98/710/EC: Commission Decision of 16 September 1998 on a procedure relating to the application of Council Regulation (EEC) No 2408/92 (Case VII/AMA/11/98 - Italian traffic distribution rules for the airport system of Milan) (notified under document number C(1998) 2625) (Only the Italian text is authentic) (Text with EEA relevance)
Date: 1998-09-16
Institutions: European Commission
Subjects: Italy, air traffic, air transport, airline, airport, application of EU law, equal treatment, organisation of transport, restriction on competition, transport company, transport economics, transport market

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COMMISSION

COMMISSION DECISION

of 16 September 1998

on a procedure relating to the application of Council Regulation (EEC) No 2408/92

(Case VII/AMA/11/98 — Italian traffic distribution rules for the airport system of
Milan)

(notified under document number C(1998) 2625)

(Only the Italian text is authentic)

(Text with EEA relevance)

(98/710/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European Community,

Having regard to Council Regulation (EEC) No 2408/92 of 23 July 1992 on access for
Community air carriers to intra-Community air routes (1), as amended by the Act of Accession of
Austria, Finland and Sweden, and in particular Article 8(3) thereof,

After consulting the Advisory Committee established under Article 11 of that Regulation,

Whereas:

BACKGROUND

I

(1)

On 16 February 1998 the air carriers British Airways, Iberia, Lufthansa, Olympic Airways,
Sabena, Scandinavian Airlines System and TAP Air Portugal submitted to the Commission
a joint request asking for it to take a decision with the effect of:

(i) declaring the traffic distribution rules adopted by the Italian authorities for the airport
system of Milan (‘the Italian rules') incompatible with Community law, in particular
with Regulation (EEC) No 2408/92;

(ii) requiring the Italian authorities not to apply those rules and to adopt other rules fully

compatible with Community law.

On 15 April 1998, Air France informed the Commission that it was joining the abovemen-
tioned carriers in their action against the Italian rules.

On 22 April 1998, those carriers submitted to the Commission an additional request
asking it to take an interim decision prior to any decision on the substance of the Italian
rules in order to ensure that those rules are not put into effect until adequate transport
links to Malpensa airport are established.

(2)

(3)

(1) OJ L 240, 24. 8. 1992, p. 8.

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(4)

On 27 May 1998, Austrian Airlines submitted to the Commission a separate request which
had the same object as the initial and additional requests of the complaining carriers and
was based on the same grounds.

II

(5)

(6)

(7)

The airport system of Milan comprises the airports of Linate, Malpensa and Orio al
Serio(Bergamo). The airport of Linate, located 10 km from the city centre, concentrates
most of the intra-Community international and domestic traffic. Linate airport faces severe
capacity problems since 14,2 million passengers used the airport in 1997 whereas its
optimum capacity is estimated at around 8 million. The airport of Malpensa, located 53 km
from the city centre, concentrates all intercontinental flights, since operating constraints
prevent their operation at Linate airport. Only a few intra-Community flights are operated
from that airport since passengers tend to favour Linate airport because of its location close
to the city centre. Thus, Malpensa airport received only 3,9 million passengers in 1997
whereas its optimum capacity is estimated at around 6 million. Orio al Serio airport,
located approximately 50 km from the city centre and close to Bergamo, is mainly used for
cargo and charter traffic, although a limited number of scheduled passenger services are
also operated from that airport.

So far, the distribution of traffic between those airports has been market-driven, taking into
account the abovementioned operational constraints. This has resulted in an inefficient use
of the existing airport capacity, since Linate airport is overutilised and Malpensa airport
underutilised. In addition, none of the airports of the system has been able to develop as a
major hub for national, international and intercontinental flights. In fact, Alitalia has used
Rome-Fiumicino airport as a hub. Hence, the offer of air services from the airport system
of Milan, in particular in terms of intercontinental services, is clearly not adapted to the
demand as passengers are frequently obliged to fly via hub airports such as Rome, London,
Frankfurt and Paris. Moreover, the existing capacity will not be able to cope with short-
term traffic volumes, which are estimated at around 20 million passengers and 300 000
tonnes of freight for the year 2000. Consequently, the present structure and organisation of
the airport system of Milan is clearly inadequate for the needs of the area it serves, namely
the city of Milan and the whole of northern Italy, which represents the third largest area in
the Community in terms of population and economic activity.

Accordingly, the Italian authorities decided to reorganise the airport system of Milan in
order to create a hub at Malpensa and provide adequate airport capacity for the future. That
objective is to be achieved through the extension and upgrading of Malpensa airport,
known as the Malpensa 2000 project. This project is one of the 14 priority projects of the
trans-European network under Decision No 1692/96/EC of the European Parliament and
of the Council (1). It is financially supported by the Community, the European Investment
Fund and the European Investment Bank (EIB). Construction works for a new terminal
started in 1990. A first section will be operating in 1998 with a yearly capacity of 12
million passengers (which will add to existing capacity of 6 million) and the terminal will
be fully completed in 2000. The overall capacity of the airport (existing and new terminal)
will, by then, reach 24 million passengers.

(8)

The financial arrangements underlying the new Malpensa airport require a concentration
of traffic at that airport. That necessarily involves a transfer of traffic from Linate airport.
However, market forces alone would not ensure such transfer, as passengers generally

(1) OJ L 228, 9. 9. 1996, p. 1.

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prefer to use Linate because of its location close to the city centre. On that basis, the Italian
authorities decided to adopt mandatory traffic distribution rules aimed at ensuring a
substantial transfer of traffic from Linate to Malpensa. In this regard, it is worth noting that
the EIB made its financial assistance conditional on the adoption by the Italian authorities
of traffic distribution rules resulting in a substantial transfer of traffic from Linate to
Malpensa.

