substantially and Continues to Invest in LAX With LAX being the largest West Coast gateway to Asia, and the largest single O&D market in the United States, Delta is committed to growing its service at LAX. Given American s belated interest in LAX-PEK, the Department should look askance at American s argument that Delta s application is designed to block American s LAX strategy; if anything, the opposite is true. Delta has invested significantly to grow its operations at LAX and has spent considerable resources in preparing for the PEK-LAX route. 26 This contrasts with American s efforts in this proceeding, including a reactive, hastily-filed Application with multiple errors that fundamentally changed in a Supplemental Application. 26 Delta Application at 1-2 and Delta Supplemental Application at 1-2.

18 Answer of Delta Air Lines, Inc. Docket DOT-OST Page 15 A. Delta is Committed to Growth at LAX As the below chart demonstrates, Delta has significantly increased its service at LAX and has been the fastest in seat growth among all carriers, including American, over the last seven years coming out of the financial crisis and recession. Exhibit DL-A-101. Source: OAG 2016 vs American s own data demonstrates Delta s commitment to LAX and highlights the need for increased competition in the most important West Coast gateway. 27 According to American s Supplement, Delta consistently has grown in departing seats, ASMs, and destinations served at LAX. 28 However, Delta is still lagging behind American in overall international seats. An award to Delta of the LAX-PEK route would help balance the market. 27 American Supplemental Application at See id. American states that Delta has added 2.2 billion ASMs and 1,573,499 departing seats at LAX since 2014.

19 Answer of Delta Air Lines, Inc. Docket DOT-OST Page 16 Nor is Delta s commitment to LAX of recent vintage, as American has depicted it in its filings. Delta s LAX growth since 2009, extensive terminal renovations in 2015, and additional investments to expand demonstrate the scale and depth of Delta s efforts at LAX. Indeed, Delta's operations at LAX are at capacity with over 10 turns per gate. In comparison, American s turns per gate are less than 8. Exhibit DL-A-103. To overcome its gate capacity limitations at LAX, Delta has also expanded its operations by up-gauging its aircraft capacity to maximize its seats in the marketplace. Exhibit DL-A-104. Delta s operations at LAX continue to grow and in 2015, Delta signed a letter of intent to rehabilitate Terminal 2/Terminal 3 and connect it to the international terminal. 29 Delta will also be hiring another 1,000 employees and investing in a Federal Inspection Services facility for increased Customs and Border Protection resources to facilitate international terminal operations and connections. Delta also has deep ties to the greater Los Angeles community, demonstrating its commitment to enhance its services and benefit the traveling public. 30 Exhibit DL-A American s investments in the Los Angeles community are more recent and less robust than Delta s. For example, most of American s community sponsorships were added in the last 12 months, while Delta has had long-standing relationships with its community partners for many years, including for example, the Grammys, the Los Angeles Kings, the Staples Center, AEG, and the Los Angeles Lakers. 31 Exhibit DL-A-109. Delta s ties to the community match its consistent investment and growth in operations since Delta Supplemental Application Exhibit DL Delta Supplemental Application Exhibit DL See Delta s Supplemental Application at Exhibits

20 Answer of Delta Air Lines, Inc. Docket DOT-OST Page 17 B. Delta s Investment in Seattle Does Not Diminish the Importance of its Los Angeles Operations Delta s investments in Seattle as a West Coast gateway do not detract from Delta s commitment to LAX. In fact, Delta has been investing in and expanding its operations in both Seattle and Los Angeles at the same time, bringing important new competition to the respective incumbent hub carriers, Alaska and American. Exhibit DL-A-102. SEA and LAX are over 1,100 miles away from each other and serve very different local and connecting traffic. Exhibit DL-A-308. Since 2009, the growth in Delta s seat departures at SEA and LAX have each outpaced the growth in American s seat departures at LAX. Exhibit DL-A-101, 102. American points to Delta s advertising campaign in Seattle as support for its misplaced belief that Delta s strategy is to only expand in Seattle, rather than Los Angeles. Stipulating that advertising campaigns are actually demonstrative of commitment, then Delta s commitment to Los Angeles is also very strong. Delta launched its local Los Angeles advertising campaign earlier than the campaign for Seattle that American cited. 32 Exhibit DL-A-111. The LA campaign, which includes an LA-specific TV spot in both English and Spanish, demonstrates Delta s efforts to connect with and serve the local community. 33 Exhibit DL-A-112. V. American s Application Is Designed To Block Competition to Asia at LAX A. American Waited Years to Apply for these Frequencies American s claim that LAX-PEK is essential to the long-term success of LAX as a world-class gateway for American 34 rings somewhat hollow when viewed in the context of the 32 Dream Up brand campaign debuts in L.A., Delta News Hub, available at 33 Id. 34 American Supplemental Application at 8.

21 Answer of Delta Air Lines, Inc. Docket DOT-OST Page 18 available frequencies. The nine China Zone 1 frequencies have been available since March 25, 2012, when the last U.S.-China bilateral agreement went into effect. 35 In the four years since that time, American made no effort to establish an LAX gateway to Beijing. Delta, on the other hand, has carefully evaluated the efficacy of an LAX gateway to Beijing. With the new U.S.- Japan bilateral agreement resulting in the expansion of traffic to Haneda Airport, which will continue to impact Delta s Narita Airport hub, Delta saw the potential benefits to U.S. travelers of offering an LAX-PEK route. If LAX-PEK were really the cornerstone of American s plans to expand its footprint in Asia through China, then American could and should have expanded there earlier, when there were ample frequencies available to satisfy American s plans. 36 In addition, if American had truly prioritized both LAX and PEK in building its presence and Asia, American could have utilized an opportunity to operate between the two, instead focusing on Shanghai. American cannot support its assertion that Delta s Application is intended to block American from developing LAX as its West Coast gateway. And it is a puzzling assertion given that Delta was the first to file for the frequencies. B. American s Application Continues to Change, Showing that the Application was Reactive and Lacks of Any Clear Plan or Business Rationale for the Route The Department should carefully scrutinize American s claims for these scarce and valuable assets. Unlike Delta, which undertook significant planning prior to its initial 35 PROTOCOL TO AMEND THE AGREEMENT BETWEEN THE GOVERNMENT OF THE U.S.A. AND THE GOVERNMENT OF THE PEOPLE S REPUBLIC OF CHINA RELATING TO CIVIL AIR TRANSPORT, signed Jul. 9, 2007, available at (making available an additional 14 weekly frequencies to China Zone 1 and 2). 36 American Supplemental Application at AA Testimony T-1, Testimony of Andrew P. Nocella.

