2004/841/EC: Commission Decision of 7 April 2004 relating to a proceeding pursuant to Article 81 of the EC Treaty concerning case COMP/A.38284/D2 — Société Air France/Alitalia Linee Aeree Italiane SpA (notified under document number C(2004) 1307)
Date: 2004-04-07
Institutions: European Commission
Subjects: France, Italy, air transport, competition law, cooperation agreement (EU), transport company

9.12.2004

EN

Official Journal of the European Union

L 362/17

II

(Acts whose publication is not obligatory)

COMMISSION

COMMISSION DECISION

of 7 April 2004

relating to a proceeding pursuant to Article 81 of the EC Treaty concerning case COMP/A.38284/D2

Société Air France/Alitalia Linee Aeree Italiane SpA (1)

(notified under document number C(2004) 1307)

(Only the English text is authentic)

(2004/841/EC)

On 7 April 2004, the Commission adopted a decision which grants an individual exemption under Article 81 (3)
of the Treaty to a cooperation agreement between Air France and Alitalia.

A public version of this decision is available in English, French and German (only the English text is authentic) on
DG COMP's website at http://europa.eu.int/comm/competition/index_en.html

(1)

(2)

1. SUMMARY OF THE PROCEEDINGS

On 12 November 2001, Air France (AF) and Alitalia
(AZ) notified to the Commission a number of coop-
eration agreements and applied for negative clearance
under Article 3(2) of Council Regulation (EEC) No
3975/87 and/or exemption under Article 5 of
the
same Regulation (2).

On 8 May 2002, a summary of the notified agreements
was published in the Official Journal of the European Union
inviting interested third parties to send their comments
within 30 days in accordance with Article 5(2) of Regu-
lation (EEC) No 3975/87 (3). In response to this publi-
cation, several airlines expressed their interest in starting

(1) Report for the hearing published in OJ C 305, 9.12.2004.
(2) Council Regulation (EEC) No 3975/87 of 14 December 1987 laying
down the procedure for the application of the rules on competition in
the air transport sector (OJ L 374, 31.12.1987, p. 1). Regulation as last
amended by Regulation (EC) No 1/2003 (OJ L 1, 4.1.2003, p. 1).

(3) OJ C 111, 8.5.2002, p. 7.

operations for the routes at issue, provided that barriers
to entry are removed through adequate remedies.

serious doubts was notified by

the
A letter of
Commission to the Parties on 1 July 2002,
informing
them that their cooperation agreements could not be
approved in their current form.

the reservations expressed by the
On the basis of
Commission and after intensive discussions, the Parties
proposed commitments which were published for
comment in the Official Journal on 9 December 2003
in a notice pursuant to Article 16(3) of Regulation (EC)
No 3975/87 (4). In the light of the comments received,
the
their
to
commitments.

accepted

improve

further

Parties

(3)

(4)

(4) OJ C 297, 9.12.2003, p. 10.

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(5)

The improved commitments, combined with the fact that
there are several entrants on the markets concerned, are
satisfactory from a competition policy point of view.
Provided the Parties comply with these commitments,
their cooperation
the Commission decided to exempt
agreements for a six-year period.

ground-handling services. The draft exemption decision
only addresses the first area of cooperation, i.e. scheduled
air transport of passengers. Air transport of cargo is
excluded from the scope of the draft decision as the
Parties are still negotiating the scope of their cooperation
in that field. The draft decision does not address ground
handling services either, which do not fall within the
scope of Regulation (EEC) No 3975/87 (1).

2. THE COOPERATION AGREEMENT

(6)

Through their cooperation, the Parties seek to establish a
far-reaching,
the
main objectives of which are as follows:

long-term strategic bilateral alliance,

(9)

— creation of a European multi-hub system based on the
Parties' hubs at Paris Charles de Gaulle, Rome
Fiumicino and Milan Malpensa airports, in order to
interconnect their worldwide networks,

— coordination of

the Parties' passenger service operations,
including extensive use of code-sharing, coordination
of their scheduled passenger network, sales, revenue
management, mutual recognition of
the respective
frequent flyer programmes, marketing coordination
and share of lounge usage,

— cooperation in other areas, such as cargo operations,
purchasing,
handling, maintenance,
passenger
catering,
information technology, fleet development
and purchase, crew training and revenue accounting.