(9)

On l July 1994, the Italian authorities adopted Decree-Law No 428, which later became
Law No 505 on 8 August 1994, Article 3(2) of which empowered the Ministry of Transport
to bring about the concentration of air traffic at the airport of Malpensa in time for the
liberalisation of European air transport services, scheduled to be completed on l April
1997. On that basis and in order to attain that objective, the Italian Minister for Transport
issued Decree No 46-T on 5 July 1996. That Decree lays down traffic distribution rules for
the airport system of Milan as set out in points 9.l, 9.2 and 9.3.

9.1. Article 1(1) provides that from the date of the entry into service of priority structures
at Malpensa 2000 (first section of the new terminal) which is to be determined by a
further decree, all scheduled and non-scheduled services on intercontinental and
intra-Community air routes (including domestic or international intra-Community
air routes) shall be operated to and from Malpensa airport.

9.2. Article 1(2) provides that the same services can also be operated to and from Orio al

Serio airport.

9.3. Article 1(3) and (4) provides that Linate airport may only be used for general aviation
and for the operation of direct air services on routes serving Milan whose total
annual passenger volume is equal to or more than 2 million in the year prior to the
abovementioned date of entry into force of priority structures, or has reached an
annual average of 1,75 million over the previous three-year period.

(10) On 13 October 1997, the Italian Government adopted Decree No 70-T, Article 1(1) of
which provides that the priority structures referred to in Decree No 46-T are to enter into
service on 25 October 1998. That date has been set without any prior information or
consultation of the Commission.

(11)

(12)

(13)

The effect of Decrees No 46-T and No 70-T is that from 25 October 1998 onwards, all air
services to and from Milan will have to be operated either from Malpensa airport or Orio al
Serio airport, with the exception of general aviation services and air transport services
meeting the traffic thresholds defined by Article 1(4) of Decree No 46-T.

In practice, the only route meeting those thresholds is Milan-Rome. No other air transport
service will therefore be authorised at Linate airport.

Between July 1997 and October 1997, contacts took place between the complainant
carriers (with the exception of Austrian Airlines) and the Italian authorities. The carriers
indicated that they considered the criteria and timing set out by the Italian rules to be
incompatible with Community law. The Italian authorities did not agree with the argu-
ments put forward by the carriers and confirmed both the criteria and timing of the traffic
distribution rules.

(14)

The requests formally presented to the Commission by the complainant carriers (herein-
after referred to as ‘the carriers') are directed against both the criteria and the timing set out
in Decree No 46-T and Decree No 70-T.

(15)

In support of their complaint to the Commission against the Italian rules, the carriers rely
on the arguments set out in points 15.1 and 15.2.

III

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15.1. The Italian rules infringe Article 8(1) of Regulation (EEC) No 2408/92.

The carriers point out that Article 3(1) of that Regulation lays down a general
principle of freedom of access and that in its Decision 95/259/EC (1) (Paris airport
system), the Commission considered that this principle includes the right to choose
between different airports of an airport system. However, this right remains subject
to the possibility for the Italian authorities to distribute traffic between airports of an
airport system on the basis of Article 8(1) of Regulation (EEC) No 2408/92. Article
8(1) provides that this right must be exercised without discrimination on grounds of
nationality or identity of the air carriers. The carriers refer to Commission Decision
93/347/EEC (2) (Viva Air) which states that, like any exception to the general prin-
ciple of freedom of access laid down by Article 3(1), the restrictions introduced by
Member States on the basis of Article 8(1) must be based on transparent, objective,
consistent and non-discriminatory criteria. According to the carriers there are two
separate infringements.

15.1.1. First, the carriers point out that the Italian rules are discriminatory because
in practice they favour Alitalia. In this regard, they cite Decision 95/259/EC
in which the Commission stated that the principle of non-discrimination is
also opposed to any measure which, without explicitly distinguishing by
reference to the nationality or identity of a carrier, none the less produces,
even indirectly, discriminatory effect in practice.

The application of the Italian rules will result in only the Milan-Rome route
being operated from Linate; this route is presently operated by several
Community air carriers, including Alitalia. From Milan, Alitalia operates an
average of 28 flights per day to Rome which is the hub of its network.
Alitalia currently operates direct long-haul services from Malpensa only to a
limited number of destinations (New York, Los Angeles, Miami, Tokyo,
Osaka and Beijing) as the majority of its services outside the EEA are
operated from Rome-Fiumicino. The opening of Malpensa 2000 will not
terminate the role of Rome-Fiumicino as a hub for both medium- and
long-haul services of Alitalia.

The airline’s draft programme for Winter 1998/1999 plans a considerable
development of service to destinations outside the EEA from Malpensa to
the detriment of Rome. Nevertheless, several destinations would continue to
be served only from Rome and a greater number would be shared between
Rome and Malpensa (for example on certain weekdays from one and on
other weekdays from the other). On this basis, Alitalia can still rely in
significant part on its Rome hub which it will be able to serve from Linate
while non-Italian Community air carriers will no longer be able to serve
their hubs from Linate airport as they will have to operate those services
from Malpensa.

Malpensa is far less convenient than Linate because of its geographical
location. The duration of the journey by car between Milan city centre and
Malpensa is 50 to 70 minutes as opposed to 15 to 20 minutes for Linate. For
the time being, there is no rail link to either of those airports and the cost of
a taxi fare to Malpensa (ECU 67) is more than four times higher than to
Linate (ECU 15).

As a result, Alitalia will enjoy a competitive advantage over non-Italian
Community carriers for the provision of air transport services to long-haul
and medium-haul destinations via its hub. In other words, passengers flying

(1) OJ L 162, 13. 7. 1995, p. 25.
(2) OJ L 140, 11. 6. 1993, p. 51.

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from Milan to long-haul or medium-haul destinations via a hub will prefer to
fly via the hub of Alitalia rather than via the hubs operated by other
Community carriers.

In this context, the carriers contend that the primary objective of Decrees
No 46-T and No 70-T is not to distribute the traffic within the airport
system of Milan but to grant a competitive advantage to Alitalia.

