Notice pursuant to Article 5 of Council Regulation (EEC) No 3975/87 of 14 December 1987 concerning case COMP/D2/38.479 — British Airways/Iberia/GB Airways (Text with EEA relevance)
Date: 2003-09-12
Institutions: European Commission
Subjects: air transport, economic concentration, exchange of information, merger control, transport company

C 217/2

EN

Official Journal of the European Union

12.9.2003

Notice pursuant to Article 5 of Council Regulation (EEC) No 3975/87 of 14 December 1987 (1)
concerning case COMP/D2/38.479

British Airways/Iberia/GB Airways

(2003/C 217/02)

(Text with EEA relevance)

THE APPLICATION LODGED BY BRITISH AIRWAYS, IBERIA
AND GB AIRWAYS

1. By letter of 19 July 2002, British Airways (‘BA’), Iberia and
GB Airways (2) notified
to the Commission close
commercial cooperation arrangements envisaged by the
parties, applying for exemption under Article 5 of Regu-
lation (EEC) No 3975/87.

(FFP), in particular for EU passengers; coordination of sales
and marketing e.g.
through the combination of retail
outlets and joint advertising, while maintaining their indi-
joint contracting with
vidual brands; ground-handling;
travel agencies, distributors, general
sales agents and
other organisations and individuals; harmonisation of
service and product standards; joint purchasing initiatives
and information technology.

MAIN CONTENT OF THE AGREEMENTS

2. On 19 July 2002 BA and Iberia signed an Alliance
Agreement, which forms the basis for their intended coop-
eration and which became effective immediately. The
detailed terms and conditions of the cooperation will be
laid down in further
In
addition, BA and Iberia intend to sign a Tripartite
Alliance Agreement with GB.

implementing agreements.

3. Through these arrangements the parties will coordinate
and eventually integrate their commercial and marketing
and practices on a
strategies, distribution methods
world-wide basis and in particular between the United
Kingdom and Spain (and vice versa). The cooperation is
intended to achieve the benefits usually associated with a
the parties will retain their separate
merger. However,
corporate identities.

4. The envisaged commercial cooperation between the three
parties comprises the extension of code-sharing services (in
particular on routes between the United Kingdom and
Spain and vice versa) (3); coordination of pricing and
commission policy; common network planning; common
revenue and profit
approach towards cargo activities;
and cargo sectors;
sharing, both in the passenger
exchange of data with regard to customer
service
performance and customer satisfaction; coordination in
the control of
inventory and yield
management and any other joint or coordinated activities
as may be agreed between the parties.

their respective of

5. In addition BA and Iberia plan to cooperate in the
following areas: development of frequent flyer programs

(1) OJ L 374, 31.12.1987, p. 1.
(2) GB Airways is a BA franchisee, and flies under the BA name to nine

destinations in Spain.

6. According to the parties their fundamental goal

to serve a wider

is to
improve their network service and overall efficiency in
order
range of destinations more
effectively. The parties consider their networks as comple-
mentary, with BA having extensive schedules to the Middle
and Far East and Iberia serving all major destinations in
Latin America. The logic of their transaction is according
to the parties therefore not to improve their position on
United Kingdom-Spain point-to-point
routes, although
their capacities and frequencies on trunk routes are the
indispensable requisite for the transaction.

ARGUMENTS INVOKED BY THE PARTIES IN SUPPORT OF
THEIR APPLICATION

General

7. According to the parties the transaction does not raise
competition concerns. The parties are said to fly only on
a limited number of overlapping city-pair routes between
the United Kingdom and Spain (4). These routes are
according to the parties subject to strong competition.
Apart from scheduled carriers also charter flights play an
important role on routes between the United Kingdom and
Spain. Moreover, the routes are according to the parties
under competitive pressure of potential new entry.

8. In particular,

the parties submit that the Commission's
the following

market analysis should take account of
elements:

(a) Marginal

renders

substitution

increases
unprofitable and is therefore the key to assessing
is not
competitive constraints.
necessary that
to compete
effectively for all customers in a given market.

