This presentation by John Balfour was made during a roundtable discussion on airline competition held at the 121th meeting of the OECD Competition Committee on 19 June 2014. Find out more at http://www.oecd.org/daf/competition/airlinecompetition.htm

1. AIRLINE LIBERALISATION AND COMPETITION
THE EU EXPERIENCE
OECD ROUNDTABLE ON AIRLINE COMPETITION
PARIS, 19 JUNE 2014
John Balfour - Consultant

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The Chicago Convention 1944
 Sovereignty of each State over its airspace
 Permission needed for operation of international air services
 Network of bilateral air services agreements
 Limited capacity and frequency
 Single designated airline
 Use of particular airports
 Both States’ approval of fares
 Accompanied by “pooling” agreements between airlines
 Aircraft have the nationality of the State of registry
 States normally limit ownership of aircraft to their own nationals
 Bilaterals normally allow traffic rights to be withheld/withdrawn from an airline not
owned and controlled by nationals of its own State
THE INTERNATIONAL BACKGROUND

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Treaty of Rome 1957 created a common market
Fundamentally incompatible with the Chicago system
So air transport policy effectively exempted until the Council decided
(unanimously) otherwise
1978 US domestic deregulation
1986 ECJ “Nouvelles Frontières” judgment confirming that the competition
rules applied to air transport
1987 Single European Act changing the requirement for unanimity in the
Council to qualified majority
THE EUROPEAN BACKGROUND

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Three “packages” from 1987 to 1992
Gradual total liberalisation of intra-EU access and fares
Common rules on airline licensing
 Any applicant satisfying the requirements must be granted a licence
 End to monopoly policies in favour of national carriers
 Freedom of cross-border establishment/acquisition
 Also implementation of competition rules, gradually as regards
 Scope
 Geographical coverage
EU LIBERALISATION

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Art 101 prohibits agreements, decisions and concerted practices preventing,
restricting or distorting competition, subject to the possibility of exemption
Art 102 prohibits abuse of a dominant position
Council Reg 139/2004 requires large concentrations to be notified to the Commission
for clearance
Art 107 prohibits State aid, subject to the possibility of exemption
Council Reg 868/2004 gives the Commission powers re State aid by third countries
to their airlines
THE EU COMPETITION RULES

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Art 101 - 2001 fine of €52.5m on SAS and Maersk for market-sharing
- 2010 fine of €799m on 11 airlines for cargo surcharges cartel
- ongoing investigation of Lufthansa/Turkish and
TAP/Brussels codesharing arrangements
- frequent application in case of alliances (always permitting,
but often subject to conditions)
Art 102 - 1989 and 1992 Sabena and Aer Lingus refusal to supply
cases
- 1999 fine of €6.8m on BA re travel agent incentive schemes
APPLICATION OF THE COMPETITION RULES AND AIRLINES (1)

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Merger Reg - some 32 decisions, all approving (often subject to conditions) except
 Ryanair/Aer Lingus (twice – 2007 and 2013)
 Aegean/Olympic (first time – 2011)
Art 107 - many cases, generally re restructuring aid
 Some held not to involve aid (MEIP/MEOP)
 Some permitted, often subject to conditions
 Some prohibited
- more recently re aid by airports to airlines
 2004 Commission decision re Charleroi/ Ryanair
 2005 Commission guidelines
 2008 CFI judgment annulling decision
 2014 revised guidelines and re-opening of Charleroi case
APPLICATION OF THE COMPETITION RULES AND AIRLINES (2)

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Success of liberalisation, made possible by competition
Accompanied by application of competition rules
Alliances - concentration permitted subject to remedies
- questionable success of remedies
Time taken for investigations
- strict timetable sunder Merger Regulation
- 4 years for Star Alliance
- 8 years since initial investigation into Skyteam
- 4½ years for cargo cartel decision – and still not published, almost 4 years later
State aid - mixed record, political difficulties
- long time for reaction to CFI judgment on Charleroi decision
ASSESSMENT

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Slots
 Reg 95/93
 Difficulty of disrupting traditional system
 Marketability
Legacy carriers’ inheritance
Frequent flyer programmes
OTHER BARRIERS TO COMPETITION

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Liberalisation of EU air transport a great success
An example for other countries and regions, and for extension
Important that accompanied by competition rules
Legal and institutional framework for EU, but more difficult in international
context
CONCLUSIONS

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