In addition, the carriers consider that the discrimination which, as explained
above, stems from the location of Malpensa airport is further reinforced by
the fact that Malpensa will not be served by adequate transport links to the
city centre at the time of the transfer of the services. None of the transport
links between the city centre and the airport will be fully functional by 25
October 1998 whereas an additional 11 million passengers per year are
expected to use the airport.

In particular, according to the carriers, the rail link will not be ready for
passenger use before the end of 1999.

Substantial works still need to be completed on the A8 Milan-Lakes
motorway, which will be the only high capacity/high standard road serving
Malpensa airport. This motorway is already heavily congested. The works to
be carried out involve the construction of an emergency lane and until their
completion, scheduled for December 2000, the capacity of the motorway will
be further reduced. In any case, even if the projected works somewhat
improve the capacity of the motorway, it will remain insufficient to cope
with the increase in traffic generated by the transfer of 11 million passengers
from Linate to Malpensa.

Moreover, as taxi drivers from Milan will only be authorised, for adminis-
trative reasons, to drive passengers from the city to the airport and not from
the airport to the city, a one way fare to the airport will be calculated on the
basis of a return journey, resulting in a highly expensive fare (ECU 67,66).

The absence of adequate transport links will reinforce the inconvenience of
Malpensa as compared to Linate and thus the discriminatory effect of the
Italian rules.

15.1.2. Secondly, the carriers point out that the Italian rules are not proportionate to
the objective sought by the Italian authorities. In this regard, they point out
that in its Decision 94/290/EC (1) (TAT-Paris(Orly)-London), the Commis-
sion found that air-traffic distribution rules adopted by the French author-
ities infringed the principle of proportionality since the result they sought to
achieve could have been achieved by measures which were less restrictive
and less harmful to intra-Community trade.

The objectives of the Italian rules are to concentrate air traffic at Malpensa
airport in order to promote its role as the intercontinental hub for northern
Italy and at the same time to maintain Linate airport in operation. The
eleventh recital of Decree No 46-T states that Linate airport will have to be
kept in service anyway, given that, in terms of expected growing traffic, it
would be contrary to economic logic to deprive the area of existing capacity
in a sector like air transport.

(1) OJ L 127, 19. 5. 1994, p. 22.

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The transfer of traffic envisaged by the Italian rules will result on the one
hand in Linate airport being under-utilised (only 2 million passengers will
use this airport whose optimum capacity is 8 million passengers) and on the
other in Malpensa airport facing capacity problems in the medium term.
According to the President of Societ(cid:133) per Azioni Esercizi Aeroportuali (SEA),
the company managing the airports of Milan, it is likely that in the next few
years Malpensa will become saturated and that a proportion of flights will
need to be moved back to Linate.

Consequently, the carriers consider that the Italian rules are not propor-
tionate since the objectives sought could be attained without discrimination
and with a more rational use of airport capacity avoiding both underutilisa-
tion of Linate and congestion at Malpensa. In this framework all Community
air carriers should be allowed to operate services from Linate airport to their
respective hubs.

15.2. The Italian rules are contrary to Commission Decision 97/789/EC (1) concerning aid
granted by Italy to Alitalia. The discrimination resulting from the Italian rules
constitutes a breach of the conditions imposed by Article 1(4) of that Decision in
order to ensure the compatibility of the aid with the common market. Article 1(4)
states that the aid is deemed to be compatible with the common market provided
that Italy fulfils its undertaking ‘not to give Alitalia priority in any way over other
Community companies,
traffic rights
(including those for third countries in the European Economic Area), slot allocation,
ground-handling assistance and access to airport facilities where preferential treat-
ment would be contrary to Community law'.

in particular as regards the allocation of

IV

(16)

In order to permit a full investigation of this case under the procedure laid down by Article
8(3) of Regulation (EEC) No 2408/92 and to safeguard the rights of the defence, on 3
March 1998, the Commission transmitted the request lodged by the carriers to the Italian
authorities and invited them to comment thereon within one month from that date.

(17)

In reply, the Italian authorities sent a note to the Commission on l April 1998 setting out
the considerations summarized in points 17.1 to 17.4.

17.1. The airport policy of a Member State falls within the competence of that Member
State. On this basis, and in accordance with Decision 95/259/EC, a Member State
must be free to decide which airport should be given priority for the development of
an airport system.

In this framework, the Italian authorities indicate that the present structure of the
airport system of Milan does not offer adequate capacity to meet the demand for
transport services generated by Milan and its area. Maintaining this structure would
not enable the Milan airport system to develop as an international connecting point
as envisaged within the framework of the European common transport policy. For
that very reason, the Community has included the Malpensa 2000 project in its list
of priority projects for the trans-European networks. The success of this project
requires the concentration of air traffic at Malpensa airport. In this regard, the
European Investment Bank has agreed to finance part of the project on condition
that the concentration of traffic at Malpensa airport is effective by the date of entry
into service of its priority structures. On that basis, the Italian authorities adopted
Decrees No 46-T and No 70-T which clearly aim at such concentration. In that
framework, Linate will, as a complementary and subsidiary airport, handle specific
traffic and continue to serve as a useful resource in the event that capacity were to
prove insufficient in the future.

(1) OJ L 322, 25. 11. 1997, p. 44.

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17.2. As to the discriminatory effect of the Italian rules, the Italian authorities consider
that no discrimination is involved since access to the Milan-Rome route is open to
all Community air carriers in accordance with the applicable Community rules. It is
presently operated by two carriers from Linate (Alitalia and Air One) and by two
carriers from Malpensa (Alitalia and Meridiana).

The concentration of traffic at Malpensa will allow all Community air carriers to
have access from this airport to all Community airports including Italian airports.
Cabotage rights as well as fifth, sixth and seventh freedoms will therefore be freely
accessible through Malpensa airport.

The fact that this route is the only route meeting the thresholds set by Decree No
46-T does not in itself give rise to any discrimination.