In other words,

competitors be

price

able

it

(3) This has already been implemented, e.g. from the start of the winter
schedule on 27 October 2002 BA and Iberia have expanded their
current code sharing agreements
flights from London-
Heathrow to Madrid and Barcelona (press release of BA and
Iberia of 8 October 2002).

to all

i.e.

(4) According to the parties there are three routes where Iberia and BA
overlap,
the routes from London to Madrid, Barcelona and
Bilbao respectively and four routes where Iberia and GB overlap
i.e.:
from London to Alicante, Valencia, Malaga and Seville
respectively.

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(b) There

is

strong competitive

interaction between
business and leisure passengers. Airlines can freely
shift capacity between flexible and less flexible tariffs
in response to demand. Business passengers can and
fares.
do trade down to less-than-fully
Moreover, business passengers use both traditional
and no-frills carriers, which for European short-haul
destinations constitute a viable and highly competitive
alternative.

flexible

(c) All London airports

from which services

to the
identified destinations in Spain are provided by the
is, Heathrow, Gatwick, Stansted and
parties
Luton) are in the same relevant market, both for time-
sensitive and for non-time sensitive passengers.

(that

(d) From the Spanish side catchment area overlap between
the airports of Valancia/Alicante and Seville/Jerez
respectively should be taken into account.

(e) Charter flights play a very significant role on the
in particular on the
United Kingdom-Spain routes,
London–Alicante and London–Malaga routes where
they carry about half of all passengers, representing
viable
and business
passengers.

for both leisure

alternatives

(f) Thin routes (according to CAA estimates routes with
less than 250 000 passengers per year), particularly if
predominantly leisure oriented (business passengers
volumes of less than 10 000 pax/year), could a priori
not have any appreciable effect and therefore do not
warrant anti-trust scrutiny.

(g) New entry has occurred recently on the seven overlap
routes between the United Kingdom and Spain and
potential entry operates as a constant disciplinary
constraint. With regard to barriers
the
parties accept
there are slot constraints at a
limited number of Spanish and United Kingdom
airports (and notably at LHR) but contend that slot
availability is not a significant constraint on service
on any of the overlap routes.

to entry,

that

enter these holiday routes. Therefore, in the parties view
there is no substantial risk of a potential competition being
restricted on any of these routes.

Reasons for the application for exemption

10. According to the parties

their envisaged cooperation
arrangements fulfil the four cumulative conditions for an
exemption under Article 5 of Regulation (EEC) No
3975/87 laying down the conditions for the application
of Article 81(3) of the EC Treaty.

Contribution to
promoting technical or economic progress

improving production or distribution,

and/or

11. The parties argue that

important

efficiencies

the parties expect

through the combination of
complementary networks
and
enhanced services for their customers will be achieved.
In particular,
their cooperation
improve connectivity at relevant hubs through the
will
efficient use of high frequency connecting flights
to
provide a better range of services to points not currently
available from all points of origin,
lead to new on-line
connections, better support and coverage on thin routes
and cost savings.

that

Fair share of the benefits accruing to consumers

12. The parties claim that a proper share of the above benefits
accrues
to achieve
to consumers. The parties expect
customer benefits in particular by improving quality and
availability of services (e.g. better flight schedules and
timing, new on-line connections) and passing on cost
savings to customers, resulting in lower fares.

The restrictive provisions of the agreement are indispensable to the
attainment of the objectives of the agreement

13. The parties are of the view that the agreement,

laying
down a high-frequency and closely coordinated service,
is
their
complementary networks in the absence of the envisaged
close cooperation.

inconceivable to realise fully the benefits of

9. The parties have also identified a number of non-overlap
routes, that is routes which were prior to the cooperation
served by one of the parties. However, on none of these
the other parties have a real
routes would any of
commercial interest to enter, either because these routes
are too thin to bear more than one carrier or because
these routes are typical holiday routes with the majority
of traffic generated by charter carriers. Neither BA nor
Iberia with their higher cost structures could profitably

No elimination of competition in respect of a substantial part of the
goods or services concerned

14. According to the parties the proposed cooperation will not
have an appreciable adverse impact on competition. The
identified overlapping point-to-point routes are said to be
all subject to intensive competition and some of them are
furthermore considered as thin routes and principally
leisure destinations. Also, the parties consider that there
are very low barriers to entry on routes between the
United Kingdom and Spain, slots readily being available
both at London and Spain airports.