22 Answer of Delta Air Lines, Inc. Docket DOT-OST Page 19 application submission and provided the same route proposal information in its initial Application and Supplement, American s submissions contain material differences without explanation reflecting a lack of planning and potential lack of commitment to this route. Between American s original Application and its Supplement, American changed every major aspect of its proposed service, including revised flight schedules and aircraft configuration, increasing its capacity from 247 seats to 289 seats, 37 and added significant new information that was omitted from its initial Application. Exhibit DL-A-302. The revisions to its proposal reflect American s lack of commitment and planning for this route. Exhibit DL-A C. LAX is American s Third-Priority Behind DFW and ORD American s 500 series exhibits claim that LAX is American s first priority. However, American s past route selections reveal that LAX has not been a priority and is, in fact, its third priority, behind ORD and DFW. Exhibit DL-A-305. American operates five U.S.-China routes, including two routes to Beijing from Chicago and Dallas Fort-Worth. 38 Since January 15, 2015, when the Department awarded Delta frequencies from LAX to Shanghai and the number of remaining China frequencies dwindled, American has prioritized going anywhere internationally except LAX to Beijing. 39 Exhibit DL-A-301. It was only when Delta sought the frequencies 37 See American Application at Exhibit AA-1; American Supplemental Application at Exhibit AA American Supplemental Application at Exhibit AA See AMERICAN AIRLINES, INC., APPLICATION OF AMERICAN AIRLINES (Jan. 5, 2015)(Docket DOT-OST )(describing American s post-us Airways merger expansion into Asia-Pacific, highlighting its plans to strengthen its presence in that region, and boasting about its new DFW-Hong Kong, DFW-Shanghai and DFW- Beijing routes); see also AMERICAN AIRLINES, INC., APPLICATION OF AMERICAN AIRLINES, INC. FOR EXEMPTION AND ALLOCATION OF FREQUENCIES (CHICAGO-BUENOS AIRES)(Apr. 7, 2007)(Docket DOT-OST )(prioritizing its Chicago hub for Argentina service).

23 Answer of Delta Air Lines, Inc. Docket DOT-OST Page 20 that American applied for an LAX-PEK route. American made a business decision to invest in DFW and ORD, undermining its assertion that LAX is its main priority. D. Delta s Application Supports Competition, While American s Does Not Contrary to American s claims that Delta s bid for the LAX-PEK frequencies is calculated to protect from competition its existing service, 40 quite the reverse is true. Delta s Application is intended to promote competition out of LAX. As American s own exhibits demonstrate, American is the largest transpacific service provider out of LAX and is already in a dominant position. In addition, American s seats offered from LAX to Asia dwarfs Delta s out of both LAX and SEA. Exhibits DL-A Given the importance of LAX as a gateway, competition will help to ensure balance in the market and promote consumer choice. Awarding these frequencies to American would further entrench American s position at LAX, diminish intra-gateway competition out of LAX, and result in no public or competitive benefits. VI. American s Competition Argument Ignores Partnerships, Hong Kong, and Current Traffic Data to Asia American s claimed competitive benefits are inaccurate. Exhibit DL-A-202. American: (1) misrepresents its significant partnerships in providing access to China; (2) artificially creates a market of Northeast Asia that inexplicably excludes Hong Kong; (3) cites to outdated and irrelevant history for justification of its proposal; and (4) mischaracterizes Delta s alliances and partnerships with Chinese carriers. 40 American Supplemental Application at 2.

24 Answer of Delta Air Lines, Inc. Docket DOT-OST Page 21 A. American s Partners in Asia Ignoring Joint Venture Agreement with JAL and Codeshare Agreement with Cathay Pacific While Downplaying Codeshare Agreement with Hainan American s Application and Supplement ignore its relationships and partnerships in the U.S.-China and U.S.-Asia market to skew the relevant competitive landscape in its favor. 41 American is quick to point to Delta s relationships with China Eastern and China Southern, referring to it as a three-headed dragon, 42 a vivid but somewhat culturally insensitive reference. Meanwhile, American diminishes the significance of its own partnerships with Cathay Pacific, Hainan, and JAL. Exhibit DL-A-207. Unlike American s joint venture with JAL, Delta does not enjoy a metal-neutral immunized partnership with China Eastern or China Southern, making any comparison untenable. And although American conflates all members of SkyTeam in making competition arguments, 43 in reality, Delta competes with its partners as well. 44 Exhibit DL-A-401. Moreover, China Eastern and China Southern are not authorized to fly U.S.-PEK, leaving Delta to fend for itself on nonstop transpacific coverage of Beijing. Exhibit DL-A-401. American also fails to mention that it has a greater number of airline partners, including an immunized metal-neutral joint venture, in its self-defined Northeast Asia market than Delta, with partners in nearly every Northeast Asian region, including Japan, Korea, Mainland China, and Hong Kong, with the sole exception of Taiwan. 45 When all of the relevant partners are 41 See, e.g., American Supplemental Application at Exhibit AA-803. In this exhibit, American compares U.S.-China routes and frequencies with Delta. However the comparisons aren t on equal footing. To appear smaller, American does not include its partners, Hainan and Cathay, in its U.S.-China tally, but does include Delta s partners. 42 American uses the term multiple times in its Supplement. See American Supplemental Application at Table of Contents, 3, and American Supplemental Application at See p. 23, supra. 45 See, e.g., American Supplemental Application at Exhibit AA-803.

25 Answer of Delta Air Lines, Inc. Docket DOT-OST Page 22 considered, and all of China is included, American and its partners are larger from the U.S. to China than Delta and its partners. American and partners operate 12% more routes, 27% more weekly frequencies, 14% more weekly seats, and 23% more weekly ASMs. Exhibit DL-A-403. U.S.-China Routes Including All Partners 46 American s extensive access to China through its alliances with Hainan, Cathay Pacific, and JAL is already more vast than Delta s with service to more U.S. locations. Exhibit DL-A American and its partners also have a robust West Coast offering across the Pacific, with three percent greater seats than Delta. Exhibit DL-A-304. American s partner Hainan, in particular, is outpacing China Eastern and China Southern in the U.S.-China market, operating six flights to China, including three from PEK. Exhibit DL- A-207. While Delta is alone in the U.S.-Beijing market, with no access through its partners, Hainan has an extensive U.S.-Beijing network. 47 Exhibit DL-A-206. As shown below, when 46 Exhibit DL-A-p China Southern and China Eastern offer no U.S.-PEK service.