17.2.1. The setting of very high thresholds is intended to lead to the operation at
Linate airport only of the most frequented air routes which are primarily
used by point-to-point passengers who demand high frequencies. This is
precisely the case for the Milan-Rome route which is the most frequented air
route in Italy with the highest share of business point-to-point passengers.
Traffic volume on this route far exceeds that on all other air routes operated
from Milan, and this justifies a special treatment. Moreover, the Milan-Rome
route does not play the role of a feeder route for the Alitalia hub in
Rome-Fiumicino. This is evidenced by the fact that services are operated all
day long and not only according to the few long-haul flight-waves operated
by Alitalia from Rome-Fiumicino.

17.2.2. The discriminatory effect of the rules cannot be assessed on the basis of the
present situation. The policy of Alitalia is clearly to develop hub operations
at Malpensa. On this basis, Alitalia and other carriers will be offering new
direct services from Milan which are not presently available. These services
will be operated from Malpensa airport. As a result, passengers will no longer
be obliged to travel to their final destination via hubs located elsewhere in
the Community.

17.2.3. In any case, Malpensa is more convenient than Linate for the users. Work on
access infrastructures has proceeded in accordance with the timetable indi-
cated by the Italian authorities. In fact, it has always been considered that the
necessary conditions for the transfer would be the completion of the SS336
(the road linking the existing terminal to the new terminal) which will be
done by 25 October 1998. The existing road system is fully compatible with
the amount of traffic to be transferred to Malpensa. In this regard, it is
necessary to consider the entire catchment area for Malpensa and not only
the city of Milan. On that basis, the number of passengers for whom the
geographic location of Malpensa is more favourable than Linate more or less
equals the share of passengers for which the reverse applies. With regard to
the problem of excessive taxi fares, the Region of Lombardy has proposed to
regulate taxi fares so that they remain at acceptable levels.

17.3. As regards the principle of proportionality, the Italian authorities consider that the
traffic distribution rules are necessary to attain the objective of creating a hub at
Malpensa and keeping Linate as a supplementary airport.

The high thresholds will make it possible to keep at Linate only those routes whose
level of traffic would justify operations both from Linate and Malpensa. Linate will in
fact be used for routes on which the traffic is predominantly ‘point to point' in order
to meet the demand of business and commuting passengers. The underutilisation of

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Linate will be justified in order to achieve the objective of an operational hub at
Malpensa; this objective presupposes that as many short-haul and medium-haul
services as possible are integrated with long-haul services. That is necessary to ensure
that the Malpensa hub can effectively be fed by passengers originating from diverse
points within the Community (for example, London, Brussels, Lisbon, Frankfurt,
Copenhagen, Rome, Palermo, Venice, Pantelleria and so forth). Similarly, it will still
be possible to feed other European hubs from Rome, Milan and other Italian
regional centres.

Any other consideration would in fact be discriminatory against the Malpensa hub.

17.4. As regards the breach of the conditions imposed by Decision 97/789/EC, the Italian
authorities consider that such a reference is not relevant since that Decision was
adopted after the Italian rules and made no reference to them.

V

(18)

The Commission met with the carriers on 10 May 1998. The carriers stressed the urgency
of the case as the allocation of slots for Milan airports was to be decided in the framework
of the 102nd IATA Schedule Coordination Conference to be held in Montreal in June
1998.

(19) On the occasion of two meetings held in Brussels on 9 and 19 June 1998 and by letter of
25 June 1998, the Commission formally informed the Italian authorities of its position on
this case, based on the facts currently in its possession, summarizing the reasons why it had
doubts about the compatibility of the Italian rules with Article 8(1) of Regulation (EEC) No
2408/92. The Commission indicated that the Italian rules appeared to result in practice in
discrimination in favour of Alitalia. It also indicated that they were in any case not
proportionate to the objective sought. Both issues were in particular linked to the adequacy
of the planned state of readiness of access infrastructures to Malpensa with the volume of
traffic to be transferred to that airport. On that basis, the Italian authorities were invited to
modify the rules so as to ensure full compatibility with Community law.

(20)

By letters of 2 and 15 July 1998, the Italian authorities informed the Commission that they
were not willing to consider any modification of the rules and made the observations set
out in points 20.1 to 20.4.

20.1. The Italian authorities reiterated that the criteria adopted by Decree No 46-T for the
distribution of traffic within the airport system of Milan do not involve any discrim-
ination in favour of Alitalia. However, in order to reassure the Commission on this
aspect, the Italian authorities mentioned that they might envisage conditions for the
operation of the Milan-Rome route from Linate airport which would, de facto,
prevent any feeding of the Alitalia hub at Rome-Fiumicino. For that purpose, the
route could only be operated on the basis of shuttle services with restrictions on
checked-in luggage and no through check-in (no issuing at Linate of the boarding
pass for the connecting flight at Rome-Fiumicino).

20.2. The criteria adopted by Decree No 46-T were presented to the Commission in the
framework of the various meetings of the ‘Christophersen group', which was given
responsibility for the follow up of the project, held between 1994 and 1997. At that
time, the Commission did not raise any problem regarding the compatibility of
those measures with Community law. Similarly, the Commission was always kept
informed of the various schedules for the access infrastructure works.

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20.3. In the course of the abovementioned meetings, only two access infrastructures were
considered as ‘minimal but sufficient' to ensure the transfer of traffic to Malpensa:
the SS336 road and the modernised A8 motorway. Moreover, the Commission was
always kept
the various works
concerning access infrastructures to the airport.

the timing for the completion of

informed of

20.4. The position expressed by the Commission threatens the achievement of creating a
fully viable and operational hub at Malpensa. Therefore, it threatens the viability of a
project of common interest which is one of the priority projects of the trans-Euro-
pean networks.

(21) On the occasion of a last meeting held in Brussels on 24 July 1998, the Italian authorities
provided updated information to the Commission on the progress concerning the works
on access infrastructures to Malpensa airport. The Commission informed the Italian
authorities that it did not consider the imposition of shuttle type conditions on the
Milan(Linate)-Rome(Fiumicino) route to be an adequate solution. Such conditions, which
in any event are not part of the traffic distribution rules under consideration in this
Decision, do not remove the potential for feeding the Fiumicino hub. Even if they could
be introduced in the face of likely user and airline resistance, a ban on checking-in luggage
and checking-through luggage would be difficult to enforce and would not deter travellers
with only carry-on luggage from transferring. In any case, it would not address the problem
of a lack of proportionality between the rules and their objective.

