CELEX: 32019M9287
Language: en
Date: 2019-07-05 00:00:00
Title: Commission Decision of 05/07/2019 declaring a concentration to be compatible with the common market (Case No COMP/M.9287 - CONNECT AIRWAYS / FLYBE) according to Council Regulation (EC) No 139/2004 (Only the English text is authentic)

EUROPEAN COMMISSION
                                                               Brussels, 5.7.2019
                                                               C(2019) 5244 final
                                                                             PUBLIC VERSION
                                                             In the published version of this decision,
                                                             some information has been omitted
                                                             pursuant to Article 17(2) of Council
                                                             Regulation (EC) No 139/2004 concerning
                                                             non-disclosure of business secrets and
                                                             other confidential information. The
                                                             omissions are shown thus […]. Where
                                                             possible the information omitted has been
                                                             replaced by ranges of figures or a general
                                                             description.
                                                               To the notifying parties
Subject:            Case M.9287 – Connect Airways/Flybe
                    Commission decision pursuant to Article 6(1)(b) in conjunction with
                    Article 6(2) of Council Regulation No 139/20041 and Article 57 of the
                    Agreement on the European Economic Area2
1    OJ L 24, 29.1.2004, p. 1 (the 'Merger Regulation'). With effect from 1 December 2009, the Treaty on
     the Functioning of the European Union ('TFEU') has introduced certain changes, such as the
     replacement of 'Community' by 'Union' and 'common market' by 'internal market'. The terminology of
     the TFEU will be used throughout this decision.
2    OJ L 1, 3.1.1994, p. 3 (the 'EEA Agreement').
Commission européenne, DG COMP MERGER REGISTRY, 1049 Bruxelles, BELGIQUE
Europese Commissie, DG COMP MERGER REGISTRY, 1049 Brussel, BELGIË
Tel: +32 229-91111. Fax: +32 229-64301. E-mail: COMP-MERGER-REGISTRY@ec.europa.eu.
 ---pagebreak---                                         Table of Contents
1. THE PARTIES ............................................................................................................ 4
2. CONCENTRATION ................................................................................................... 6
   2.1  Overview ........................................................................................................... 6
   2.2  Acquisition of joint control over Flybe Group, Flybe, Propius and
        Stobart Air ......................................................................................................... 6
   2.3  The first and second transaction constitute a single concentration ................... 8
   2.4  Conclusion ....................................................................................................... 10
3. EU DIMENSION ...................................................................................................... 10
4. ANALYTICAL FRAMEWORK AND MARKET DEFINITION ........................... 11
   4.1  Air transport of passengers 3rd O&D approach ............................................... 12
        4.1.1    Relevance of the O&D approach ....................................................... 12
        4.1.2    Distinction between groups of passengers......................................... 13
        4.1.3    Distinction between direct and indirect flights .................................. 14
        4.1.4    Airport substitutability....................................................................... 15
        4.1.5    Substitutability of train transport services with air transport
                 services .............................................................................................. 23
        4.1.6    Relevance of the market for air transport services to tour
                 operators ............................................................................................ 25
   4.2  Air transport of passengers – Airport-by-airport approach ............................. 26
        4.2.1    Relevance of the airport-by-airport approach .................................... 26
        4.2.2    Relevant markets for the assessment of the effects of the
                 Transaction on passenger air transport services under the
                 airport-by-airport approach................................................................ 30
   4.3  Market for the provision of access to flights of another carrier for
        connecting passengers in the context of interlining arrangements .................. 36
        4.3.1    Relevance of feeder traffic analysis................................................... 36
        4.3.2    Market definition ............................................................................... 37
   4.4  Air transport of cargo ...................................................................................... 39
   4.5  Maintenance, repair and overhaul (“MRO”) services ..................................... 41
   4.6  Dry-leasing, wet-leasing and franchise services to other airlines ................... 42
   4.7  Ground-handling services ................................................................................ 49
   4.8  Competitive situation most likely to prevail absent the Transaction .............. 50
        4.8.1    Flybe’s history and financial background ......................................... 51