(7)

As the aim of
the alliance between Air France and
Alitalia is to create a multi-hub system in order to inter-
connect their worldwide networks, the cooperation will
be closer on the France-Italy ‘bundle’ which includes all
the routes between France and Italy operated by Air
France and/or Alitalia, excluding beyond and behind
international. On the
flights, whether domestic or
in addition to the overall coordi-
France-Italy bundle,
nation
as
passenger
of
described above, the Parties also agree on frequencies
and share their capacities and their earnings.

operations

service

their

3. ASSESSMENT

(8)

The activities affected by the agreement are scheduled air
transport of goods and
transport of passengers, air

that, overall,

The Commission accepts
the alliance
contributes to improving the production and distribution
of
transport services and to promoting technical and
economic progress. The cooperation agreement is likely
to generate benefits in terms of creating a more extensive
worldwide network which would offer customers better
services in terms of an increased number of direct and
indirect flights. While an increase in the airlines' size does
not necessarily lead to a cost
reduction because of
constant economies of scale, savings may be realised
due to an increase in traffic throughout the network,
better planning of frequencies, a higher load factor, etc.

(10) However, the consumer will only have a fair share from
the expected cost reductions in the form of reduced
prices if the Parties remain subject to a sufficient compe-
titive constraint on the markets where competition is
restricted by the alliance.

(11)

results

It
from the Commission's assessment under
Article 81 that there is a risk that the alliance eliminates
competition in respect of a substantial part of air
passenger services on seven ‘origin and destination’ (2)
pairs i.e. Paris–Milan, Paris–Rome, Paris–Venice, Paris–
Florence, Paris–Bologna, Paris–Naples and Milan–Lyon.
Prior to the alliance, Air France and Alitalia were the
two main operators on these affected overlap markets,
competing head-to-head. At the time of the notification,
they had very high market shares on these seven O & D
pairs. This goes for time-sensitive and flexibility-focused
passengers as well as for price-sensitive passengers (3).

(1) This decision is therefore without prejudice to any further compe-
tition assessment of these aspects under Article 81 of the Treaty.
(2) To establish the relevant market in air transport, the Commission
has developed the point-of-origin/ point-of-destination (O & D) pair
approach. According to this approach, every combination of point-
of-origin and point-of-destination should be considered to be a
separate market from the customer's point of view.

(3) There is one exception for this second category of passengers on the
Milan–Lyon city-pair, in view of the constraining effects of existing
competition from other transport modes (road transport).

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(12) Moreover, the Parties' overall strong market position is
protected against potential entry by significant entry
barriers, due for instance to the scarcity of slots at the
frequencies
airports
time-
operated by the Parties,
sensitive customers and to the pooling of their frequent
flyer programs.

to their high share of

to the number of

concerned,

(13)

cooperation agreement

The
can therefore only be
accepted on the basis of adequate remedies, the main
purpose of which is to remove existing entry barriers
for competitors and to ensure that affected consumers
obtain a fair share of the benefits resulting from the
cooperation.

4. COMMITMENTS

(14) On the basis of

the reservations expressed by the
Commission in its letter of serious doubts, the Parties
proposed commitments which were published for
comment on 9 December 2003. Several airlines and
the United Kingdom Office of Fair Trading commented
In the light of these comments, the Parties
on them.
accepted to improve further
In
particular, the conditions on the spread of slots at Paris
amended and the
substantially
CDG airport were
limitation on the number of slots to be released at
Orly airport was removed. The main principles of these
commitments are summarised below.

their commitments.