LEGAL ASSESSMENT

VI

(22) On the subject of the distribution of traffic between airports within an airport system, the
Commission holds the powers conferred on it by Article 8(3) of Regulation (EEC) No
2408/92 which reads as follows:

‘At the request of a Member State or on its own initiative the Commission shall examine
the application of paragraphs l and 2 and, within one month of receipt of a request and
after consulting the Committee referred to in Article 11, decide whether the Member State
may continue to apply the measure'.

(23)

(24)

In view of the complaints lodged by the carriers, the Commission considers it necessary to
use those powers to decide whether Italy can apply the traffic distribution rules for the
airport system of Milan laid down by Decree No 46-T and Decree No 70-T whereby, from
25 October 1998 onwards, all air transport services must be operated at Malpensa airport
with the exception of services meeting specific thresholds which may continue to be
operated at Linate airport (1). The Commission does so on its own initiative, as explicitly
provided for in Article 8(3) of Regulation (EEC) No 2408/92, and its examination is in no
way limited to the complaint and situation of the complaining carriers.

In this regard, the fact that the Commission’s services have given no indication on the
compatibility of the contested Italian rules with Community law on the occasion of the
meetings which took place in the framework of the Christophersen group cannot be
considered as prejudging a formal position of the Commission on this matter. The
Commission recalls that the object of those meetings, which in any event involved a larger
audience than the Commission services, was the general follow up of the Malpensa 2000
project and not a detailed examination of the compatibility of the Italian rules with

(1) While access to Bergamo airport

is still possible,

the distant

location of

this airport and the lack of

adequate access and technical infrastructure make this an even less attractive alternative to Linate.

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Community law. Moreover, the Commission’s services already at that stage insisted on the
necessity of having adequate access infrastructures operational at the time of the transfer.
Furthermore the Commission was never consulted about the timing for the application of
the measures in question. In those circumstances the Italian authorities could have no
legitimate expectations that the Commission would find the contested Italian rules to be in
conformity with Community law. In any event, what is called into question in this
procedure is, in particular, the application of the Italian rules in the situation where road
and rail access to Malpensa is inadequate.

VII

(25)

The principle of freedom to operate air services within the Community provided for in
Article 3(1) of Regulation (EEC) No 2408/92 allows Community air carriers to operate at
any airport located within an airport system according to their own commercial decisions.
On this basis, the freedom of market access generally includes the right to choose between
the different airports of an airport system. The Commission considers that this right is an
essential element of the liberalisation process since, in most cases, the airports belonging to
an airport system are not equally attractive in economic terms as was stated in Decisions
93/347/EEC and 95/259/EC (1).

(26) Member States may, however, restrict the abovementioned freedom on the basis of Article

8(1) of Regulation (EEC) No 2408/92, which reads as follows:

‘This Regulation shall not affect a Member State’s right to regulate without discrimination
on grounds of nationality or identity of the air carrier, the distribution of traffic between
the airports within an airport system'.

(27) As the Commission has already indicated in Decisions 95/259/EC and 94/290/EC (2), any
restriction adopted under that provision must comply with both the principles referred to
in points 27.1 and 27.2.

27.1. The principle of non-discrimination as explicitly mentioned in Article 8(1)

This principle not only prohibits any form of discrimination based on the air
carrier’s nationality, thus reflecting the principle laid down by Article 6 of the Treaty,
but also any form of discrimination based on the identity of the air carrier. In
adopting Regulation (EEC) No 2408/92, the Council considered that the absence of
discrimination on grounds of the carrier’s nationality was not sufficient, in view of
the structure of the air transport sector in the Community, to ensure the satisfactory
working of the internal market in civil air transport and to ensure compliance with
the principle of free access to the market laid down in Article 3(1) of that Regulation.
Consequently, it added the principle of non-discrimination on the basis of the air
carriers’ identity, which was expressly referred to by the Court of First Instance of the
European Communities in the Air Inter case (3).

27.2. The general principles governing the freedom to provide services are set out in the

case-law of the Court of Justice of the European Communities (4).

In Regulation (EEC) No 2408/92, the Council set out, pursuant to Article 84(2) of
the Treaty, the detailed rules for applying the principles laid down by Articles 59 and
62 of the Treaty in the air transport sector, thus harmonising all questions of market

(1) At pp. 54-55 and at p. 30 respectively.
(2) At pp. 30-31 and at pp. 28-31 respectively.
(3) Case T-260/94 Air Inter v. Commission [1997] ECR II-997, paragraph 112.
(4) See in particular Case C-288/89 Collectieve Antenne voorziening Gouda (Mediawet)

[1991] ECR I-4007,

paragraphs 10 to 15.

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access by air carriers holding Community licences. As a result, it is henceforth
necessary to refer directly to these principles, which have moreover been the subject
of a Communication from the Commission (1), when interpreting Regulation (EEC)
No 2408/92.

The principles governing the freedom to provide services go beyond the mere
prohibition of any discrimination on grounds of nationality or on grounds of identity
of the carrier. Even if national measures restricting that freedom apply without
discrimination, they are still unacceptable if not warranted by mandatory require-
ments in the public interest, or if the same result can be obtained by less restrictive
rules in accordance with the principle of proportionality.

VIII

(28)

In the case at hand, the verification by the Commission on its own initiative of the
compatibility with Article 8(1) of Regulation (EEC) No 2408/92 of the Italian rules
involves an appreciation of the compatibility of those rules with the principle of non-
discrimination and with the principle of proportionality.