26 Answer of Delta Air Lines, Inc. Docket DOT-OST Page 23 isolated to the U.S.-PEK market, American/Hainan account for a greater percentage of passenger traffic 8% greater than Delta/China Eastern/China Southern. Exhibit DL-A-402. In addition to American s omission of Hainan, American does not even acknowledge the significance of its relationship with Cathay Pacific on its China service. Cathay Pacific operates a mega-hub in Hong Kong and is a major carrier in the China market with significant connectivity through Cathay Dragon. American s new LAX-Hong Kong service is made possible by the Cathay partnership, operating uncontested in this market and beyond. Finally, American fails to identify its important metal-neutral joint venture partnership with JAL, which provides American with a significant advantage in the Asian market as a whole, which Delta, as the only major U.S. carrier serving the Northeast Asian market without a metalneutral joint venture partner, cannot replicate. Delta requires this frequency to compete with the Japanese duopolies (American/JAL and United/ANA) that dominate this market. As a result of

27 Answer of Delta Air Lines, Inc. Docket DOT-OST Page 24 American s joint venture with JAL, American has extensive Asia gateway access from LAX and already has more flights to Asia than Delta does from Seattle. Exhibit DL-A-102. Although American points out Delta s ability to use its Narita hub to expand capacity to additional cities under its fifth freedom rights, 48 Delta acquired these rights in a competitive bidding process American could well have done the same. 49 However, American/JAL s joint venture is more relevant to this proceeding, because the joint venture offers American/JAL the opportunity to serve China via Tokyo on a far greater level than fifth freedom rights. As shown above, American/JAL serves six Chinese cities via Tokyo. The United/All Nippon Airways ( ANA ) figure below shows how valuable a Japanese joint venture partner can be to serve China United/ANA serves 11 cities via Tokyo. American/JAL can copy that model to access China American Supplemental Application at Exhibit AA These fifth freedom rights originated in the 1952 U.S.-Japan bilateral, and even though Northwest and Pan Am, the initial carriers possessing those rights, no longer exist, the rights still do. They remain a part of the U.S. Japan agreement through today. Delta and United possess those rights after having bid for them. See Record of Discussions, Japan-U.S., signed Feb. 18, 2016, available at amending Memorandum of Understanding, Japan-U.S., signed Oct. 25, 2010, available at implementing Civil Air Transport Agreement, Japan-U.S., signed Aug. 11, 1952, 4 UST 1948, TIAS See Delta Supplemental Application at Exhibit DL-210.

28 Answer of Delta Air Lines, Inc. Docket DOT-OST Page 25

29 Answer of Delta Air Lines, Inc. Docket DOT-OST Page 26 B. American Invents a New Market for Its Convenience: the Northeast Asian Market The relevant geography in this proceeding is LAX-PEK. 51 Similar to what it did in the Haneda proceeding, American has invented an irrelevant Northeast Asia market, consisting of parts of three countries Japan, Korea, and Mainland China instead of focusing the relevant market, LAX-PEK. 52 And, even in this arbitrary market, American omits relevant regions/cities as comparison points when convenient. Notably, while talking about Chinese competition, American carves out Hong Kong, even though it is part of China, to create an artificial portrait of the competitive environment. While American excludes Hong Kong from its Northeast Asia market in its Application, its executives simultaneously extoll the virtues of their Hong Kong strength in serving the region. 53 In addition, American s allegation that an award to Delta of these frequencies would result in American and oneworld having scant opportunities to grow in China and Northeast Asia are unfounded. Even assuming American s gerrymandered map were accurate, American has ample opportunities to grow in the Northeast market on its own and with its Chinese partners Hainan and Cathay Pacific. American also ignores the considerable expansion options available 51 In past DOT proceedings, the Department has looked to city-pairs and countries as the relevant market, not continents. See, e.g., AMERICAN AIRLINES, SUPPLEMENT TO APPLICATION OF AMERICAN AIRLINES, INC. FOR ALLOCATION OF 12 WEEKLY U.S.-BRAZIL FREQUENCIES TO SAO PAULO (LOS ANGELES 2013 AND CHICAGO 2014) at 4 (Apr. 24, 2014) (Docket DOT-OST )(discussing competition in the local and connecting city markets).\ See also 2013/2014 U.S.-Brazil Combination Frequency Proceeding, 2009 U.S.-Brazil Combination frequency Proceeding, 2008 U.S.-Brazil Combination Frequency Proceeding, 2007/2008 U.S.-Colombia Combination Frequency Proceeding, 2007/2008/2009 U.S.-China Air Services and Combination Frequency Allocation Proceeding; and 2005 U.S.-Argentina Combination Frequency Proceeding. 52 Instituting Order at See CONOR SHINE, American Airlines Expands Asia presence with new Los Angeles to Hong Kong flight, DALLAS MORNING NEWS, Mar. 8, (Quoting American s Chief Marketing Officer Andrew Nocella about how Hong Kong is one of the world s most important business markets and provides convenient connections to important business and leisure destinations across the Pacific ).

30 Answer of Delta Air Lines, Inc. Docket DOT-OST Page 27 to carriers in non-tier-one Chinese cities. Japan and Korea are markets in which American can continue to expand, and it has a decided advantage in doing so given its joint venture with JAL. C. American Claims to Be Disadvantaged Based on Irrelevant History and Dated Quotes from the Department American bemoans the disparity in the U.S.-China market 54 referencing 60+ year old history and Delta s and United s purchased rights in the Japan and China market. These arguments are simply not persuasive today. American has long been a designated carrier for the U.S.-China market and has had equal opportunity as the other carriers to add this route to its offerings. 55 Its failure to apply for these frequencies earlier reflects American s own business decisions, not any disadvantage as a result of its position in the China market. 56 Moreover, American s joint venture with JAL allows significant one-stop connections to China, including through Narita and Haneda, and opportunities for American to grow in this market at a higher capacity than Delta, given Delta s lack of a metal neutral joint venture partner. Exhibits DL-A-306, 307. American s joint venture with JAL also allows it significantly more access to U.S.-Asia service than Delta as a whole. Exhibit DL-A-306. Finally, American appears confused as it makes conflicting statements regarding its market strength. On the one hand, American states that it is still at a disadvantage 57 relative to 54 American Supplemental Application at DEPARTMENT OF TRANSPORTATION, ORDER, ORDER (Apr. 1, 2005)(awarding American certificate authority to provide combination services in the U.S.-China market and allocating American seven Chicago- Shanghai frequencies). 56 American also cites to the 2004 DOT award to United and Northwest of the U.S.-China frequencies. However, DOT had no choice but to award these frequencies to United and Northwest as the only carriers having passenger rights to serve China because the bilateral only allowed two designations. DEPARTMENT OF TRANSPORTATION, DOT ORDER TO SHOW CAUSE (Feb. 22, 2005) (Docket DOT-OST ). However, this bilateral limitation no longer exists. Accordingly, if American valued the Beijing frequencies, it should have been quicker to apply for them. American Supplemental Application at American Supplemental Application at 16.

