New Commission urged to tighten airline alliance rules

Date: 24/06/1999

By Tim Jones and Renée Cordes
THE incoming European Commission team is set to impose tougher conditions on the growing number of EU airline alliances to protect the two-year-old single aviation market, according to the Union's retiring trust-buster.

This stark warning from Acting Competition Commissioner Karel van Miert represents a shot across the bows of the KLM Royal Dutch Airlines/Alitalia and other alliances which are still under investigation.

“We certainly need to be more critical than we have been,” Van Miert told European Voice, lamenting the failure of conditions set in return for approving the Deutsche Lufthansa/Scandinavian Airlines System (SAS) link-up to stimulate competition on high-cost German-Nordic routes.

A recent report from the Commission's Directorate-General for transport (DGVII) found that although liberalisation had brought down fare levels, they were still too high. So worried is Van Miert that he has ordered an inquiry by his staff into the general state of competition in the EU airline sector on the second anniversary of completing the single aviation market.

In 1996, he gave Lufthansa and SAS an eight-year exemption from the Union's normal competition rules for a programme of joint network planning, pricing and reciprocal access to frequent-flyer schemes.

In return, they had to agree to renounce up to eight hourly take-off and landing 'slots' per day between Frankfurt, Hamburg, Munich and Düsseldorf and Stockholm, Oslo, Copenhagen and Gothenburg, if a 'new entrant' wanted them.

“We set what we thought at the time - and the companies themselves said - were strict conditions on frequent-flyer programmes and slots, but now it appears that no competitors are prepared to take them on. How can this be explained?” said Van Miert. “The response to the conditions we set has been disappointing.”

Asked what action he would take against the airlines, Van Miert replied: “Don't forget: this approval was only given for a set period of time.”

Lufthansa claims the airlines have complied fully with the conditions set out when regulatory approval was granted and that competitors have not yet made any formal requests for them to surrender slots.

“We have not been forced to give up slots,” said Lufthansa spokesman Thomas Kropp, pointing out that the obligation to surrender them only came into force if a new entrant was unable to obtain them through an airport's normal channels. “This case has not yet happened,” he said. Deutsche BA, Lufthansa's main domestic competitor, never pursued its early interest in bidding for the slots.

According to Peter Morrell, an air transport expert at Cranfield College of Aeronautics in the UK, simply freeing up slots at Frankfurt for Scandinavian services is not enough to stimulate competition. “On the Stockholm-to-Frankfurt route, the two carriers have a stranglehold at both ends, so new entrants cannot feed passengers on to other destinations,” he said.

So far, the small 'no-frills' carriers which have sprung up in Belgium, Ireland, Spain, Italy and the UK have failed to penetrate the German or Scandinavian markets. Morrell believes they are much more likely to express interest in any Amsterdam-Milan slots made available in return for Commission approval of the KLM/Alitalia deal.

Van Miert said he was satisfied with the way the Dutch and Italian carriers were negotiating with his staff, adding: “The parties are eager to offer proper remedies.”

He confirmed that long-awaited Commission decisions on a range of trans-atlantic alliances including BA/American Airlines and Lufthansa/United Airlines would not be made before the summer break. “It is difficult to finish a case because things keep changing,” he said. “I desperately wanted to have decisions before leaving.”

He was speaking on the same day that the only non-aligned European carrier, Air France, announced that it would link up with Delta Air Lines, and Swissair/Sabena tied up a new deal with American Airlines.