        4.8.2    Failing Firm ....................................................................................... 51
                                                           2
 ---pagebreak---         4.8.3    Most likely situation absent the Transaction ..................................... 54
        4.8.4    Conclusion ......................................................................................... 56
   4.9  Competitive situation for the assessment of air/rail overlaps .......................... 56
5. COMPETITIVE ASSESSMENT .............................................................................. 57
   5.1  Passenger air transport services ....................................................................... 57
        5.1.1    Passenger air transport services under the O&D approach ............... 57
        5.1.2    Passenger air transport services under the airport-by-airport
                 approach............................................................................................. 89
        5.1.3    Feeder traffic.................................................................................... 110
   5.2  Dry leasing services to airlines ...................................................................... 123
   5.3  Wet-leasing services to airlines ..................................................................... 124
   5.4  Franchise services to airlines ......................................................................... 125
   5.5  Cargo air transport services ........................................................................... 126
   5.6  MRO services ................................................................................................ 127
        5.6.1    Horizontal overlaps.......................................................................... 127
        5.6.2    Vertically affected markets.............................................................. 127
        5.6.3    Conclusion ....................................................................................... 128
   5.7  Ground-handling services .............................................................................. 128
   5.8  Airport infrastructure services ....................................................................... 129
   5.9  Conclusion ..................................................................................................... 131
6. THE PROPOSED COMMITMENTS ..................................................................... 132
   6.1  Description .................................................................................................... 132
        6.1.1    Slot release on city pairs with competition concerns ...................... 132
        6.1.2    Conditions pertaining to the slots .................................................... 133
        6.1.3    Grandfathering rights ....................................................................... 133
        6.1.4    Consideration ................................................................................... 134
        6.1.5    Other provisions .............................................................................. 134
        6.1.6    Sunset clause ................................................................................... 135
   6.2  Assessment of the proposed Commitments ................................................... 135
        6.2.1    Structure and design of the Commitments ...................................... 136
        6.2.2    Outcome of the market test.............................................................. 136
        6.2.3    Conclusion on the Commitments .................................................... 137
7. CONCLUSION ....................................................................................................... 140
                                                          3
 ---pagebreak---   Dear Sir or Madam,
(1)     On 14 May 2019, the European Commission received notification of a proposed
        concentration pursuant to Article 4 of the Merger Regulation by which Virgin
        Atlantic Limited (“Virgin Atlantic”), Cyrus Capital Partners, L.P. (“Cyrus”) and
        Stobart Group Limited (“Stobart Group”) acquire, through Connect Airways,
        within the meaning of Article 3(1)(b) of the Merger Regulation joint control of
        Flybe Group plc (“Flybe Group”) and its trading subsidiaries, Flybe Limited, which
        owns Flybe Aviation Services Limited, and Flybe.com Limited (Flybe Limited,
        Flybe Aviation Services Limited and Flybe.com are together referred to as
        “Flybe”).
(2)     Virgin Atlantic, Cyrus and Stobart Group also acquire, through Connect Airways,
        within the meaning of Article 3(1)(b) and 3(4) of the Merger Regulation joint
        control of Propius Holdings Ltd (“Propius”), Stobart Aviation Limited’s aircraft
        leasing business, as well as of Stobart Aviation’s operating airline business, Stobart
        Air Unlimited Company (“Stobart Air”).3 Virgin Atlantic, Cyrus and Stobart Group
        are together referred to as “the Notifying Parties”. Flybe Group, Flybe, Propius and
        Stobart Air are together referred to as the “Target companies”. The operations which
        bring about the above mentioned concentrations are jointly referred to as the
        “Transaction”.
  1.  THE PARTIES
(3)     Virgin Atlantic is the holding company of Virgin Atlantic Airways Limited
        (“VAA”), and Virgin Holidays Limited, a tour operator in the United Kingdom.
(4)     VAA is an airline registered in the United Kingdom, which flies to 34 destinations
        worldwide, including locations across the United States, Canada, Mexico and the
        Caribbean, and certain destinations in Africa, the Middle East and Asia. VAA
        primarily provides passenger air transport services but also cargo air transport
        services as well as maintenance, repair, and overhaul (“MRO”) services.