The principle of non-discrimination

(29)

The Commission considers that the criteria set out in Decree No 46-T, based on traffic
volumes, are objective criteria which do not distinguish carriers by reference to their
nationality or identity since they apply in the same way to all Community air carriers. The
mere fact that those criteria are met only by the Milan-Rome route does not appear in
itself to be a discrimination since, pursuant to Article 3(1) of Regulation (EEC) No
2408/92, that route is open to any Community air carrier without restrictions.

(30) However, as already stated by the Commission in Decision 95/259/EC (2), the principle of
non-discrimination set out in Article 8(1) also precludes any measure which, even without
explicitly making reference to the carrier’s nationality or identity, none the less produces,
even indirectly, discriminatory effects in practice.

(31)

(32)

In order to determine whether the criteria set out in Decree No 46-T produce discrimin-
atory effects in practice, it is necessary to examine the effects which will be produced by
their application as of 25 October 1998, as provided for by Decree No 70-T.

In this regard, the Commission notes that the operation of hub and spoke networks has
become a common feature among Community air carriers. The networks of those carriers
are based on hub airports which, because of the former division of the Community into
several restricted markets and the existing regulatory constraints on the provision of air
services between the Community and countries outside the EEA, are always located in the
Member State where the carriers are established. For the time being, the largest carriers
operating hub networks include Air France (at Paris-Charles de Gaulle), Alitalia (at Rome-
Fiumicino), British Airways (at London-Heathrow and London Gatwick), Iberia at (Madrid-
Barajas), Lufthansa (at Frankfurt), KLM (at Amsterdam-Schiphol), Sabena (at Brussels) and
SAS (at Copenhagen-Karlstrup). The hub system allows them to achieve a comprehensive
coverage of the Community air transport market by providing services between any two
Community airports served from the hub airport without supporting the investments
required by direct services. Similarly, the hub system also enables services to be provided
between any Community airport served from the hub airport and airports located in third
countries, thus providing an alternative to the prohibition of direct services laid down by
bilateral agreements concluded between Member States and third countries.

(33) Although the hub system has increased competition between the abovementioned carriers,
it does not always allow them to compete with each other on a particular route. Indirect

(1) OJ C 334, 9. 12. 1993, p. 3.
(2) At p. 32.

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services are as a rule not substitutable for direct services because of the substantial
difference in the duration of the journey, level of service (a stopover with a change of
aircraft is less attractive to the user than a direct service) and price (indirect services are
priced at a lower level than direct services). On this basis, competition on a particular route
between direct and indirect services is very limited. Conversely, indirect services via hubs
are usually substitutable, although this is not the case for all available indirect services. In
this regard, the geographic location of the intermediate hubs needs to be taken into
account, especially if the point of destination is located in Europe.

(34)

(35)

In the case at hand, the information available to the Commission indicates that, for the
time being, competition exists for the provision of air services from Milan to a number of
airports located mainly outside the EEA (for example: Los Angeles, Dubai, Rio de Janeiro,
and so forth) between services operated by Alitalia via its Rome-Fiumicino hub and
services operated by other Community carriers via their respective hubs (1). Hence, the
Commission cannot accept the argument put forward by the Italian authorities according
to which the Milan-Rome route does not play the role of a feeder route for the Alitalia hub
in Rome-Fiumicino (2).

The Commission does not consider that Alitalia’s intention to progressively establish from
25 October 1998 onwards hub operations at Malpensa airport will put an end to this
situation. It is true that the increasing availability of direct services from Malpensa may
reduce the incentive for passengers to take indirect service (3). However, all the evidence
indicates that Alitalia’s operations are and will continue to be split between two hubs:
Rome-Fiumicino and Milan-Malpensa. This was one of the tenets of Alitalia’s restructuring
plan as notified by Italy to the Commission under the rules on State aid. In Decision
it was stated that the Italian authorities had stressed the economic and
97/789/EC,
financial validity of a strategy based on a network with two hubs; they stated that
Rome-Fiumicino was to be seen ‘as the Mediterranean terminal but maintaining a strong
intercontinental emphasis'. Moreover, the hub strategy underlies the alliance agreement
with KLM. Even though Alitalia’s draft programme for Winter 1998/1999 plans a consid-
erable development of services to destinations outside the EEA from Malpensa to the
detriment of Rome, several destinations would continue to be served only from Rome and
a greater number of destinations alternate between Rome and Malpensa (e.g. on certain
weekdays from one and on other weekdays from the other).

(1) In 1997, 846 100 passengers flew from Milan to another airport via Amsterdam, Frankfurt, Paris, London,
Madrid and Rome. 24,5 % of these passengers flew via Rome, 21,4 % via London, 17,4 % via Frankfurt
and 15,1 % via Amsterdam. Out of this number:
— 73 399 passengers flew to a European airport

(non domestic). 27,3 % of

these passengers flew via

Frankfurt, 24,4 % via Amsterdam, 21,3 % via London and 13,5 % via Rome,

— 169 626 passengers flew to an airport located in North America. 33,4 % of these passengers flew via

London, 25,7 % flew via Amsterdam, 13,4 % flew via Rome and 11 % flew via Paris,

— 130 552 passengers flew to an airport located in South America. 41 % of these passengers flew via

Madrid, 22 % via Rome, 16 % via Amsterdam and 7,8 % via Paris,

— 255 998 passengers flew to an airport located in the Far East. 32,2 % of these passengers flew via

London, 22,2 % via Frankfurt, 18,3 % via Rome, and 15,2 % via Amsterdam,

— 71 282 passengers flew to an airport located in Africa. 65 % of these passengers flew via Rome, 12 %

via Paris, 10 % via Frankfurt and 6,7 % via London.

(2) In 1997, 16,4 % of passengers flying between Milan and Rome (Fiumicino) connected to another flight
departing from that airport. This represented a volume of 207 750 passengers of whom only 15 %
connected on a domestic or European flight while 85 % connected on an intercontinental flight. These
passengers generate proportionately more revenue because of the long-haul segment.

