De Palacio weighs in on Star Alliance anti-trust inquiry

Date: 10/05/01

By Laurence Frost

Transport Commissioner Loyola de Palacio has asked her competition counterpart Mario Monti to 'go easy' on Austrian Airlines over anti-trust concerns raised by its membership of the Star Alliance.

The request comes as Alliance leader Lufthansa signalled it was close to a deal that would satisfy EU competition rules by letting other operators share some of Austrian's key routes.

Industry sources say de Palacio has written to Monti asking him to hold off on legal action against the airlines.

The intervention comes as competition officials reportedly suggested the European Commission could soon issue a statement of objections to begin proceedings.

"There's now some disagreement between COMP and TREN [competition and transport departments]," said a Star Alliance insider. "De Palacio has asked Monti to take a more lenient view of the problem."

Sources close to de Palacio confirmed that a letter was sent to Monti raising concerns that his tough stance on airline alliances was a barrier to the consolidation of an industry that is already losing out to US rivals. But they said she had not singled out the Star Alliance case.

Monti's staff say they are worried that the agreement would effectively leave just one carrier operating between Austria and Germany.

They also fear a loss of competition on routes covered by Star member Scandinavian Airline Systems (SAS).

Amelia Torres, spokeswoman for Monti, said: "Competition rules don't stand in the way of airline consolidations. But there are some which might create a dominant position or monopoly - which would lead to less choice and higher prices for consumers."

The Commission stated its concerns over the deal in a letter to the airlines last October, which also set out remedies for the Star Alliance - most notably sharing key routes with other carriers. Star operators, meanwhile, insist they are close to a deal to meet the Commission's demands.

"We're in advanced negotiations with four airlines," said Jan-Philipp Goetz of Lufthansa. "We're very confident we'll get this done this year."

Croatian Airlines and Slovenia's Adria are understood to be the most likely to reach a deal with Star, with KLM Alps and German regional carrier Bach also involved.

Star insiders privately acknowledge they will have to make sacrifices to persuade potential new rivals to enter the market.

These could include handing over flight windows or 'slots' at airports such

as Frankfurt, as well as agreeing new timetables that avoid head-to-head competition on flight times.

This is the second time de Palacio has raised concerns that smaller airlines are threatened by Europe's tough regulatory environment.

In a confidential memo to last month's Transport Council, she told ministers: "Rather that being on a long-term road to success, these carriers face an uncertain future - consolidation is conspicuous by its absence."

Transport Commissioner Loyola de Palacio has asked her competition counterpart Mario Monti to 'go easy' on Austrian Airlines over anti-trust concerns raised by its membership of the Star Alliance.