31 Answer of Delta Air Lines, Inc. Docket DOT-OST Page 28 SkyTeam and Star. However, following American s merger with U.S. Airways, its exponential growth at LAX, ORD, DFW, and JFK, its joint venture with JAL, and strong position in U.S.- Asia service, American, the largest carrier in the world, can hardly claim to be disadvantaged. VII. American Mischaracterizes Delta s Network Decisions A. Investing in Beijing does not Negate Efforts in Shanghai and Vice Versa American is attempting not only to carve up U.S.-China service, but it is also suggesting a similar allocation in Chinese markets by questioning Delta s investments in Beijing and Shanghai. 58 Delta strongly disagrees with American s flawed hypothesis. Delta values each of its partner carriers and is proud of its success in growing service to both Beijing and Shanghai. Exhibit DL-A-201. American s exhibits suggest that Delta s efforts and investments in Shanghai should be a demerit when considering the available frequencies in Beijing. 59 Exhibit DL-A-201. This argument ignores that both China Eastern and China Southern are Delta s partners and offer Delta access to numerous connections throughout China. Delta should be able to serve both Shanghai and Beijing so U.S. travelers can benefit from these connections. American s claim is even more confusing because it has itself prioritized Shanghai over Beijing. For example, American already serves Shanghai from LAX and from two other U.S. gateways. But American did not add Beijing service from its gateways until it had established PVG service, whereas Delta has balanced growth and start dates between Beijing and Shanghai. 58 American Supplemental Application at unnumbered Exhibit located between Narrative to Series 700 and Exhibit AA-701 (stating that Shanghai, Not Beijing Is Delta s Priority ). 59 American Supplemental Application at Exhibit AA

32 Answer of Delta Air Lines, Inc. Docket DOT-OST Page 29 Attempting to use the argument of prioritizing Shanghai against Delta rings hollow in the context of this history. B. American s Claims About Japan Are Irrelevant to Delta s Future Success in LAX-PEK American presents a series of exhibits referring to Delta s reduction of service from LAX-NRT, and wrongly insinuates that these should impact the LAX-PEK proceeding. 60 American incorrectly suggests a lack of interest from Delta to serve LAX-Asia. 61 As American knows, service to Haneda is preferred for Tokyo travelers and the opening of Haneda for daytime international traffic makes Delta s Narita hub unsustainable in the long term. While American has the ability through its metal-neutral joint venture with JAL to continue to operate out of both Haneda and Narita, Delta does not have the same luxury, and had to make the business decision to deemphasize its presence at Narita. Far from showing Delta s lack of interest in LAX-Asia, the Department should credit Delta s continued efforts to serve LAX-PEK and create a sustainable, beneficial route. Delta remains committed to growing its Asian operations from LAX. Delta s commitment is exemplified by Delta s original, unprompted application for LAX-PEK service. Relatedly, despite American s claims, Delta complied with the Department s order with regard to Haneda and relinquished its SEA-HND slots when it became apparent that the service was no longer viable. 62 American is well aware of the commercial challenges with nighttime 60 American Supplemental Application at Exhibits AA-407-AA Id. 62 ALEXANDER VAN DER BELLEN, LETTER TO PAUL GRETCH, DOT (June 17, 2015)(Docket DOT-OST )(returning Delta s SEA-HND slot pair to the Department).

33 Answer of Delta Air Lines, Inc. Docket DOT-OST Page 30 Haneda service given its own abandonment of JFK-HND. 63 Again, Delta remains committed to the Asian market and the history of nighttime service to Haneda airport is not predictive of success for its proposed LAX-PEK frequencies. VIII. Conclusion Delta s well-planned service proposal maximizes public benefits by establishing intragateway competition at LAX, preventing American from increasing its dominance of LAX-Asia service at the largest O&D market in the United States, offering superior connectivity at LAX and beyond PEK, and supplying reliable capacity in the U.S.-China market. Based on the above, Delta respectfully submits that the Department should allocate the frequencies to Delta. 63 AMERICAN AIRLINES, INC., LETTER TO THE DEPARTMENT (Oct. 23, 2013)(Docket DOT-OST ) (returning the JFK-HND slot pair to the Department).

34 Answer of Delta Air Lines, Inc. Docket DOT-OST Page 31 Respectfully submitted, Kenneth P. Quinn Amna Arshad Christopher K. Leuchten PILLSBURY WINTHROP SHAW PITTMAN, LLP 1200 Seventeenth Street, NW Washington, D.C (202) Counsel for DELTA AIR LINES, INC.

35 Answer of Delta Air Lines, Inc. Docket DOT-OST Page 32 CERTIFICATE OF SERVICE I hereby certify that on May 31, 2016, a copy of the foregoing Answer of Delta Air Lines, Inc. was served upon the following persons via Air Carrier American American American American American American American Hawaiian Hawaiian Hawaiian United United United DOT DOT DOT DOT FAA State Department LAX Airline Info Name Howard Kass Robert Wirick John B. Williams Paul Denis Steven Bradbury William Sohn Thomas Miller Parker Erkmann Julia Renehan Aaron Alter Dan Weiss Thomas Bolling Abby L. Bried Brian Hedberg Robert Finamore Brett Kruger Ben Taylor John Duncan Thomas Engle Deborah Flint Airline Info Address howard.kass@aa.com robert.wirick@aa.com john.b.williams@aa.com paul.denis@dechert.com steven.bradbury@dechert.com william.sohn@dechert.com thomas.miller@dechert.com perkmann@cooley.com jrenehan@cooley.com aaron.alter@hawaiianair.com dan.weiss@united.com thomas.bolling@united.com abby.bried@united.com brian.hedberg@dot.gov robert.finamore@dot.gov brett.kruger@dot.gov benjamin.taylor@dot.gov john.s.duncan@faa.gov englets@state.gov dflint@lawa.org info@airlineinfo.com /s/ Christopher K. Leuchten Christopher K. Leuchten PILLSBURY WINTHROP SHAW PITTMAN, LLP