Number of slots to be surrendered

(15)

to remedy the slot

In order
shortage at congested
airports, the Parties are required to make available to
competitors a number of slots aimed at supporting
new services on the seven routes where the Commission
identified competition concerns. The maximum
has
number of
is
specified per route in the Annex to the decision.

to be released by the Parties

slots

(16) On the basis of the Commission's extensive investigation
on the France-Italy market and after having assessed the
comments made by third parties in response to the
to
publication of
the Commission Notice pursuant
Article 16(3) of Regulation (EEC) No 3975/87,
the
the Parties have accepted to
number of
the affected routes is considered
release on each of
to allow point-to-point carriers to compete
sufficient
effectively against
the Parties on these routes. The
remedies are targeted to allow competitors to transport
point-to-point traffic and in particular, to compete with

slots

that

(17)

(18)

(19)

the Parties for the transport of O & D time-sensitive and
flexibility-focused passengers.

Considering that it is more effective to add frequencies to
an existing service than to start a new service from
scratch and that
time-sensitive and flexibility-focused
passengers need a sufficient number of daily frequencies,
the slots will be made available on a preferential basis to
the competitor which will operate, in total, the highest
number of frequencies on the route (including its existing
services).

Slot releases at Paris and Milan airports

It results from the Commission's investigation on the
France-Italy market that Paris Charles de Gaulle (CDG)
and Orly (ORY) airports are substitutable from the
point of view of the demand for transport services by
O & D passengers on the routes in question. The same
applies with respect to the Milan Linate and Malpensa
airports.

to the Paris airports,

The application of the principle of proportionality would
normally imply that the Parties are allowed to choose at
which airport to surrender slots, provided that this is
sufficient to solve the competition concerns. However,
the Commission has considered
in the present case,
in order to
that, with respect
ensure the effectiveness of the remedies proposed, slots
should also, under certain conditions, be surrendered at
Orly to competitors who already offer services on the
affected routes out of this airport,
in order to allow
them to increase their number of services. This explains
why the commitments provide that a competitor
is
entitled to obtain slots at Orly if
it already operates
flights on an affected route out of Orly and if it has all
its scheduled flights serving Paris operated out of this
airport.

(20)

For the same reasons, the commitments provide that the
Parties shall be required to release slots at Milan Linate
airport only to a competitor which already operates
services on an affected route out of Linate and wishes
to add additional frequencies on this route.

Other remedies

(21)

In addition to slots, other
remedies are aimed at
removing the additional entry barriers identified in the
draft decision.

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(22)

(23)

Some of them will enhance the inter-changeability from
the customer point of view between the flights operated
by the Parties and the flights operated by competitors on
the affected routes and will help new entrants to obtain a
minimum number of passengers necessary to start
operations on these routes. They provide notably that
the Parties will have to allow new entrants to participate
in their frequent
they so wish.
flyer programmes,
Another commitment relates to interlining and special
prorate agreements and will allow passengers to fly
with the Parties and return with a competitor or
conversely on a given journey, based on a single ticket.

if

they

agreements, whereby

The Parties also committed to facilitate intermodal
passenger
air
transport services as part of an itinerary that includes
surface or sea transportation, in order to ensure greater
choice and better multimodal
for
consumers. This, for instance, could allow time-sensitive
customers to combine a one way railway trip with a
return flight at attractive conditions.

transport

services

provide

(24)

Finally, the commitments impose on the Parties an obli-
gation to maintain a frequency freeze (regulation of
frequency increases) during a start-up period to ensure
that new entrants are not squeezed out of the market
shortly after entry.

5. CONCLUSION

(25) On the basis of the above, the commitments submitted
to solve the competition
by the Parties are sufficient
concerns in the markets identified during the investi-
gation by allowing and facilitating third parties' entry.

(26)

The Commission has therefore decided that pursuant to
Article 81(3) of the EC Treaty, and provided that the
parties comply with the commitments listed in the
Annex, Article 81(1) of the EC Treaty is inapplicable to
the cooperation agreement between Air France and
Alitalia notified to the Commission on 12 November
2001 for the period from 12 November 2001 to 11
November 2007.