The opinion of the court was delivered by: Cedarbaum, District Judge.
Because this is British Airways' motion for summary judgment,
the evidence is viewed in the light most favorable to Virgin, and
all justifiable inferences are drawn in Virgin's favor. Anderson
v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S.Ct. 2505, 91
L.Ed.2d 202 (1986); Matsushita Elec. Indus. Co. v. Zenith Radio
Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986).
British Airways began airline passenger service in 1939. It
offers flights to 94 cities from its hub at Heathrow airport in
London. (VA Ex. E; VA Tab 18 at BAL 0100572). Virgin started its
operation in 1984. (Branson Decl. ¶ 7). Since then, Virgin has
grown significantly and, at the close of discovery, was flying
thirteen long-haul routes, including ten U.S.-U.K. routes, six of
which were Heathrow-based. (BA Ex. H; VA Ex. W; Griffiths Decl. ¶
3). Virgin entered the Heathrow routes to the following U.S.
destinations in the following years: New York (JFK) in 1991-1992:
Los Angeles in 1991-1992; Newark in 1992-1993; San Francisco in
1994-1995; Washington D.C. in 1996-1997; and Miami in 1997. (BA
Virgin claims that it would have initiated Heathrow service to
Chicago, San Francisco, and Washington, D.C. and would have
expanded its Heathrow service to New York (JFK) and Los Angeles
earlier than it actually did if British Airways had not used the
British Airways assumes, for purposes of this summary judgment
motion, that the product markets pleaded in the complaint —
"Heathrow airport," (Compl. ¶ 56), "Gatwick airport," (Compl. ¶
57), and scheduled airline passenger services between both city
pairs and airport pairs, (Compl. ¶¶ 58-60) — are properly
identified as such.
B. British Airways' Dominance at Heathrow
It is undisputed that British Airways' share of the runway
slots at Heathrow has remained approximately 39% since 1989.
British Airways' next largest competitor, British Midland,
controls approximately 13.5% of Heathrow slots. (VA Ex. C).
Virgin controls approximately 1.9% of Heathrow slots. (Id.) The
availability of slots at Heathrow over the past several years has
been insufficient for any carrier to replicate British Airways'
route network at Heathrow. (Griffiths Decl. ¶ 17).
As of July 1997, British Airways flies to 94 destinations from
Heathrow. (VA Ex. E). Nineteen of those Heathrow routes are
monopoly routes. (Id.) Three of the monopoly routes are to the
U.S. (Detroit, Philadelphia, and Seattle) and the remainder are
to cities in the U.K. and other countries (including, for
example, Bologna, Italy; Dhahran, Saudi Arabia; Manchester, U.K.;
Leipzig, Germany; Madras, India; Venice, Italy; and Newcastle,
U.K.). (Id.) Forty-four of British Airways' Heathrow routes are
duopolies. (Id.) On twenty-two Heathrow routes, British Airways
competes with two other airlines, and on the remaining routes it
competes with three or more airlines. (Id.)
British Airways serves between 43% and 45% of all Heathrow
passengers, (VA Tab 18 at BAL0100584; BA Tab 11 ¶ 3), and
accounts for 53% of all Heathrow transfers. (VA Tab 18 at
The North Atlantic has become more competitive in recent years
in terms of number of carriers and number of flights offered. (BA
Tab 13 at 486-87). From 1986 to 1996, when competition on the
North Atlantic routes starting growing, British Airways' fares on
those routes dropped by 40 percent. (BA Tab 12 at 276-77; BA Tab
15 at 56).
C. British Airways' Incentive Agreements
British Airways enters into incentive agreements with repeat
customers who need air travel within British Airways' network.
These customers fall into two main categories: travel agents
(acting as aggregators of demand for individual customers) and
corporate customers. The agreements with travel agents provide an
extra commission payment each time an agent reaches a certain
sales target. Similarly, the agreements with corporate customers
give the customers special discounts each time their British
Airways purchases reach a certain threshold level.
British Airways has used incentive agreements with travel
agents and corporate customers since at least the mid-1980s.
(Branson Decl. ¶ 3). British Airways' incentive agreements share
several features: (1) they "bundle" routes by setting targets for
purchases on all or a regional group of routes in British
Airways' network rather than on a route-by-route basis; (2) they
generally contain more than one target, and as the customer or
travel agent meets higher targets, British Airways pays
commissions and discounts that increase more than proportionally
to the extra revenue that British Airways earns from the
incremental purchases; and (3) they have dollar-one clauses which
promise incentive payments "back to dollar one" — that is, not
only on purchases beyond the target, but also on all purchases up
to the target. (Bernheim Aff. ¶¶ 87-88, 92). The dollar-one
clauses create a significant jump in the total incentive payment
paid to a travel agent or corporate customer each time it meets a
targeted level of purchases. (VA Ex. H; VA Tabs 145-147).
Some of the targets are market-share targets (i.e. targets
based on British Airways' percentage share of the corporation's
U.S.-U.K. flights). (Bernheim Aff. ¶ 89; BA Tab 30 ¶ 3 & Ex. A;
BA Tab 31 ¶ 4). Others are total-revenue targets. (Bernheim Aff.
¶ 89; VA Tab 223 at BAL 1001588).
The geographic breadth of the corporate deals varies. Companies
and travel agents which concentrate their travel on one route or
region in British Airways' network often enter into "Focussed
Route Deals" which provide an incentive payment if the company
meets a threshold level of purchases on a single specified route
(or small group of routes). (VA Tab 98 at BAL 0322872; VA Tab 236
at BAL 0560441). At the other end of the spectrum are "Global
Deals" for travel agents and corporate customers which demand
network-wide air travel from Heathrow. The Global Deals set one
world-wide revenue target, many discrete regional or individual
country targets, or some combination thereof. (VA Tab 241 at BAL
0385989; VA Tab 242 at BAL 0385934).
British Airways readily admits that it is "selling the network"
by providing incentives based on network-wide usage rather than
single route usage. (Feb. 13, 1998 Tr. at 42). Excerpts from
British Airways' guidelines and memoranda on structuring
incentive agreements suggest that British Airways considers the
global and umbrella deals to be more effective than
specific-route deals in generating additional ticket sales to
customers with network-wide
needs. (VA Tab 179 at BAL 0322827; VA Tab 236 at BAL 0560441-42).
The incentive agreements are not exclusive dealing agreements
by their terms, and do not require anyone to buy or sell any
British Airways tickets, but merely provide larger commissions or
discounts if the targets are met. (BA Tab 30 ¶ 2; BA 56.1 ¶ 40).
There is evidence that global incentive deals cause British
Airways' revenue from globally-incentivized corporate customers
to increase by 15% to 20% on average. (VA Tab 176 at BAL
0386090-154; VA Tab ...