(5)     Virgin Atlantic is currently jointly controlled by Virgin Group Holdings Limited
        (“Virgin Group”) and Delta Air Lines, Inc. (“Delta”).4 On 8 January 2019, before
        the notification of the Transaction, Air France-KLM S.A. (“AFKL”, France), Delta
        and Virgin Group notified the Commission of their intention to acquire joint
        control over Virgin Atlantic within the meaning of Article 3(1)(b) and 3(4) of the
        Merger Regulation. That concentration was cleared unconditionally by the
        Commission on 12 February 2019.5
  3  Publication in the Official Journal of the European Union No C 171, 20.05.2019, p. 24.
  4  See Case M.6828 – Delta Air Lines/Virgin Group/Virgin Atlantic Limited.
  5  See Case M.8964 – Delta/Air France-KLM/Virgin Group/Virgin Atlantic. Completion of this
     transaction remains subject to a number of regulatory approvals, including a grant of antitrust
     immunity for the joint venture from the US Department of Transportation. The latter is not expected
     before July 2019, see Form CO, paragraph 113. Therefore, AFKL is not expected to acquire joint
     control, together with Virgin Group and Delta, over Virgin Atlantic before July 2019.
                                                          4
 ---pagebreak--- (6)    Consistent with its previous practice, the Commission undertakes to review notified
       concentrations affecting identical or overlapping markets in the order in which they
       are notified to it on a “first come, first served” basis, based on the date of
       notification.6
(7)    The Commission notes in that regard that, in assessing the competition effects of a
       proposed transaction under the Merger Regulation, it needs to compare the
       competitive conditions that would result from the notified concentration with those
       that would have prevailed in the absence of the concentration. As a general rule, the
       competitive conditions prevailing at the time of notification constitute the relevant
       framework for evaluating the effects of a concentration. In some circumstances,
       however, the Commission may take into account future changes to the market that
       can be reasonably predicted.
(8)    Therefore, the Transaction should be assessed taking into account the acquisition of
       joint control by AFKL over Virgin Atlantic, together with its current parents Delta
       and Virgin Group, notified on 8 January 2019 and cleared unconditionally on 12
       February 2019.
(9)    The starting point for the Commission’s assessment of the Transaction is therefore
       a market structure in which Virgin Atlantic is jointly controlled by AFKL, Delta
       and Virgin Group. For the purpose of this Decision, Virgin Atlantic (and its current
       and future parents, i.e. Virgin Group, Delta and AFKL), Cyrus, Stobart Group are
       together referred to as the “Parties”.
(10)   AFKL and Delta provide passenger air transport services, cargo air transport
       services, and MRO services. Each of AFKL and Delta flies to more than 300
       destinations worldwide. Virgin Group is the holding company of a group of
       companies active in a wide range of products and services worldwide. In particular,
       Virgin Group jointly controls West Coast Trains Limited (“Virgin Trains”)
       together with Stagecoach. Virgin Trains operates the Inter City West Coast rail
       franchise in the United Kingdom. In addition, Virgin Group is controlling Virgin
       Holiday, a long-haul scheduled UK tour operator.
(11)   Cyrus is an investment adviser managing over USD [4] billion in securities and
       loans. Its client base is predominantly endowments, foundations and family offices.
       [confidential information about Cyrus’s investment strategy]
(12)   Stobart Group is active in aviation and infrastructure. Stobart Aviation forms one
       of the three core operating divisions of Stobart Group. Stobart Aviation invests in,
       develops and operates a number of aviation-related businesses. It controls London
       Southend Airport, Carlisle Lake District Airport, the Stobart Jet Centre, Stobart
       Aviation Services, Stobart Air and Propius, its aircraft leasing business.
(13)   Flybe Group is the parent company of Flybe. Flybe is a British regional airline with
       a focus on short-haul, point-to-point flights. It currently operates 190 routes serving
       12 countries from 73 departure points in the United Kingdom (29 routes) and other
  6  See for example Cases M.7962 – ChemChina/Syngenta; M.6214 – Seagate/HDD Business of
     Samsung; M.6203 – Western Digital Ireland/Viviti Technologies.
                                                       5
 ---pagebreak---          European countries (44 routes). Flybe operates a fleet of 76 aircraft (most of which
         are small turboprop aircraft with 78 or fewer seats).
(14)     In addition to its scheduled passenger regional airline services, charter and cargo
         transport services and white-label flying for third party airlines, Flybe’s training
         academy provides pilot, crew, engineering and other training services in-house and
         to third parties. Flybe also owns a MRO facility servicing both internal and third
         party customers.
  2.   CONCENTRATION
  2.1     Overview
(15)     The Transaction comprises the following two transactions, which in turn comprise
         three acquisitions by Virgin Atlantic, Cyrus and Stobart Aviation.
