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Competition

ACI Torino

13 April 1999

EC Competition Policy in Relation to Airports

Humbert Drabbe

DG IV

European Commission

Introduction

Ladies and Gentlemen:

Mr Borel this morning has spoken for the Commission about the liberalisation of groundhandling at airports. I will complement the picture he gave and speak about the application of the competition rules in relation to airports.

I will do so under three headings :

  • access to congested airports
  • equality of treatment between airlines and
  • prices and quality of the ancillary services rendered in airports

I will explain what are the Commission views and concrete actions.

 

Framework

The EC Competition Policy in relation to airports is explained by the crucial role which airports play in the liberalisation of air transport services in Europe.

This liberalisation process has introduced competition into air transport between EU countries and within these countries. On routes where airlines do indeed compete, this has led to a reduction in prices in particular for leisure passengers and to an increase in supply and demand.

This process of liberalisation has also given rise to

  • a certain restructuring of national airlines (think for example at the creation of "Alitalia team")
  • a number of mergers or acquisitions (e.g. BA acquiring TAT and Air Liberté in France)
  • the development of alliances (including co-operations of a more or less strong nature).

All this shows that the liberalisation process bears fruit. But, clearly, the existent infrastructure may affect the competitive provision of air transport services. Airports can do so in two ways :

  • First, because airports may be a capacity limiting factor for airlines : the number of available slots is limited in the most important airports.
  • Second, because, airports represent a significant cost for airlines. Airports are accordingly in a position to influence their competitive position and even their ability to survive in a competitive environment.

This context explains why the Commission has taken a number of actions over the last few years, in this area. Such actions can be sub-divided in three categories:

  • Those aiming at facilitating access to congested airports;
  • Those ensuring that there is equal treatment between airlines; and
  • Those seeking to strengthen competitive pressures to lower prices and improve the quality of services supplied by airports.

 

1. Facilitating access to congested airports

 

Slot availability is a crucial factor for a potential competitor on a route. This is particularly true for potential new entrants.

And, I should add, what is needed in fact, is slot availability at a "suitable time", because it doesn’t' really help to obtain a slot at midnight.

As we all know slots are not only a scarce resource but a resource which becomes more scarce every day.

Already, at the start of the liberalisation process, the "slot" situation was not exactly without problems. Many of the most heavily used routes (i.e. those likely to attract new entrants in the first place) used at least one congested airport. This accordingly resulted in high entry barriers to those markets.

Since liberalisation, this situation has not become easier.

In fact, the level of congestion in these airports has increased, mainly for three reasons:

  • First, because liberalisation itself has lead to an increase in supply and demand of airline services, and, therefore, in the demand for slots.
  • Second, because the search for a more efficient organisation of its activities has forced airlines to move to a hub and spoke system. This has concentrated traffic at the main airports and thus exacerbated the congestion of these airports.
  • Third, the creation of alliances between airlines has further reinforced this trend.

 

In response to the problem of the scarcity of slots, the Commission has acted on two fronts to ensure in particular that new entrants would indeed have access to congested airports.

  • On the regulatory front,
    Council Regulation 95/93 has established the principle that at least 50% of available slots are to be for new entrants. This concerns both newly created slots and slots which have been given up or are insufficiently used by existing operators.
  • In applying the competition rules,
    the Commission has used is its to enable the entry of competitors.
    For example, the Commission has taken the line that the green light to any alliance involving operations on congested airports, where a sufficient number of slots is not available to ensure entry of potential competitors on routes dominated by the alliance, that such green light would be conditional on the alliance giving up slots at these airports.
    That was the case in the alliance between Lufthansa and SAS. On eight core routes between Germany and Scandinavia, Lufthansa and SAS were the only operators. The Commission therefore required that the parties gave up a maximum of 224 weekly slots (at Frankfurt, Düsseldorf, Stockholm, Copenhagen and Oslo). The slots to be given up are to be assigned to potential entrants on the routes concerned where they so request.

A more recent example are the transatlantic alliances cases. Here the Commission considers that making slots available to potential entrants on hub to hub routes may not be sufficient and one has to go one step further to overcome the formidable entry barriers by asking a reduction of capacity.