(3) Although even if Alitalia serves a particular destination by means of a direct

flight and only from
Malpensa,
in particular price-sensitive passengers may still prefer to take connecting services through
another hub. Convenient access to Linate is likely to incite such passengers to fly from Linate to Rome to
connect with another airline offering for example a cheaper service than Alitalia’s direct service, rather
than from Malpensa to another hub in the Community.

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Furthermore, even assuming that Alitalia’s draft programme for winter 1998/1999 was
final, there is no indication about the relative development of Malpensa and Rome-based
services in future seasons; in view of the increasing activity at Malpensa, Fiumicino is
unlikely to be phased out as a hub and may well become more important as congestion at
Malpensa increases.

On this basis, it is evident that Alitalia still relies to a significant extent on its Rome hub
which it will be able to serve from Linate while other non-Italian Community air carriers
will no longer be able to serve their hub from that same airport as they will have to operate
their services from Malpensa.

The fact that by virtue of the Italian rules only the route Milan-Rome will continue to be
operated at Linate airport implies that, as of 25 October 1998, Alitalia will be the only
Community carrier able to access its hub at Rome-Fiumicino from Milan using either
Linate airport or Malpensa airport. All the other abovementioned Community carriers will
be able to access their respective hub from Malpensa airport only.

Linate airport is located 10 km south-east from the city centre of Milan. Most Community
airports serving cities of a similar or greater size are not located so close to the city centre.
Because of this privileged location, the airport benefits both from the transport infrastruc-
ture network linking all major areas of the northern Italy basin to the city of Milan and
from the transport infrastructure network of the city itself. A comprehensive network of
motorways links Milan to Turin, Bergamo and Venice (A4), Varese (A8), Genoa (A7), and
Bologna (A1). This network is complemented by an inner and an outer ring road, the latter
serving directly Linate airport. The airport is therefore easily accessible both from the
northern Italy basin and from the city of Milan. The short distance from Linate to the city
centre makes a rail service superfluous.

(36)

(37)

(38) Malpensa airport is located 53 km north-west from the city centre of Milan. No other
Community airport serving a city of a similar or greater size is located so far away from the
city centre. Because of this location, it can only partially benefit from the transport
infrastructure network linking the northern Italy basin to the city of Milan and from the
transport infrastructure network of the city. In fact, the airport is accessible only by the A8
motorway linking Milan to Varese. However, the A8 motorway does not directly access
Malpensa airport; from the motorway, a connection to the airport is ensured by the SS336
road. No direct link to the other motorways serving Milan exists for the time being.
Moreover, despite the long distance from Milan, no direct rail service is currently available.

(39) Consequently, for the time being, access conditions to Malpensa airport are clearly not
equivalent to those to Linate airport. Hence, these airports are not comparatively equally
attractive.

(40) After 25 October 1998, this situation will remain unchanged and might even get worse as
access infrastructures which are considered necessary for a transfer of traffic will not be
ready. These infrastructures were clearly identified on the occasion of the meeting of 27
October 1997 of the Christophersen group for the follow up of the Malpensa 2000 project
and comprise the elements referred to in points 40.l, 40.2 and 40.3.

40.1. An extended SS336 road

At present, the SS336 road linking the A8 motorway to the airport terminates at the
existing North terminal and does not extend to the new terminal.

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40.2. An upgraded A8 motorway

This motorway is presently highly congested. The situation will worsen once the
transfer of traffic resulting from the Italian rules takes place. The following modern-
isation works are aimed at increasing the capacity of the motorway:

— the construction of one additional lane in each side,

— the construction of an emergency lane,

— the increase of the capacity of the toll-booths.

40.3. An operational direct rail service from Milan to the airport

(41) According to the information transmitted by the Italian authorities, while the extension of
the SS336 should be completed by 25 October 1998, the works for the modernisation of
the A8 motorway will not be completed until December 2000 (so far, only the additional
lane has been constructed) and a direct rail service will probably not be operational until
May 1999. This rail service will be a provisional service (two trains per hour — journey
time: 39 minutes). The fully operational rail service (‘Malpensa Express': four trains per
hour — journey time: 30 minutes) will be available only in 2001. No formal commitment
has been given by the Italian authorities about the respect of this timetable.

(42) Hence, the level of available access infrastructures to Malpensa airport from 25 October
1998 will not be compatible with the traffic which the airport will have to handle as a
result of the transfer of traffic from Linate, on the one hand, and of market growth, on the
other. On the basis of the information available to the Commission, it seems that this will
be the case at least until December 2000, when all the abovementioned infrastructure is
planned to be completed.

(43) However, even when those infrastructures are completed, the level will not necessarily be
sufficient to offset the less favourable geographic location of this airport as compared to
Linate airport. In this regard, it will be necessary to take into account both the availability
of various transport links and the quality of these links.

(44) Given the existing differences between Linate airport and Malpensa airport with regard to
access conditions, the Commission is of the opinion that these airports will not be
comparable from the point of vue of their attractiveness until the level of access infrastruc-
tures to Malpensa offsets the geographic location of this airport as compared to Linate
airport.

(45)

(46)

In view of the foregoing and taking into account the competitive situation between Alitalia
and the other Community air carriers, the criteria set out in Decree No 46-T, by permit-
ting only Alitalia to serve its Rome-Fiumicino hub from Linate airport while other
Community air carriers will be obliged to serve their respective hubs from Malpensa
airport, will in fact afford Alitalia a competitive advantage. This competitive advantage will
exist as long as Malpensa airport does not enjoy a level of access infrastructures such as to
overcome the present situation which leads to consumer reluctance to use Malpensa
airport.

Therefore, the Commission considers that the application of the criteria set out in Decree
No 46-T from 25 October 1998 by virtue of Decree 70-T will
in practice produce
discriminatory effects in favour of Alitalia. Consequently, the application of those criteria
from 25 October 1998 is not compatible with the principle of non-discrimination on the
grounds of the identity of the air carrier as provided for in Article 8(1) of Regulation (EEC)
No 2408/92.