(16)     On 11 January 2019, Connect Airways Limited (“Connect Airways”), a mere
         acquisition vehicle jointly owned by Virgin Atlantic, through its wholly-owned
         subsidiary Virgin Travel Group Limited (30%), Cyrus, through its wholly-owned
         subsidiary DLP Holdings S.à r.l. (40%), and Stobart Group, through its wholly-
         owned subsidiary Stobart Aviation (30%), announced a recommended cash offer to
         acquire the entire issued and to be issued share capital of Flybe Group, by way of a
         scheme of arrangement under Part 26 of the UK Companies Act 2006 (the “first
         transaction”).7
(17)     Due to Flybe’s degrading financial position and in order to lessen the risk exposure
         of Flybe’s commercial counterparties (notably its credit card acquirers), the Parties
         had to arrange for a quicker change of control over Flybe. On 15 January 2019,
         Flybe Group and Connect Airways thus entered into a share purchase agreement,
         pursuant to which Connect Airways acquires the entire issued share capital of
         Flybe (Flybe Group’s trading subsidiaries) (the “second transaction”).8
(18)     As part of the second transaction, Stobart Aviation offered to sell to Connect
         Airways as consideration for its shareholding in Connect Airways (and resultantly
         Flybe) the entire issued share capital of Propius and 40% of the ordinary share
         capital of Stobart Air (through Everdeal 2019 Limited).9
  2.2    Acquisition of joint control over Flybe Group, Flybe, Propius and Stobart Air
(19)     The binding terms of the joint bid agreement between Virgin Atlantic, Cyrus and
         Stobart Aviation dated 11 January 2019 provide for the governance rights of each
  7   Form CO, paragraph 5.
  8   Annex A.4 to the Form CO.
  9   Pre-Transaction, Stobart Air is wholly owned and controlled by Stobart Aviation. Following internal
      reorganisation, Everdeal 2019 Limited indirectly holds 100% of the ordinary share capital of Stobart
      Air. After the second transaction, 40% of the ordinary share capital of Everdeal 2019 Limited is held
      by Connect Airways [confidential information about Stobart’s governance and the transaction
      structure]. See Form CO, paragraph 116, reply to RFI 7 of 1 July 2019 and email of the Parties of 4
      July 2019.
                                                         6
 ---pagebreak---         of Virgin Atlantic, Cyrus and Stobart Aviation over Connect Airways, defined as a
        limited company established for the purpose of pursuing the first transaction.10
(20)    In particular, pursuant to the joint bid agreement with regard to Flybe Group,
        including its trading subsidiaries and the Shareholders’ Agreement in relation to
        Connect Airways Limited:11
       a. [details of governance structure of Connect Airways, giving rise to joint control
            by each of Virgin Atlantic, Cyrus and Stobart Aviation];
       b. [details of governance structure of Connect Airways, giving rise to joint control
            by each of Virgin Atlantic, Cyrus and Stobart Aviation];
       c. [details of governance structure of Connect Airways, giving rise to joint control
            by each of Virgin Atlantic, Cyrus and Stobart Aviation]12
(21)    [details of the corporate governance of Connect Airways]13 [details of the corporate
        governance of Connect Airways]
(22)    In light of the above considerations, each of Virgin Atlantic, Cyrus and Stobart
        Aviation has the possibility to exercise decisive influence over Connect Airways,
        which is used as a mere vehicle for the acquisition of Flybe Group, including its
        trading subsidiaries, by Virgin Atlantic, Cyrus and Stobart Aviation.14
(23)    Therefore, as a result of the first transaction, each of Virgin Atlantic, Cyrus and
        Stobart Aviation acquires joint control over Flybe Group and its trading
        subsidiaries.
(24)    As part of the second transaction, Connect Airways acquires the entire issued share
        capital of Propius. Therefore, each of Virgin Atlantic, Cyrus and Stobart Aviation
        acquires joint control over Propius.
(25)    As part of the second transaction, Connect Airways also acquires 40% of the
        ordinary share capital of Everdeal 2019 Limited, which indirectly holds 100% of
        the ordinary share capital of Stobart Air. It has been agreed that, as a result of the
        shareholders’ agreement and articles of association for Everdeal 2019 Limited:15
  10 Annex A.2 to the Form CO.
  11 Annex A.2 to the Form CO, Schedule 1 – Binding terms of shareholders’ agreement; Annex A.5 to the
     Form Co, Shareholders’ Agreement in relation to Connect Airways Limited.
