Notice pursuant to Article 5 of Regulation (EEC) No 3975/87 of 14 December 1987 concerning case IV/37.730 - Austrian Airlines Österreichische Luftverkehrs AG/Deutsche Lufthansa AG

(2000/C 193/05)

(Text with EEA relevance)

I. THE APPLICATION LODGED BY LUFTHANSA AND AUSTRIAN AIRLINES (AUA)

On 10 December 1999, Austrian Airlines and Deutsche Lufthansa notified a cooperation agreement pursuant to Article 5 of Council Regulation (EEC) No 3975/87 for a decision applying Article 81(3) of the EC Treaty and Article 53(3) of the EEA Agreement to the alliance concluded between them.

II. PROVISIONS OF THE AGREEMENT

The cooperation agreement and its implementing agreements are regarded as a step for the Austrian Airlines Group to join the STAR alliance. The parties envisage to build a lasting alliance by creating an integrated air traffic system which is built on a close cooperation in commercial activities, marketing and operational activities. The aim is to improve the use of the parties' respective hubs in Frankfurt, Munich and Vienna.

The network arrangement, which started with the summer season in April 2000, comprises passenger transport, maintenance airport facilities and ground handling. Both parties have agreed coordinate fares and schedules for all flights worldwide. The world-wide cooperation includes reciprocal assess to frequent-flyer credits, code sharing, harmonisation of service levels, and integration of data processing. In information technology the parties will partly join their systems in areas like flight data load, reservation systems, ticketing, inventory, etc. Integration in the bilateral traffic between Austria and Germany goes further with the conclusion of a so-called "neighbourhood agreement". The latter provides for a joint venture for traffic between Germany and Austria, leading to the share of profit and losses.

III. REASONS FOR EXEMPTION

The parties have put forth the following arguments in support of the application of Article 81(3):

1. Improvements in the provision of airline services and promotion of economic progress

By establishing the alliance, Lufthansa and AUA expect to achieve substantial improvements in the production and distribution of their airline services. The parties argue that, with the exception of the Austrian-German market, their networks are mainly complementary. They therefore claim that the agreement will enable them to establish a more extensive European network which will, in particular, lead to a better connection of Eastern European countries. The enlarged network will offer customers better services, in particular as regards an increased number of direct flights and indirect flights, as well as a larger number of potential connections between different routes.

The parties expect the cooperation agreement to generate a reduction of cost due to coordinated flight plans and schedules, economies of scale by attracting more customers, a better organisation of sales and ground-handling services and joint development of cost-intensive distribution systems. Savings may be realised due to increased traffic throughout the network and the rationalisation of services.

2. Consumers will share the benefits from the cooperation agreement

According to the parties, customers would benefit from the creation of a more extensive network by getting access to a range of improved services. Improved services can be expected from a better coordination of fligt schedules, shorter waiting time, no need to move between terminals, harmonised service standards on the plane and for ground-handling. Cost reductions would lead to lower fares.

3. The cooperation agreement does not impose on the parties restrictions which are not indispensable to the attainment of the objectives of the agreement

The parties argue that the establishment of a larger European network requires an extensive cooperation between the two airlines. The goal of operating as a single integrated network could not be achieved if the parties retained the ability to compete for traffic between Austria and Germany. The envisaged cost reductions require a substancial pooling of material and of human and financial resources. According to the parties, a mere code-sharing, or interlining agreement would not be sufficient to achieve these gains, as it would not allow to optimise the use of planes and thereby the fligth schedules.

4. The cooperation agreement does not afford the parties the opportunity of eliminating competition in respect of a substantial part of any market

The parties put forward that the structural effects of the cooperation agreement are limited, given the limited overlap between the parties networks, the importance of transfer passengers and actual and potential competition. The claim not to be in a position to eliminate competition of a substancial part of traffic between Austria and Germany or of the traffic to third countries. To the contrary, the cooperation agreement will lead to an increase in competition between different alliances. By improving their offer of transport services and their ability to adapt prices in a coordinated way, the parties will force other alliances to make similar improvements to the benefit of their customers.

IV. CONCLUSION

The Commission, having established prima facie that the agreement in question meets the test of Article 81(1) of the EC Treaty, has not taken a position as to the applicability of Article 81(3). In accordance with Article 5 of Council Regulation (EEC) No 3975/87, the Commission invites interested parties to send their comments concerning the cooperation agreement between Austrian Airlines and Deutsche Lufthansa, within 30 days of the date of publication of this notice, to: European Commission , Directorate-General for Competition , For the attention of Oliver Stehmann , Unit IV/D2 , Office C 100 - 6/134,

Rue de la Loi/Wetstraat 200,

B - 1049 Brussels , fax (32-2) 296 29 11 , e-mail: Oliver.Stehmann@cec.eu.int