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Official Journal of the European Union

12.9.2003

PROPOSED COMMITMENTS

15. Following

of

the

their

notification

cooperation
arrangements notified on 19 July 2002, the Commission
services have been in discussions with the parties. As a
result of these discussions, with a view to obtaining an
exemption according to Article 81(3) of the EC Treaty
pursuant
to Article 5(3) of Regulation (EEC) 3975/87,
the parties have submitted proposed commitments in
order to remedy any competition concerns in particular
with regard to point-to-point
time sensitive passengers
on the routes: London–Madrid, London–Bilbao, London–
Valencia and London–Seville.

fares (i.e., business and unrestricted economy) in any
two consecutive IATA traffic seasons (1).

— London-Heathrow/Gatwick–Seville: a maximum one
daily slot pair at London Gatwick, but only after an
average of at least forty point-to-point passengers can
be shown to be travelling daily one way between
London-Heathrow/Gatwick and Seville at unrestricted
fares in any two consecutive IATA traffic seasons.

16. These commitments shall be binding on the parties, their
subsidiaries, successors and assigns and the parties commit
to cause subsidiaries, successors and assigns to comply
with these commitments.

19. If more than one Competitor applies for the slots on the
Route(s), the slots shall be provided to the Competitor
chosen by the parties
to the Commission's
subject
approval. The Commission shall favour the Competitor
that could viably operate the greatest number of services
on the Route(s).

Commitments pertaining to slots

17. The

commitments pertaining to slots

relate

to the

following routes (the Routes):

— London-Heathrow/Gatwick–Madrid

— London-Heathrow/Gatwick–Bilbao

— London-Heathrow/Gatwick–Valencia

— London-Heathrow/Gatwick–Seville

18. The parties shall provide to an airline independent of the
parties, wishing to commence or increase services on one
or more of
the Routes after the exemption becomes
effective (the Competitor), slots as set out below (the
Slot Conditions), subject to the provisions contained in
these commitments:

— London-Heathrow/Gatwick–Madrid: up to a maximum
four daily slot pairs at London Gatwick and at
of
single Competitor. The
Madrid Barajas
maximum of
four daily slot pairs to be provided
shall be reduced by the number of services already
operated by such Competitor on this Route.

for one

— London-Heathrow/Gatwick–Bilbao: a maximum one

daily slot pair at London Gatwick.

— London-Heathrow/Gatwick–Valencia: a maximum one
daily slot pair at London Gatwick, but only after an
average of at least forty point-to-point passengers can
be shown to be travelling daily one way between
London Heathrow/Gatwick and Valencia at unrestricted

20. The parties shall answer any enquiry by the Competitor
concerning the applicability of
the Slot Conditions on
London-Heathrow/Gatwick–Valencia or London-Heathrow/
Gatwick–Seville by providing the Commission or, if appro-
third party approved by the
priate an independent
Commission, within two weeks from the date of
the
enquiry with all relevant
internal data permitting the
Commission to verify whether the Slot Conditions can
be triggered on the Route(s) in question.

21. Slots obtained from the parties under these Conditions
shall be used only to operate services on the Route for
which the Competitor requests them.

22. The parties shall not be required to make a slot available
to the Competitor for a Route insofar as this would result
in the parties' operating less than 60 % of the frequencies
or capacity on that Route at the time of the Competitor's
request.

23. The Competitor shall make a clear written request to the
parties concerning its intended service(s) on the Route(s)
and required slots at least six weeks prior to the IATA slot
conference for the traffic season in which the Competitor
intends to commence service, the earliest such conference
following the grant of the exemption, and for purposes of
these commitments, being scheduled for June 2004.

(1) The figure of 40 unrestricted fare-paying passengers on these
Routes has been calculated taking into account that (i) a 130 to
156-seater aircraft (B737/A320) could be expected to be used on
each of these Routes, and that (ii) IB, GB and a third party would
expect each to carry at
least 13 unrestricted fare passengers
(8 %-10 % of capacity offered) one way on their respective once
daily services to achieve sufficient revenue to justify services on
each of these Routes.