However, the question whether the airport infrastructure provides sufficient access to ensure a healthy competition between airlines is not the only question which interests us from a competition policy point of view.

With the development of competition, airports have little by little acquired the role of a supplier of an essential input, the control of which makes it possible to influence the competitive conditions between airlines.

This leads me to my second point.

2. Ensuring that there is equal treatment between airlines

 

The air transport industry has only relatively recently been liberalised. Before the industry was organised on a basis of national flag carriers flying from national airports on the basis of a web of bilateral aviation treaties. Both airlines and airports were - and often still are - public undertakings with a very close relationship with the national aviation authorities and the national carrier.

Although liberalisation has done much to change this, it cannot come as a surprise that where authorities or airports have to take decisions affecting the competitive conditions between airlines, including their former flag carrier, there still is a tendency to identify the public interest as the interest of that carrier. Where such decisions lead to discrimination of other airlines, this may easily result in an infringement of article 86 of the Treaty (abuse of a dominant position). It is clear that such decisions act as a real obstacle to the liberalisation of the air transport sector. I will give you a few examples.

  • A first kind of distortion relates to the fees charged to airlines. A good instance is that of discriminatory landing fees.
    The first Commission decision in this area dates back to June 1995 and concerns Brussels-Zaventem airport. In that case, Belgium had set up a stepped discount system, supposedly aimed at attracting airlines to Brussels. In theory, the more you flew to Brussels, the lower the landing fees. Although a volume rebate, based on economies of scale or any other objective justification, would not as such have created a problem, the applicable thresholds had been set in such a way that
  • no airline other than Sabena could meet even the lowest thresholds (and accordingly no airline other than Sabena could get a discount) and
  • at the same time, Sabena was able to meet the highest threshold, entitling it to the highest level of discounts (30%).

No surprise, the Commission prohibited this practice for applying dissimilar conditions to commercial partners for equivalent transactions.

  • More recently, in February this year, the Commission adopted two decisions against the landing fees systems in Finland and in Portugal. These systems created discrimination between domestic flights and intra-EU flights. In the Finnish case, domestic flights benefited from a 60% lower fee than the intra-EU flights. In the Portuguese case, 50%. In addition, the discount in Portugal was complemented by an additional volume-based discount, of the kind of the Brussels Zaventem one. Again, the Commission prohibited both systems.In both cases, the airport or the Member State could not show any economies of scale or objective criteria to justify such a system.

    It is noteworthy that the Finnish and Portuguese cases are very similar despite the fact that in Finland the discrimination was put in place by an undertaking i.e. by the airport on its own initiative while in Portugal, the discrimination found its origin in a State measure.
  • Discriminatory treatment may also occur as regards the quality of services provided.
    In 1996, the Commission had to intervene against the operator of the Paris Airports (ADP) for having favoured the Air France Group to the detriment of its competitors.
    The facts were the following: there are two terminals at Orly: Terminal West (which is modern) and Terminal South (which is older and smaller than Terminal West). Until 1996 the traffic was distributed by origin/destination of the flights and all airlines had access to both Terminals.
    But in 1996 ADP decided that Air France should become the exclusive user of Terminal West and that all the other airlines should go to Terminal South. That is, all non-Air France airlines were to be allocated to Terminal South despite the fact that its capacity was not sufficient to host all of them and Terminal West would not be completely used by Air France. Against this discriminatory treatment in terms of the quality of the services it provided, the Commission secured guarantees from ADP to the extent that
  • Air France would not have the exclusive use of Terminal West (i.e. that non-Air France airlines would also be allocated to Terminal West)
  • and that Terminal South would be renovated so as to improve the quality of the infrastructure and services offered.
  • In one case sofar the Commission also exercised its powers in relation to traffic distribution between airports.
    In principle, this matter falls within the competence of Member States [under control of the Commission] under Regulation 2408/92 (Reg. 2408/92) on market access. This Regulation states that Member States may regulate without discrimination of nationality or identity of the air carrier the distribution of traffic between the airports within an airport system.