36 Answer of Delta Air Lines, Inc. Docket DOT-OST Page 33 TABLE OF EXHIBITS Exhibit Number Exhibit DL-A-101 Exhibit DL-A-102 Exhibit DL-A-103 Exhibit DL-A-104 Exhibit DL-A-105 Exhibit DL-A-106 Exhibit DL-A-107 Exhibit DL-A-108 Exhibit DL-A-109 Exhibit DL-A-110 Exhibit DL-A-111 Exhibit DL-A-112 Exhibit DL-A-201 Exhibit DL-A-202 Exhibit DL-A-203 Exhibit DL-A-204 Exhibit DL-A-205 Exhibit DL-A-206 Exhibit DL-A-207 Exhibit Description Table of Contents Delta s Commitment to LAX Delta is investing billions into Los Angeles and has long-standing community relationships Delta s Investment in LAX is Strong, Long-Term, and Growing Faster than American American s Own Data Recognizes Delta s Stronger Growth in Los Angeles and Seattle Delta Has Grown Its Los Angeles Operation to the Point of Maximum Operating Capacity in Its Current Facility After Maximizing Departure Growth Out of LAX, Delta has Turned to Upgauging to Further Drive its Expansion LAX is By Far The Largest U.S. Transpacific Market Which No Carrier Owns American s LAX Pacific Gateway Already Offers 44% More Weekly Seat Departures than Delta s SEA Gateway American s LAX Pacific Gateway Already Offers 79% More Weekly Seat Departures than Delta s LAX Gateway An Award of LAX-PEK to American Would be a Major Blow to Competition in Los Angeles Delta has Maintained a Long-Standing Partnership Portfolio in Los Angeles, Consistent with its Focus on Los Angeles Delta s Focus and Commitment to Los Angeles is Reflected Across Every Facet of its Business Delta Launched Dream Up, L.A. Campaign Two Weeks Before Delta s Seattle Ad Dream Up, L.A. Included Delta s First Tailored Local Television Ad for Los Angeles China is Primary Focus of Delta s Asia Strategy Serving L.A. Beijing is critical to both Delta s L.A. market position and linking the Beijing hub to L.A. American s Filing Conveniently Showcases Delta s China Investments Delta s China Partner Strategy is Actually a Strength of its Application American Suggests Delta s LAX-PEK is a Random Step in Our China Strategy Designed to Thwart Competition: This Suggestion is False Delta s LAX-PEK Offers Service to Over 1.6M U.S. / China Passengers on a Round-Trip Basis Annually PEK is Geographically Excellent Connect Point for U.S. China Connections Delta is Alone in U.S. Beijing and has no Partner Non-Stops, Unlike American American and Partners Offer 168 U.S. China Flights Weekly Delta and Partners Offer 110 U.S. China Flights Weekly

37 Answer of Delta Air Lines, Inc. Docket DOT-OST Page 34 Exhibit Number Exhibit DL-A-301 Exhibit DL-A-302 Exhibit DL-A-303 Exhibit DL-A-304 Exhibit DL-A-305 Exhibit DL-A-306 Exhibit DL-A-307 Exhibit DL-A-308 Exhibit DL-A-309 Exhibit DL-A-310 Exhibit DL-A-311 Exhibit DL-A-312 Exhibit DL-A-401 Exhibit DL-A-402 Exhibit DL-A-403 Exhibit DL-A-404 Exhibit Description American s Belated Interest in LAX-PEK Reveals Its Blocking Strategy U.S.-China U.S. Carrier Zone 1 Frequency Landscape Means that Any Carrier Interested in Growing China Should have had Near-Operational Plans Developed or Under Material Study Every Aspect of American s Daily Service Proposal has Changed, Except for Flight Number, Revealing a Blocking Application and Poor Planning American has Swapped to a Different Airplane for LAX-PEK that Dwarfs its Current Average Gauge to China American and Partners Have A Robust West Coast Offering Across the Pacific, Both Carriers Offer Similar Levels of Service American Elected to Launch DFW-PEK in 2014, Creating Two Mid-Continent Gateways Ignoring the West Coast American JAL JV Able to Offer Both Non-Stop and Via Japan Options to its Joint Customers ANA Highlights the Ability of the US/Japan Joint Ventures to Access China Via Tokyo American s References to LAX vs. SEA as Two Duplicative West Coast Gateways Simply False Routing East Coast Traffic to Beijing via LAX Highly Circuitous; LAX Service is Primarily About Local LAX & West Coast Markets American s Existing ORD & DFW Flights and Codeshare Covers 99% of US48- PEK Demand American Offering 6% Fewer Daily Seats to/from China than What it Proposed in its Original Filings Delta, However, is Offering 9% More Daily Seats to/from China than it Originally Proposed Three-Headed Dragon American s metaphorical imagery is both factually inaccurate and culturally insensitive, mischaracterizing U.S.-China market realities American s three headed dragon Accusation Offensive Delta Simply Seeks to Compete in Beijing When Looking at 2015 U.S.-Beijing Passenger Share, American / Hainan Eclipse Delta and its Partners by 8 pts American and its Partners are Larger from the U.S. to China than Delta and its Partners American Already Believes Delta Should Operate LAX-PEK

38 Delta s Commitment to LAX Delta is investing billions into Los Angeles and has long-standing community relationships

39 Delta s Investment in LAX is Strong, Long-Term, and Growing Faster than American Exhibit DL-A-101 Page 1 of 1 American implies that its recent increase in LAX seat growth (starting in 2014) undermines Delta s LAX-PEK proposal In fact, Delta has grown LAX seats 28% since 2014 while American has grown LAX seats 22% Delta vs American Seat Growth from LAX 2016 vs % 22% Delta - LAX American - LAX Source: OAG 2016 vs. 2014

40 American s Own Data Recognizes Delta s Stronger Growth in Los Angeles and Seattle Exhibit DL-A-102 Page 1 of 1 Since the late 2000s, Delta has invested in its brand on the West Coast American implies Delta should not fly LAX-PEK because it was growing SEA but Delta is growing both hubs quickly Delta s LAX capacity actually has seen more seat growth than Delta s SEA or American s LAX over the long-term + 12,245 seats 10,257 22,502 Daily Seat Departures by Carrier Hub ,614 seats 5,854 15,468 18,807 26, ,078 seats LAX DL LAX SEA DL SEA LAX AA LAX Source: OAG 2016 vs. 2009

41 Delta Has Grown Its Los Angeles Operation to the Point of Maximum Operating Capacity in Its Current Facility Exhibit DL-A-103 Page 1 of 1 Delta s investments in the market are outpacing its facility footprint, with over 10 turns per gate, the highest in Delta s system and 2 turns per gate higher than American s operation Delta hopes to further invest in its LAX operation with the re-location to T2/T3 and delivering an even better customer experience LAX 2016 Peak Day Turns per Gate DL AA Source: OAG August 2016 Turns per gate calculated as: DL 175 peak day departures divided by 16 gates in T5/T6 AA 227 peak day departures divided by 29 gates in T4/T6/Remote Terminal; turns per gate even lower with access to TBIT gates AA at similar 7.9 turns per gate when excluding regional operated flying and 10 remote terminal gates