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24. The Competitor shall be eligible to receive or keep slots
under the Slot Conditions only if it can demonstrate failure
of all reasonable efforts to obtain slots for the Route(s) in
question through the normal workings of the slot allo-
the slot conference following the
cation procedure at
Competitor's written request, including the final allocation
of slots by the coordinator following the Slot Return Date.
The Slot Return Date shall be the deadline for returning
unwanted slots, as defined in Appendix 2 of
IATA's
Worldwide Scheduling Guidelines (7th Edition, effective
1 December 2002).

25. The Competitor will not be deemed to have exhausted all
reasonable efforts if slots were offered through the regular
slot allocation procedure within 45 minutes of the times
requested but not accepted by the Competitor and/or slots
were offered through the regular slot allocation procedure
more than 45 minutes from the times requested and the
Competitor did not give the parties the opportunity to
exchange those slots for slots within 45 minutes of the
times requested.

obtained pursuant to the Slot Conditions, slots shall be
deemed unused if
the Competitor and its subsidiaries
have not used such slots for at least 80 % of the scheduling
season for which they had been allocated for the Route(s)
in question, unless this non-use is justified on one of the
grounds referred to in Article 10(5) of Council Regulation
(EEC) No 95/93 or in any other regulation that amends or
supersedes it.

30. If the Competitor returns to the parties some or all slots
obtained pursuant to the Slot Conditions, the parties shall
make such unused slots immediately available to another
Competitor, which had applied for the slots for the season
in which the slot return takes place in compliance with the
conditions and procedure in 23. to 25. If this offer is not
taken up within one month,
the parties may use the
unused slots or return them to the slot pool. This shall
extinguish any obligation on the parties to make the
unused slots available to another Competitor.

26. The parties shall answer the Competitor's written request
within two weeks after the final allocation of slots by the
coordinator following the Slot Return Date. The parties
shall make slots available within 45 minutes of the time
requested by the Competitor at
the slot conference,
provided the parties hold slots within the relevant time
period and the Competitor has complied with the above
conditions and procedure in 23. to 25.

31. Should the Competitor notify the parties too late in a
scheduling season for them to use the returned slots
pursuant to Article 10(3) of Regulation (EEC) No 95/93
with immediate effect or after the deadline provided for in
Article 10(4) of that Regulation and before the effective
start of the scheduling season, the parties may require that
the Competitor transfer them a comparable slot. If the
Competitor is unable to do so for any reason, they may
seek to justify the non-use of the surrendered slot on the
basis of Article 10(5) of Regulation (EEC) No 95/93.

27. If the Competitor has obtained slots pursuant to the Slot
Conditions for a particular IATA season and requests some
or all of the slots at the same times for the following
season, the parties shall make slots available as close as
possible to the slot granted in the preceding season, and in
any event within 45 minutes of,
the time requested,
provided the parties hold slots within the relevant time
period and the Competitor has
complied with the
conditions and procedure in 23. to 25. above.

28. During the period between the parties' receipt of

the
written request and the end of the respective IATA sche-
duling period the Competitor shall maintain an ‘open
book’ policy for the respective airports. A slot obtained
by the Competitor through the regular slot allocation
procedure within 45 minutes of a slot made available by
the parties shall count towards the total number of slots
the Competitor
the Slot
Conditions.

is entitled to receive under

29. If the Competitor has obtained slots pursuant to the Slot
Conditions, but decides not to use some or all such slots, it
shall inform the parties immediately and return the unused
slots to the parties. If the Competitor has begun using slots

32. A mechanism shall be agreed between the parties and the
Competitor allowing the Parties to monitor how the slots
are being used to ensure that the slots provided by the
Parties are used in a manner consistent with these
conditions. The parties
inform the Commission
shall
about the agreed mechanism.

33. Slots provided under the Slot Conditions shall be offered

without compensation.