The principle of proportionality

(47)

The Malpensa 2000 project, by extending and upgrading existing facilities at Malpensa
airport, aims at creating a fully operational and viable hub at that airport. The Italian rules

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contribute to that objective by ensuring that a sufficient amount of traffic will be trans-
ferred from Linate airport to Malpensa airport so as to ensure the viability of the hub.
Article 8(1) of Regulation (EEC) No 2408/92 expressly recognises the legitimacy of an
active airport planning policy. It must however comply with the general principles of
Community law and, in particular, the third package of measures for the liberalisation of
air transport (see Decision 95/259/EC, page 31).

(48) Under the Italian rules, air carriers will no longer be allowed to choose Linate airport for
the operation of air routes other than those meeting specific thresholds. In practice, this
will apply to all air routes except Milan-Rome. Consequently, these rules will restrict the
freedom to provide air services in the Community to and from Milan. Even if these rules
were not regarded as being discriminatory, according to the consistent case-law of the
Court of Justice (see in particular the abovementioned judgment in Case C-288/89 Collec-
tieve Antenne voorziening Gouda) ‘the application of national provisions to providers of
services established in other Member States must be such as to guarantee the achievement
of the intended aim and must not go beyond that which is necessary in order to achieve
that objective. In other words, it must not be possible to obtain the same result by less
restrictive rules'

(paragraph 15 of the judgment).

(49)

In this regard, the Commission notes that it has not been proven that the creation of a
viable operational hub and the success of the trans-European networks project make such
restrictive measures necessary. The contrary seems to be established by the factors set out
in points 49.1 and 49.2.

49.1. The operational viability of the Malpensa 2000 project (including the timely opera-
tion of all flights and the prerequisite normal access of travellers thereto) does not
necessitate the complete transfer on 25 October 1998 of such a volume of traffic as
that provided by the Italian rules. The application of the criteria laid down by those
rules will result in an estimated transferred traffic of 11,7 million passengers while
only 2,5 million passengers will remain at Linate airport.

The operational viability of the Malpensa hub necessitates the transfer of a volume of
traffic which is compatible with the level of airport facilities and access infrastruc-
tures. Otherwise, the development and future positioning of Malpensa airport as a
successful hub in the Community could be threatened. As already indicated above,
the necessary access infrastructures to the airport will not be ready on 25 October
1998; hence, at that date, existing access infrastructures will not be compatible with
the volume of traffic which will be transferred. This would seem to be the case at
least until December 2000 when the upgrading of the A8 motorway and a provi-
sional rail service are planned to be operational according to the information
transmitted by the Italian authorities, provided that the level of traffic of the airport
at that time does not make further improvements necessary to the access infrastruc-
tures.

49.2. The financial arrangements for the Malpensa 2000 project do not require that the
transfer of traffic from Linate airport to Malpensa airport be completed by 25
October 1998. In fact, according to the contract entered into between the EIB and
SEA for the financing of the project, the concentration of traffic from Linate to
Malpensa needs to be completed by 31 December 2000 at the latest.

(50)

In view of the foregoing, the Commission is of the opinion that the creation of a fully
viable and operational hub does not necessarily presuppose the transfer of 11,7 million
passengers from 25 October 1998. A postponement of the transfer or a gradual transfer of
that volume from 25 October 1998 onwards would be better suited to that objective and
would also reduce the effect on freedom to provide air services to and from Milan.
Therefore, the Italian rules are not indispensable to secure the objective pursued by the
Italian authorities which could be attained with rules less restrictive of the freedom to
provide air services.

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(51)

Lastly the Italian authorities also justified the imposition of high thresholds for traffic
permitted to remain at Linate by indicating that only at these levels would airline
operations be justified both at Malpensa and at Linate and that this would concern routes
where traffic was predominantly point-to-point.

If one of the objectives of Decree No 46-T was really to keep at Linate routes where traffic
was predominantly point-to-point which indeed appears to be the intention since the 12th
recital in the preamble to that Decree refers ‘in particular' to services between Milan and
Rome, then the Decree cannot be regarded as appropriate to achieving the objective of
retaining such routes at Linate since they impose unnecessary restrictions on all routes
other than Milan-Rome by actually excluding them from Linate altogether.

Further the imposition of restrictions resulting in an immediate and drastic reduction of
activities at Linate from 14,2 million passengers per year in 1997 to 2,5 million after the
new measures take effect would not appear to be an appropriate measure to attain the
objective indicated in the 11th recital in the preamble to the Decree, namely that Linate
airport should in any event be kept in service.

(52) Consequently, the Commission considers that the traffic distribution rules set out in
Decree No 46-T and Decree No 70-T are not compatible with the principle of proportion-
ality.

Conclusion

(53)

(54)

In conclusion, the Commission considers that the traffic distribution rules set out in
Decree No 46-T and Decree No 70-T are not compatible with Article 8(1) of Regulation
(EEC) No 2408/92 in so far as their application is contrary to both the principle of
non-discrimination and the principle of proportionality. It is therefore appropriate to
decide, pursuant to Article 8(3) of Regulation (EEC) No 2408/92, that Italy may not apply
these rules.

This Decision in no way calls into question the right of Italy to pursue an active airport
policy and, more specifically, the objective of creating a fully viable and operational hub at
Malpensa airport. However, the traffic distribution rules necessary in order to achieve that
objective must comply with the principles of Community law as set out above.

(55) Nor is this Decision incompatible with the fact that the Malpensa 2000 project is a project
of common interest and has been identified as a priority project within the framework of
the trans-European networks. In this regard, the Commission recalls that actions by
Member States in support of priority projects in the framework of the trans-European
networks or designed to create the conditions for the achievement of the objectives
pursued by such projects must be fully compatible with Community law,

HAS ADOPTED THIS DECISION:

Article 1

Italy may not apply the traffic distribution rules for the airport system of Milan set out in Decree
No 46-T of 5 July 1996 and Decree No 70-T of 13 October 1997.

This Decision is addressed to the Italian Republic.

Article 2

Done at Brussels, 16 September 1998.

For the Commission

Neil KINNOCK

Member of the Commission