42 After Maximizing Departure Growth Out of LAX, Delta has Turned to Upgauging to Further Drive its Expansion Exhibit DL-A-104 Page 1 of 1 While both Delta and American have grown average gauge out of LAX over recent years, Delta s gauge is 7% larger than American s LAX Average Seats / Departure Delta American % Source: OAG August 2016

43 LAX is By Far The Largest U.S. Transpacific Market Which No Carrier Owns Exhibit DL-A-105 Page 1 of 1 Seattle is a mere 17% of the size of Los Angeles, and 30% of the size of San Francisco demonstrating that while Delta has invested in SEA, a competitive presence in LAX remains critical to its Pacific franchise American s suggestion that LAX is somehow reserved for its exclusive domain is without precedent Top 5 West Coast Cities to / from Asia-Pacific Destinations Annual Bookings 4.9M -42% -83% 2.9M -70% 0.9M 0.5M 0.2M LAX SFO SEA LAS SAN Source: MIDT May 2015 April 2016 True OD Bookings to Asia and Australasia excluding India

44 American s LAX Pacific Gateway Already Offers 44% More Weekly Seat Departures than Delta s SEA Gateway Exhibit DL-A-106 Page 1 of 1 American claims to seek LAX Pacific parity to Delta in SEA, yet American is already 44% larger than Delta s SEA Pacific hub Weekly Transpacific Seat Departures +44% 10,962 7,603 SEA DL LAX AA Source: OAG December 2016; Does not Include AA s JL or QF Joint Business Partners and DL s VA JV Partner

45 American s LAX Pacific Gateway Already Offers 79% More Weekly Seat Departures than Delta s LAX Gateway Exhibit DL-A-107 Page 1 of 1 Giving American more Transpacific flights just increases its dominance at LAX, whereas awarding Delta the flight would increase parity in the market LAX a clear and coherent component of Delta s strategy as it repositions its Pacific franchise LAX Weekly Transpacific Seat Departures +79% 10,962 6,111 LAX DL LAX AA Source: OAG December 2016; Does not Include AA s JL or QF Joint Business Partners and DL s VA JV Partner

46 An Award of LAX-PEK to American Would be a Major Blow to Competition in Los Angeles Exhibit DL-A-108 Page 1 of 1 With LAX-PEK, American would more than double Delta s Pacific seat departures in the most important Transpacific market Delta award would enhance competition in Los Angeles with capacity gap reduction of 45 points (from 79% to 35% difference) LAX Weekly Transpacific Seat Departures If Delta or American Awarded LAX-PEK +79% +35% +112% 10,962 10,962 12,985 6,111 8,148 6,111 Today DL AA No LAX-PEK DL Secures LAX-PEK AA Secures LAX-PEK Source: OAG December 2016; Does not Include AA s JL or QF Joint Business Partners and DL s VA JV Partner

47 Delta Has Maintained a Long-Standing Partnership Portfolio in Los Angeles, Consistent with its Focus on Los Angeles Exhibit DL-A-109 Page 1 of 1 10 Years 9 Years 7 Years 6 Years 6 Years 6 Years 5 Years 4 Years 4 Years 4 Years 4 Years 4 Years 4 Years 4 Years 4 Years 3 Years 3 Years

48 Delta s Focus and Commitment to Los Angeles is Reflected Across Every Facet of its Business Exhibit DL-A-110 Page 1 of 2 Delta publishes an annual Los Angeles issue as part of its in-flight magazine to promote the city and emphasize the importance of Los Angeles to Delta The May 2016 issue had a 40-page profile on Los Angeles

49 Delta s Focus and Commitment to Los Angeles is Reflected Across Every Facet of its Business Exhibit DL-A-110 Page 2 of 2 Delta s CEO column in the February 2016 in-flight magazine, SKY, further elaborated the importance that Delta places on Los Angeles

50 Delta Launched Dream Up, L.A. Campaign Two Weeks Before Delta s Seattle Ad Exhibit DL-A-111 Page 1 of 2 Delta is investing in a 60% increase in media spend year over year for Los Angeles Fully integrated campaign support with TV, print, out of home, radio, digital, social, PR, and community affairs LA TV spot launched before Seattle TV spot on April 13, in alignment with a moment important to Los Angeles Kobe Bryant s last game with the Lakers Source:

51 Delta Launched Dream Up, L.A. Campaign Two Weeks Before Delta s Seattle Ad Exhibit DL-A-111 Page 2 of 2 Delta s customized advertisements for Los Angeles to engage with local audiences as part of an effort to build the markets most vital to Delta

52 Dream Up, L.A. Included Delta s First Tailored Local Television Ad for Los Angeles Exhibit DL-A-112 Page 1 of 1 American fails to recognize that Delta s Los Angeles television spot debuted two weeks earlier than the first customized Seattle television ad its Application references, it also aired in both English and Spanish a first for Delta

53 China is Primary Focus of Delta s Asia Strategy Serving L.A. Beijing is critical to both Delta s L.A. market position and linking the Beijing hub to L.A.

54 American s Filing Showcases Delta s China Investments Exhibit DL-A-201 Page 1 of 1 At Delta, greater global reach and continuous improvement of our customer s travel experience is taken seriously Delta also takes partnership seriously and is proud of our success with China Eastern and China Southern at both Shanghai (PVG) and Beijing (PEK) American, as demonstrated in Haneda proceedings, continues to ignore that its partners JAL, Hainan, and Cathay Pacific offer a multitude of routes to and within China Source: American Filing in DOT-OST

55 Delta s China Partner Strategy is Actually a Strength of its Application Exhibit DL-A-202 Page 1 of 1 By omitting China Eastern s Beijing (PEK) operation, American tries to imply that Delta has a weak offering at Beijing China Southern serves 36 cities from Beijing (PEK) while China Eastern serves 35 with (CAAC designed) minimal overlap reaching 62 unique cities The fact remains, Delta s proposal brings more access to China, and more consumer benefit, than American s proposal Total Domestic Destinations Served from PEK (Codeshare and Interline) DL AA Source: American and Delta Filings in DOT-OST

56 American Suggests Delta s LAX-PEK is a Random Step in Our China Strategy Designed to Thwart Competition: This Suggestion is False Exhibit DL-A-203 Page 1 of 1 LAX-PEK is the obvious next step as we round out Beijing and Shanghai from our three top US gateways (DTW, SEA, and LAX) LAX-PEK is not a secondary priority to Delta, as AA claims US Gateway DTW DTW SEA China Point PVG PEK PEK Launch Year SEA LAX LAX PVG PVG PEK

