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08 December 2016

Air fares flying dangerously high? EU Commission sends Statement of Objections to airlines on Brussels – Lisbon route over codesharing arrangements

The crackdown on price coordination also shows no sign of slowing at the EU level, which even in light of the UK vote to leave the EU remains of acute importance in both the short to medium term (and, in all likelihood, in the long term, insofar as EU competition law and EU decisions in European Commission (“Commission”) cases will continue to strongly influence UK competition law policy and law enforcement). On 27 October 2016 the Commission announced that it has issued Statements of Objection informing Brussels Airlines and TAP Portugal that in its preliminary view the codeshare agreement between the two airlines in respect of the Brussels to Lisbon route, first signed in 2009, has restricted competition and infringed Article 101 of the Treaty on the Functioning of the EU (“Article 101”) (see Commission press release here).

Article 101 prohibits agreements or ‘concerted practices’ (i.e. tacit agreements to coordinate behaviour, notably pricing strategy) which prevent, reduce or distort competition, affecting trade between EU member states. The Commission’s SO to Brussels and TAP outlines concerns held by the Commission that for three years of the code-share agreement between them, the two have granted one another virtually unlimited rights to sell one another’s seats across almost all categories on the Brussels – Lisbon route, having already been the only two airlines competing over this route.

In particular, the Commission is concerned that the terms of the codeshare (an arrangement whereby an airline agrees with another that it may market and sell seats on its own account on one of its flights, as though it were operating that flight itself), may in this case have led to the following anti-competitive agreements:

  • to reduce the number of seats available and to align fare-setting policy.

  • granting one another unlimited rights to sell seats on one another’s flights. 

  • acting on these agreements by reducing seat capacity and entirely aligning fare structures and ticket prices for the route.

Having reached the initial conclusion that the airlines’ codesharing practices have “eliminated competition on prices and capacity… and led to higher prices and less choice for consumers”, with a corresponding potential for a reduction in the quality of service for passengers, the Commission at present takes the view that the parties stand in violation of Article 101. Subject to these findings being confirmed on further investigation (and/or the parties agreeing to settle on a level of penalty with the Commission and any suitable corrective measures), the airline companies involved and their officers and directors face potentially very serious consequences.

Upon the Commission announcing a formal decision that the parties have indeed breached the EU competition rules, they will also then subsequently be susceptible to follow-on actions brought by, for example, travel operators and passenger groups who have lost out as a result of increased fares and reduced choice and quality of service along the route (aided by the provisions of the EU Damages Directive, which EU member states have been bringing into effect under their national laws in time for its implementation deadline of 27 December 2016).