European Commission sends Statement of Objections to Brussels Airlines and TAP Portugal on code-sharing on Brussels-Lisbon route

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Antitrust: Commission sends Statement of Objections to Brussels Airlines and TAP Portugal on code-sharing on Brussels-Lisbon route

The European Commission has informed Brussels Airlines and TAP Portugal of its preliminary view that their codeshare cooperation on passenger services between Brussels and Lisbon restricted competition between the two airlines, in breach of EU antitrust rules.

EU Commissioner in charge of competition policy Margrethe Vestager said: “Code-sharing by airlines can bring benefits for passengers in terms of wider network coverage and better connections. However, we are concerned that in this particular case Brussels Airlines and TAP Portugal may have used their codeshare to restrict competition and harm passengers’ interests on the Brussels to Lisbon route.”

The Statement of Objections sent by the Commission today concerns a codeshare agreement signed between Brussels Airlines and TAP Portugal in 2009. The Commission’s objections relate to the first three years of the agreement. Under this codeshare agreement, the two airlines granted each other the right to sell an unlimited number of seats of almost all categories (Business, Economy) on each other’s flights on the Brussels-Lisbon route. Prior to the agreement, Brussels Airlines and TAP Portugal had operated competing services on the route and were in fact the only two airlines flying this route.

 

The Commission’s concerns

At this stage, the Commission has concerns that the two airlines pursued an anti-competitive strategy on the Brussels-Lisbon route by:

  • first, discussing a capacity reduction (number of seats) and an alignment of their pricing policy on the route;
  • second, granting each other unlimited rights to sell seats on each other’s flights on the route (where they had previously competed), and
  • third, implementing these arrangements by actually reducing capacity, completely aligning their fare structures as well as their ticket prices on the route.

The Commission takes the preliminary view that this combination of practices breaches EU rules that prohibit anti-competitive agreements (Article 101 of the Treaty on the Functioning of the EU). The Commission’s preliminary conclusion is that these practices eliminated competition on prices and capacity between the two airlines on the Brussels-Lisbon route and led to higher prices and less choice for consumers.

The sending of a Statement of Objections does not prejudge the outcome of the investigation.

 

Codeshare agreements

A codeshare agreement is a commercial agreement whereby the airline operating a flight allows another airline to market the flight and issue tickets for it, as if it was operating the flight itself. Codeshare partners also agree on how they will compensate each other for the seats they sell on one another’s flights. Such agreements are common in the airline industry.

Codeshare agreements involve different set-ups and degrees of cooperation. Often, codeshares are operated by partners in the same global alliance. Where code-sharing occurs between airlines that do not both operate on a particular route, it allows the airlines to extend their network coverage and improve connections for passengers. Such complementary codeshares in principle raise no antitrust concerns. However, when airlines sell seats on each other’s flights on the same route, this may reduce competition and lead to higher prices and lower quality service for customers.

 

Background

A Statement of Objections is a formal step in Commission investigations into suspected violations of EU antitrust rules. The Commission informs the parties concerned in writing of the objections raised against them. The addressees can examine the documents in the Commission’s investigation file, reply in writing and request an oral hearing to present their comments on the case before representatives of the Commission and national competition authorities.

The Commission opened proceedings in the present case concerning the codeshare agreement between Brussels Airlines and TAP in February 2011.

In parallel to the sending of the Statement of Objections to Brussels Airlines and TAP Portugal, the Commission has today closed its investigation into a codeshare agreement between Lufthansa and Turkish Airlines (case number AT. 39794). The Commission’s investigation found that Lufthansa and Turkish Airlines did not have full marketing rights to each other’s seat inventory and that they applied differing pricing strategies. Furthermore, the codeshare accounted for only a marginal share of the parties’ sales on the routes of concern.

Article 101 TFEU prohibits anti-competitive agreements and its implementation is defined in the Antitrust Regulation (Council Regulation No 1/2003), which can be applied by the Commission and by the national competition authorities of EU Member States.

There is no legal deadline for the Commission to complete antitrust inquiries into anti-competitive conduct. The duration of an antitrust investigation depends on a number of factors, including the complexity of the case, the extent to which the undertaking concerned cooperates with the Commission and the exercise of the rights of defence.

More information is available on the Commission’s competition website, in the public case register under the case number AT.39860.

European Commission Press release – Brussels, 27 October 2016

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