In 1998, after a complaint from 9 European carriers, the Commission prohibited the Italian Government to enforce a decree that provided for the mandatory transfer of all the traffic from Linate to Malpensa (except the Rome-Milan flights). The Commission found that the decree in question (the so-called Burlando II decree) was both discriminatory and non-proportionate. The Commission considered that while Alitalia could feed passengers from Milan Linate to its Rome hub to supply onward routes, other carriers would not be able to feed passengers from Milan Malpensa to their hubs because road and train links from central Milan to Malpensa were insufficient to cope with the passenger volume. Potential passengers would have continued to fly from Linate and thus only with Alitalia rather than making the long trip to Malpensa.

All these examples show that airport authorities or the public authorities setting the rules on airports, have to consider carefully the measures they take to avoid any abusive discriminatory treatment of airlines operating to and from their airports.

However, Commission action is not confined to situations of discrimination between airlines. This leads me to my third point.

3. The prices and the quality of ancillary services

Airports are clearly not the only service providers to airlines. Increasingly, other service providers seek to offer their services to airlines in competition with the airport itself or the designated operator, often a flag carrier. Both traditionally held and often still hold a monopoly or quasi-monopoly over these services.

In order to assure that competition can also have its beneficial effect on the prices and quality of service in the airport, the Commission has taken several measures.

On the regulatory side the Commission's action concerns in particular the groundhandling directive (96/67), discussed this morning, and a proposal for a directive in relation to airport fees, which is actually subject of discussion in Council. This draft is based on two principles : non-discrimination and cost-relatedness.

This regulatory activity is backed up by competition decisions. I have just mentioned a couple of decisions relating to landing fees. As regards groundhandling, you will know that the Commission has taken a decision to open up the Frankfurt groundhandling market, following a complaint under article 86 by several airlines. The Commission also made clear that it would not accept Frankfurt Airport to conclude long-term contracts with its best customers, which effectively would have prolonged its groundhandling monopoly.

Another example concerns groundhandling services at Aéroports de Paris.
In that case, the Commission found that ADP did authorise competition on the ramp, but levied discriminatory fees, again contrary to Article 86. In Orly, there were several caterers - OAT, a subsidiary of AF, AFS Alphaflight Services and selfhandlers. OAT and AFS were charged different levels of commercial fees. Moreover, selfhandlers were charged no or very low commercial fees. That is, some operators paid lower fees than others for being able to provide the same services. This clearly put some operators at a competitive disadvantage vis à vis others.
As said, the Commission found that the operator who benefited from the lower fees was a subsidiary of Air France.

A third example of a Commission action in this field concerns the Airport of Athens. It does not address a discriminatory fee system, but the quality of groundhandling services as provided by Olympic Airways, which had the monopoly of these services. The complaint by several airlines concerned poor quality of the services offered at intransparent tariffs.

The Commission, which had opened an infringement procedure, secured a number of measures from the Greek government to improve the situation :

- improvements of the East-Terminal, which was used by the foreign airlines, including more efficient luggage handling;

- more possibilities for hiring seasonal personnel;

- a new operator competing with Olympic;

- a series of measures relating to the regional airports;

- a more transparent and cost related tariff structure

4. Conclusion

I have concentrated my contribution on the different competition decisions the Commission has taken so far in relation to airports.

What these decisions make clear is :

First, that the Commission is serious in its policy to assure competitive conditions at airports and a non-discriminatory treatment between the different types of operators involved;

Second, the decisions have established a policy line, which makes clear what the competition concerns are. Infrastructure providers in a position of dominance such as airports have to avoid discriminatory treatment of airlines and other operators. Service providers in a position of dominant market power on an airport have to do the same.

Third, the Commission will further pursue its policy : where for instance landing fees still discriminate between domestic and intra-Community flights without objective justification, airports or the responsible authorities will be invited soon to abolish those practices. Now that the Commission in its decisions has made clear that its policy, the imposing of fines can certainly no longer be excluded.

But also where alliances between airlines would, at airports, effectively create entry barriers for other service providers and thus render the groundhandling liberalisation obsolete, we will make that part of our scrutiny of those alliances.

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