18 June 2002
The Nordic Task Force on Airline Competition has finished its report on the competitive problems in the aviation market. The Task Force listed several competition concerns typical of airline traffic and considered alternative solutions to them. The purpose of the report is to draw the attention of both the national and EU competition authorities to the competitive problems in the sector.
The Task Force finds that the airline alliances formed by the airlines may weaken competition in the sector, since carriers part of the same alliance do not engage in genuine competition. The alliances are multinational arrangements, and their competition control is the task of the European Commission. The restrictive effects of alliances are similar to those of mergers in many ways. The Nordic Task Force points out that the anti-competitive effects of alliances should be treated with the same vigour as traditional mergers.
Airlines offer so-called interline tickets, which enable the customer to buy one ticket for a journey consisting of legs hosted by several different airlines. The Task Force finds that the price collaboration on the interline tickets in the International Air Transport Association IATA also contributes to the high price level. The IATA collaboration is nowadays allowed by a group exemption granted by the Commission. The Nordic Task Force finds that the present price negotiations should be replaced by an arrangement, which would eliminate some of the competitive problems but would preserve the benefits of the interlining system.
Airline carriers grant travellers, corporate customers and travel agents discounts and bonuses, which encourage them to focus their purchases on one airline carrier and/or alliance. These discounts may violate the competition rules, if the carrier providing them holds a dominant position and the discount schemes create customer loyalty.
The Nordic Task Force suggests that the aviation regulations should be amended, if they eliminate inter-carrier competition or complicate the entry of new operators. The most severe problems are related to the scarcity of departure and landing slots and the administering of these. This problem particularly concerns the “hub” airports in the European traffic. In the present system, the incumbent carriers have priority to the previously granted departure and landing slots. If a carrier uses over 80% of the slots granted to it at a certain time, the slots will be automatically renewed for the next period. This is likely to complicate the entry of new carriers. The Task Force considers the aviation authorities to hold a key position when an efficient and non-discriminatory slot allocation system is being created.
The measures taken by the public sector have an effect on the competitive conditions in the aviation sector. The Task Force finds that state aid and subsidies to airlines may distort competition. The public sector is often a major customer to the airline, and it should, whilst making its own purchases, also consider the competition viewpoint.
During the past few years, airline traffic has been characterised by centralisation, which may even be on the increase according to the Task Force. Centralisation may boost operations but, on the other hand, the trend poses a major challenge to both national and international competition authorities and requires cooperation between them. It is also needed between competition authorities, aviation authorities, fiscal authorities and legislators. The EU Commission should take an active role in the review of competition concerns in the aviation sector, since similar problems occur within the whole Community. The investigation of aviation-related problems shall continue in a newly established European Air Traffic Working Group, in which all EEA countries and the Commission will participate.
The Finnish Competition Authority is presently reviewing airline competition in Finland, and e.g. the potential competitive concerns in Finnair’s travel agent agreements and the Finnair Plus bonus programme.
The report of the Nordic Task Force on Airline Competition Competitive airlines, towards a more vigorous competition policy in relation to the air travel market can be read in its entirety here (pdf, 2.0 Mb).
Senior Research Officer Antti Norkela