57 Delta s LAX-PEK Offers Service to Over 1.6M U.S. / China Passengers on a Round-Trip Basis Annually Exhibit DL-A-204 Page 1 of 1 In Los Angeles alone, Delta s LAX-PEK flight would offer round-trip service for nearly 500,000 annual industry passengers U.S.-China Industry Bookings Served by Delta s LAX-PEK 482, , ,160 LAX OD Beijing OD 1,143, , ,738 U.S.48 Connect ODs Connected Interior CN ODs U.S.-Beijing Annual Industry Bookings by City US Point Beijing US Point Beijing US Point Beijing LAX 263,160 DEN 14,360 MCI 4,730 SFO 185,014 RDU 14,646 MSY 4,235 JFK 152,000 SAN 13,826 BNA 4,068 SEA 87,556 PDX 11,708 SAT 2,714 BOS 92,415 MSP 12,847 TUS 2,031 DTW 24,319 PHX 10,186 MEM 2,098 ATL 22,383 SLC 8,114 SMF 1,331 DFW 24,511 CMH 8,450 BOI 950 SJC 27,119 IND 7,218 GEG 679 LAS 20,491 AUS 6,771 OAK 182 MCO 20,709 CVG 6,077 Total 1,056,898 Source: MIDT Industry Bookings May 2015 April 2016 For PEK and RT China Connect Points outside Zone 1 Diio Mi August 2016 PEK Domestic Schedules and Summer DL Proposed PEK Timings; with Winter 2016 LAX Domestic Schedule Max Connect: MCT+6Hrs in PEK; MCT+4.3Hrs in LAX (LAX East-Bound Redeyes Included; Hawaii Excluded)

58 PEK is Geographically Excellent for U.S. China Connections Exhibit DL-A-205 Page 1 of 1 Beijing offers lower circuity to much of China than Shanghai, reinforcing the value of interior access offered in Beijing with both partners U.S. China Via Beijing Capital U.S. China Via Shanghai Pudong Beijing Capital PEK PVG Shanghai Pudong

59 Delta is Alone in U.S. Beijing and has no Partner Non-Stops, Unlike American Exhibit DL-A-206 Page 1 of 1 DL s Marketed Beijing-U.S. Network AA s Marketed Beijing-U.S. Network PEK SEA DTW PEK SEA DFW ORD DL U.S. Service from PEK DL Codeshare U.S. Service from PEK AA U.S. Service from PEK AA Codeshare U.S. Service from PEK DL s Partner China Southern PEK-U.S. Network AA s Partner Hainan Beijing-U.S. Network PEK SEA SJC ORD BOS CZ U.S. Service from PEK HU U.S. Service from PEK DL s Partner China Eastern PEK-U.S. Network AA and Partner Beijing-U.S. Network SEA PEK SJC DFW ORD BOS MU U.S. Service from PEK AA U.S. Service from PEK AA Codeshare U.S. Service from PEK HU U.S. Service from PEK Source: DiioMi (Innovata) December 2016; Excludes Micronesia; In overlap markets U.S. carrier displayed

60 American and Partners Offer 168 U.S. China Flights Weekly Delta and Partners Offer 110 U.S. China Flights Weekly Exhibit DL-A-207 Page 1 of 1 American and Partners U.S. China Network PEK PVG CSX HKG AA U.S. China Service CX U.S. China Service HU U.S. China Service SEA SFO SJC LAX DFW ORD BOS JFK EWR Delta and Partners U.S. China Network SEA PEK NKG WUH PVG CAN HKG DL U.S. China Service CZ U.S. China Service MU U.S. China Service SFO LAX ORD DTW JFK Source: DiioMi (Innovata) December 2016; Excludes Micronesia and Hawaii; In overlap markets U.S. carrier displayed

61 American s Belated Interest in LAX-PEK Reveals its Blocking Strategy

62 U.S.-China U.S. Carrier Zone 1 Frequency Landscape Means that Any Carrier Interested in Growing China Should have had Near-Operational Plans Developed or Under Material Study Exhibit DL-A-301 Page 1 of 1 Nine weekly Zone 1 frequencies had been unallocated for 15 months Delta determined that it could derive great public benefit from launching LAX- PEK, especially as China investments continued and Haneda unfolded Over the course of 15 months, American never took action on nor, apparently, materially studied launching LAX-PEK Unallocated U.S. China Zone 1 Over Time* American Announces LAX-SYD American Announces LAX-AKL & LAX-HND American Announces LAX-HKG Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Source: DOT-OST , DOT-OST , DOT-OST , DOT-OST ; *Excludes CAN-Only Frequencies

63 Every Aspect of American s Daily Service Proposal has Changed, Except for Flight Number, Revealing a Blocking Application and Poor Planning Exhibit DL-A-302 Page 1 of 1 Every entry on AA s daily schedule changed outside flight number Movement suggests: No pre-existing intention Limited research and feasibility study Competitive blocking strategy Flight Number Frequency Equipment Los Angeles (LAX) GMT (-8) Beijing-Capital (PEK) GMT (+8) Elapsed Time Flight Number Frequency Equipment Los Angeles (LAX) GMT (-7) LAX-PEK Winter Proposed LAX-PEK Summer Proposed AA s LAX-PEK Schedules from Initial Application vs Proceeding Filing LAX-PEK Winter Revised LAX-PEK Summer Revised PEK-LAX Winter Proposed PEK-LAX Summer Proposed PEK-LAX Winter Revised PEK-LAX Summer Revised Beijing-Capital (PEK) GMT (+8) Elapsed Time Source: Initial Schedule in DOT-OST ; Revised Schedule in DOT-OST

64 American has Swapped to a Different Airplane for LAX-PEK that Dwarfs its Current Average Gauge to China Exhibit DL-A-303 Page 1 of 1 The fact that American has changed the equipment between their two applications highlights a lack of interest It is also highly indicative of a desire to appear similar to Delta for the purposes of this proceeding as American will likely downgauge immediately, like it did with DFW-PEK AA s ER from Initial Application AA s ER from Proceeding Filing Average: 230 seats AA s Aircraft Seats on U.S. China Markets ORD-PVG ORD-PEK DFW-PVG DFW-PEK LAX-PVG LAX-PEK Source: Initial Configuration in DOT-OST ; Revised Configuration in DOT-OST ; AA China Market Seats OAG 2016 and AA.com

65 American and Partners Have A Robust West Coast Offering Across the Pacific, Both Carriers Offer Similar Levels of Service Exhibit DL-A-304 Page 1 of 1 SEA SEA PDX SFO SFO LAX SAN LAX 43K # of weekly W. Coast Pacific Seats (one-way) 41K # of weekly W. Coast Pacific Seats (one-way) 149 # of weekly W. Coast Pacific Flights (one-way) 127 # of weekly W. Coast Pacific Flights (one-way) Source: Diio Mi (Innovata) Schedule Data December 2016, includes own metal and codeshare operations for American and Delta across the Pacific DL* on CI, MU, VA, CZ AA* on CX, QF, JL, HU

