WRITTEN QUESTION E-2793/02

by Robert Goebbels (PSE) to the Commission

(4 October 2002)

Subject: Competition in the airline industry

The Commission has recently authorised a number of inter-airline cooperation agreements of the type which frequently leads to code-sharing i.e. the operation of joint flights marketed by two different airlines under two different flight numbers. Hence a customer may buy a ticket from airline A, yet find himself on a flight operated by airline B, which may not provide the quality of service vaunted by airline A in its advertising. However, misleading advertising is merely a by-product of code-sharing; more serious is the fact that the latter restricts competition between airlines, especially at less frequently served airports.

How does the Commission intend to counter this trend, which may eventually eliminate all competition between airlines which, by forming alliances, effectively create an oligopoly?

Answer given by Mr Monti on behalf of the Commission

(12 November 2002)

Code-sharing and other related forms of airline co-operation (such as alliances) have been increasingly adopted by many international airlines to adapt to new challenges such as liberalisation and the globalisation of the air transport industry. The practice of code-sharing, by which one airline allows a second airline to put its airline code on a flight, or by which two carriers share the same airline code on a flight, may take different forms and involve different degrees of co-operation.

The Commission acknowledges that code-share agreements can lead to important benefits for passengers, particularly business travellers who want a seamless global service and interlining travellers who generally see prices fall as a result of such co-operation. Passengers flying to and from less frequently served airports may also often benefit, since without code-share agreements the scope and frequency of available services would be much more limited. However, code-share agreements may reduce competition through a concentration of forces play in the market.

Restrictive agreements among competitors can only be authorised under the Community competition rules if the parties can demonstrate that the negative effects on competition are outweighed by the benefits achieved by the agreement. This is more likely to take place where the agreements do lead to a significant extension of networks and where the contracting parties have no or only very little overlapping routes. Moreover, it should be established that consumers share in these benefits, that they could not be obtained by less restrictive alternatives and that competition is not eliminated. If necessary, appropriate remedies may have to be imposed to ensure continued competition. Therefore, code-share agreements must therefore be assessed on a case by case basis, while balancing pro-competitive and anti-competitive effects against each other.

The Commission's approach to alliances and to other forms of co-operation such as code-shares has therefore been balanced. While recognising possible benefits, the Commission has approved such agreements only once remedies had been found to address identified competition concerns.

As regards the information provided to the public on code-shared flights, it should be recalled that the airline's voluntary commitment on passenger service quality foresees to give appropriate information to consumers at the time of booking (article 13 of the commitment, in force since February 2002).