Transport chief to target airlines for predatory pricing

Date: 13/12/01

By Laurence Frost

FOREIGN airlines that use government subsidies to undercut EU carriers' prices could face financial penalties under proposals being drawn up by the European Commission.

A spokesman for Loyola de Palacio, the transport chief, confirmed that a new regulation was being prepared. "This would give us the possibility of imposing penalties on companies that practise predatory pricing," Gilles Gantelet said.

The initiative follows complaints from EU airlines who claim their American rivals and Swissair have used government aid to 'dump' tickets below cost prices.

Switzerland announced €2.3 billion in aid in October when the national carrier collapsed. Swissair is still flying under debt protection until its former subsidiary Crossair can take over two-thirds of its destinations.

The Commission this week told airlines it had received a promise from Berne to prevent Swissair undercutting EU rivals and to consider any complaints it received from Union carriers. The Swiss government has also agreed not to give any further aid to the carrier.

The pledge was received at the first meeting of an EU-Swiss working group established last month after airlines Lufthansa, Alitalia, Air France and Scandinavian Airline Systems (SAS) complained that Swissair was undercutting their offer prices by up to 20. A spokesman for Lufthansa said fresh complaints to the Swiss authorities "could not be excluded".

The Commission believes new trade measures are needed to match the powers enjoyed by governments including the US to crack down on air ticket dumping. "It's a stick behind our back that we may never have to use," said an EU insider.

The new legislation is likely to be a hybrid of anti-subsidy measures against recipients of state aid and anti-dumping provisions - which single out goods or services that undercut 'normal' prices charged by other operators or calculated by EU officials.

But the move risks antagonising Washington, a week after Secretary of Transportation Norman Mineta wrote to de Palacio rejecting EU charges of price dumping contained in an earlier letter from the Spanish commissioner.

"They can name the Swiss but they might have the US in the back of their minds," said a US official. He said the new measures were likely to "open up a whole nest" of potential disputes over the calculation of normal costs.

The proposed regulation is also intended to reassure governments that European carriers will not be left defenceless if the Commission wins its legal battle to negotiate 'open skies' aviation treaties on behalf of the entire Union. An EU negotiating mandate would supersede the bilateral deals negotiated between individual countries.

Extra legislation is needed to match the level of protection already offered by some bilaterals which outlaw predatory pricing. Austria recently warned Switzerland it could face eventual flight bans under the terms of their agreement if Swissair continued to undercut fares.

A preliminary ruling by the European Court of Justice is expected in January in the Commission's open skies case against seven member states.

Foreign airlines that use government subsidies to undercut EU carriers' prices could face financial penalties under proposals being drawn up by the European Commission.