Frequency freeze

a

for

34. The parties shall not add frequencies on the Routes and on
London Heathrow/Gatwick–Barcelona
period
covering the remainder of the IATA season in which the
exemption becomes effective and the two following IATA
seasons, save in the case of exceptional events (e.g. inter-
national football matches) requiring additional flights on a
particular day. In the case of GB's operations, GB shall
retain the right to operate up to two daily services on
London Gatwick–Valencia and up to one daily service on
London Gatwick–Seville.

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Interlining

Duration of exemption and conditions

35. At the Competitor's request, the parties shall conclude one
interline agreement concerning the Route(s) operated by it
if it does not have an existing interline agreement with the
parties. Such an interline agreement shall:

39. The conditions shall apply from the date on which the
lapse as soon as

exemption becomes effective and shall
the exemption expires.

(a) apply to the first class, business class and leisure travel

categories only;

(b) provide for interlining on the basis of

published one-way fares when a one-way ticket
issued or half of
fares when a round-trip ticket is issued;

the parties'
is
the parties' published round-trip

(c) be limited to true origin and destination traffic

operated by the Competitor;

(d) be

subject

to the MITA rules

and/or normal

commercial conditions; and

(e)

include the possibility for the Competitor, or travel
agents,
to offer a return trip comprising services
provided one-way by the parties and one-way by the
new entrant.

36. Subject to seat availability in the relevant fare category, the
parties shall carry a passenger holding a coupon issued by
for travel on a new entrant city pair.
a new entrant
to avoid abuse, the parties may require that
However,
the Competitor or the passenger, where appropriate, pay
the positive difference between the fare charged by the
parties and the fare charged by the Competitor. In cases
where the Competitor fare is lower than the value of the
coupon issued by them, the parties may endorse their
coupon only up to the value of the fare charged by the
Competitor. The Competitor
same
protection in cases where the parties' fare is lower than
the value of the coupon issued by it.

enjoy

shall

the

37. All

interline agreements entered into pursuant

to this
section for a particular Route shall lapse as soon as the
Competitor ceases to operate that Route.

Frequent flyer programmes (FFPs)

38. If

the
the Competitor does not participate in one of
parties' FFPs or does not have its own comparable FFP,
to participate in
the parties shall allow it, on request,
their
the
Route(s) it operates. Any agreement relating to a particular
Route and concluded pursuant to this section shall lapse if
the new entrant ceases to operate the Route.

joint FFP at market competitive rates

for

40. Should the exemption be revoked, annulled, or expire, or
terminate the notified cooperation
should the parties
agreements,
the conditions shall be null and void as
from the date of revocation, the date of the annulment
or the date of termination. In such a case, the parties shall
have the right to demand the return of any slots provided
under these commitments to an airline which, at the time
of the revocation, annulment or termination, is operating
services on the Routes. They shall also have the right to
terminate any interlining or FFP agreements concluded
pursuant to these commitments.

41. If the Competitor is required to transfer back any party's
slots to that party with historic preference (as outlined and
described in the IATA Worldwide Scheduling guidelines)
and fails to do so,
the relevant party may give the
Competitor a written notice requiring the Competitor to
make the transfer immediately. If the Competitor then fails
to make the transfer within three business days the party
may give the Competitor a written compensation notice
requiring the Competitor to pay compensation for the loss
the slots. The compensation notice shall state the
of
amount of compensation the party requires to be paid
and should be based on the prevailing market rates. Any
compensation due shall be paid to the party by the
Competitor not later than 15 business days after receipt
of a valid compensation notice from the party.

42. The parties may apply to the Commission for

these
commitments to be amended or revoked, if appropriate.

CONCLUSION

that

43. The Commission has established prima facie

the
agreements in question are caught by Article 81(1) of
the Treaty, but it has not taken a position as to the appli-
cability of Article 81(3). In accordance with Article 5 of
Regulation (EEC) No 3975/87,
the Commission invites
interested parties to send their comments concerning the
and GB
cooperation agreement between BA,
Airways, within 30 days of the date of publication of
this notice, to:

Iberia

European Commission
Directorate-General for Competition
Unit D2 (Transport)
Office J-70, 2/237
B-1049 Brussels
Fax (32-2) 296 98 12
e-mail: Carsten.Bermig@cec.eu.int