66 American Elected to Launch DFW-PEK in 2014, Creating Two Mid-Continent Gateways Ignoring the West Coast Exhibit DL-A-305 Page 1 of 1 In American s Application, it claims it doesn t serve the top revenue generating markets from the West Coast, however this story is unchanged from 2014 when American passed-up LAX and selected DFW-PEK, creating two mid-continent gateways to PEK just 800 miles apart Delta can t be held responsible for American s poor strategic thinking Simply put, any airline that wishes to compete vigorously on services from the U.S. West Coast to Asia needs service from its West Coast hub to Beijing. Today, United and Delta already offer that service from their primary U.S. West Coast hubs. American does not. Andrew P. Nocella Testimony ORD PEK 2010 DFW PEK 2014 Source: Great Circle Mileage; American Filing in DOT-OST ; OAG Schedules

67 American JAL Joint Venture Able to Offer Both Non-Stop and Via Japan Options to Its Joint Customers Exhibit DL-A-306 Page 1 of 1 Joint Business provides American access to Beijing and Shanghai via Tokyo in addition to having U.S. China nonstops in cooperation scope American JAL Joint Business U.S. China Network PEK DLC CAN HKG SHA PVG TYO American Service JAL Service SFO LAX SAN DFW ORD JFK BOS Source: DiioMi (Innovata) December 2016; Excludes Micronesia; In overlap markets U.S. carrier displayed;

68 ANA Highlights the Ability of the U.S./Japan Joint Ventures to Access China Via Tokyo Exhibit DL-A-307 Page 1 of 1 Despite a smaller overall Japan China network, JAL and American Offer Similar access to Beijing as ANA, which proudly promotes Asia access on its U.S. home page Source:

69 American s References to LAX vs. SEA as Two Duplicative West Coast Gateways is Simply False Exhibit DL-A-308 Page 1 of 1 SEA and LAX serve two different catchment areas and are almost 1,000 miles distant American s own service to PEK are served by two cities 800 miles apart SEA ORD 954 Miles 801 Miles LAX DFW Source: Great Circle Mileage

70 Routing East Coast Traffic to Beijing via LAX is Highly Circuitous; LAX Service is Primarily About Local LAX & West Coast Markets Exhibit DL-A-309 Page 1 of 1 Comparison of Beijing to U.S. East Coast Circuity via American s LAX/ORD hubs PEK-East US IND JFK BOS RDU Via LAX 8,064 8,725 8,862 8,489 Via ORD 6,756 7,319 7,446 7,225 Circuity via LAX +19% +19% +19% +18% Circuity on the order of ~20% can add 3-4 hours each way to the total trip, inconveniencing East Coast passengers Source:

71 American s Existing ORD & DFW Flights and Codeshare Covers 99% of US48-PEK Demand Exhibit DL-A-310 Page 1 of 1 American s existing PEK flights connect majority of demand to Beijing American s claim that LAX is necessary to compete against Delta and United is false given they have access to almost 200 more passengers daily each way (PDEW) than Delta today U.S. 48 PEK Demand Coverage 99% 96% +3 pts or ~200 PDEW DL AA Source: Diio Mi (Innovata) Schedule Data July 2016, 4 hours of maximum connecting time, circuity limit of 50%, US48-PEK from DB1B LTM 3Q15 demand, both directions must connect. AA codeshare AA 7220 and AA 7219 on HU PEK-SEA counted for SEA-PEK local coverage only.

72 American Offering 6% Fewer Daily Seats to/from China than What it Proposed in its Original Filings Exhibit DL-A-311 Page 1 of 1 American has downgauged all of its China routes with the lone exception in LAX-PVG American s last-minute change to a 289 seat 777 unlikely to remain in the market long American downgauged DFW-PEK after only 26 operations US Airport China Point Eqp Seats Application DFW PEK DFW PVG LAX PVG ORD PVG ORD PEK Daily One-Way Seats Proposed US Airport China Point Eqp Seats DFW PEK DFW PVG LAX PVG ORD PVG ORD PEK Daily One-Way Seats Today 1,222 1,151 Source: American s DOT applications for China; Diio Mi (Innovata) Schedules December 2016;

73 Delta, However, is Offering 9% More Daily Seats to/from China than it Originally Proposed Exhibit DL-A-312 Page 1 of 1 With the exception of DTW-PEK, all of Delta s Transpacific China flights are on gauge as filed or have been upgauged US Airport China Point Eqp Seats Application DTW PEK SEA PEK 763ER DTW PVG 788* SEA PVG 763ER LAX PVG 772LR Daily One-Way Seats Proposed US Airport China Point Eqp Seats DTW PEK SEA PEK 763ER 210 DTW PVG SEA PVG 763ER 208 LAX PVG 772LR 291 Daily One-Way Seats Today 1,214 1,319 Source: Diio Mi (Innovata) Schedules December 2016; SEA-PEK compared to year of initial service; *DTWPVG was originally flown with 744 and anticipated downgauge to 788 in 2009

74 Three-Headed Dragon American s metaphorical imagery is both factually inaccurate and culturally insensitive, mischaracterizing U.S.-China market realities

75 American s three-headed dragon Accusation Offensive Delta Simply Seeks to Compete in Beijing Exhibit DL-A-401 Page 1 of 1 China Eastern and China Southern are not authorized to fly U.S. Beijing, leaving Delta to fend for itself on nonstop Transpacific coverage of Beijing Awarding LAX-PEK to Delta maintains viable third U.S. Beijing competitor US Carrier and Partner Weekly Frequency U.S.48 Beijing 86 CN Carrier U.S. Carrier DL + MU/CZ AA + HU UA + CA [ ] forming a three-headed dragon that enables Delta s U.S.-China dominance American Supplement to Application 2 Gateways 5 Gateways 6 Gateways Source: Delta and American Filings in DOT-OST

76 When Looking at 2015 U.S.-Beijing Passenger Share, American / Hainan Eclipse Delta and its Partners by 8 pts Exhibit DL-A-402 Page 1 of 1 When isolating the Beijing market, American / Hainan are larger than Delta / China Southern / China Eastern by 8 points Both carriers are dwarfed by United / Air China with 71% of the market 2015 U.S. Beijing Passenger Share DL/MU/CZ 10% Hawaiian 2% AA/HU 18% 71% UA/CA Source: DOT T100 Full Year 2015 All Non-Stop U.S. Beijing Flights