Officials call for airline code-sharing loop-hole to be closed

Date: 09/04/1998

By Chris Johnstone

SENIOR officials are urging the European Commission to end the anomaly which has allowed code-share agreements between airlines to spring up across Europe without any legal clearance.

The agreements have taken off without any investigation or legal approval by the Commission even though, in their most developed versions, they are virtually indistinguishable from alliances.

This has prompted calls for transport and competition officials to act now to assess the risks they pose.

"There is no group exemption from competition rules covering these code-share agreements and they run the risks that this implies," said one highly-placed Commission official, referring to the institution's legal right to challenge such deals. "Some of these agreements are very difficult to distinguish from alliances," he added.

Code shares have become a common feature of the airline industry in the past five years without a murmur from the Commission.

This contrasts sharply with the in-depth investigations which transatlantic airline alliances, such as British Airway-American Airlines and Lufthansa-United, have been subjected to over the past 20 months.

The official argues that the Commission's Directorates-General for transport (DGVII) and competition (DGIV) should draw up a set of rules indicating which code-share agreements should be cleared and which banned as anti-competitive, as soon as they have completed the alliance investigations.

"I think the transatlantic alliances have helped to focus on this other problem," he added.

Competition Commissioner Karel van Miert's directorate-general has been reluctant to investigate code shares and franchise agreements between airlines in spite of sporadic demands from transport colleagues for an acknowledgement that these pose problems.

Code-share deals come in many shapes and sizes. The arrangements which are least damaging to competition are those whereby one airline takes seats on the flights of another and is responsible for selling them. Under such 'blocked-space agreements', the company booking the places is responsible for any resulting profits or losses.

Other deals allow for airlines to become partners in sharing all the costs and revenues of flights. This system raises much deeper concern that potential competition is being suppressed, especially on routes where only a few airlines are present.

Code-share agreements have taken off in Europe since the early Nineties, with all sorts of seemingly unlikely marriages being arranged. In Belgium, Virgin Express and City Jet, start-up rivals to Sabena, have signed code-share alliances with the Belgian national airline.