  12 [details of the business plan]
  13 Annex A.5 to the Form Co, Shareholders’ Agreement in relation to Connect Airways Limited, clause
     15.
  14 See paragraph 147 of the Commission Consolidated Jurisdictional Notice under Council Regulation
     (EC) No 139/2004 on the control of concentrations between undertakings, OJ C 95, 16.4.2008, p. 1
     (the “Commission Consolidated Jurisdictional Notice”).
  15 Annex A.6 to the Form CO, Everdeal Shareholders Agreement of 21 February 2019 and Annex A.7 to
     the Form CO, Everdeal Articles of 21 February 2019.
                                                       7
 ---pagebreak---        a. [details of the corporate governance structure of Everdeal, giving control to
            Connect Airways]16 [details of the corporate governance structure of Everdeal,
            giving control to Connect Airways];
       b. [details of the corporate governance structure of Everdeal, giving control to
            Connect Airways]
(26)    Therefore, as a result of the second transaction, each of Virgin Atlantic, Cyrus and
        Stobart Aviation (through Connect Airways) and Everdeal Employees 2019
        Limited acquires joint control over Stobart Air.
  2.3   The first and second transaction constitute a single concentration
(27)    As indicated in sections 2.1 and 2.2 above, the Transaction comprises the first and
        second transactions, which in turn comprise the acquisition of joint control by
        Virgin Atlantic, Cyrus and Stobart Aviation (through Connect Airways), by way of
        purchase of shares, over (i) Flybe Group, (ii) Flybe, and (iii) Propius and, together
        with Everdeal Employees 2019 Limited, over Stobart Air.
(28)    Virgin Atlantic, Cyrus and Stobart Aviation submit that, although these three
        acquisitions are not contractually inter-conditional, they are clearly unitary and
        interdependent and thus constitute a single concentration within the meaning of
        Article 3 of the Merger Regulation.17
(29)    According to paragraph 38 of the Commission Consolidated Jurisdictional Notice,
        “[t]wo or more transactions constitute a single concentration for the purposes of
        Article 3 if they are unitary in nature. (…) For the assessment, the economic reality
        underlying the transactions is to be identified and thus the economic aim pursued
        by the parties. In other words, in order to determine the unitary nature of the
        transactions in question, it is necessary, in each individual case, to ascertain
        whether those transactions are interdependent, in such a way that one transaction
        would not have been carried out without the other.” In addition, according to
        paragraph 45 of the Commission Consolidated Jurisdictional Notice, “[a] single
        concentration may therefore exist if the same purchaser(s) acquire control of a
        single business, i.e. a single economic entity, via several legal transactions if those
        are inter-conditional.”
(30)    The Commission considers that the three acquisitions by Connect Airways are de
        facto inter-conditional.
(31)    First, the acquisition of Flybe Group (the first transaction) was intended to result in
        the acquisition of its trading subsidiaries (Flybe) as well. As acknowledged by
        Virgin Atlantic, Cyrus and Stobart Aviation, the acquisition of Flybe by way of a
        separate transaction (the second transaction) is only a “technical matter” entailed
        by the “severe financial distress of Flybe.”18 After completion of the second
        transaction, which would precede the first transaction, Flybe Group will have no
  16  See footnote 9.
  17  Form CO, paragraph 137.
  18  See paragraph 3.15 of the Application for a derogation and Form CO, paragraph 143.
                                                          8
 ---pagebreak---         assets or market presence. However, Virgin Atlantic, Cyrus and Stobart Aviation
        will remain committed legally to implement the first transaction, subject to
        shareholder approval.19
(32)    Second, the acquisition of a 100% shareholding in Propius and a 40% shareholding
        in Stobart Air forms part of the consideration to be paid by Stobart Aviation for its
        acquisition of joint control over Flybe via the second transaction.20 In addition,
        completion of the two operations (the acquisition of Flybe and the acquisition of
        the shareholding in Propius and Stobart Air) is to occur simultaneously.21
        Therefore, since neither of the acquisition of Flybe and of the acquisition of
        Propius and a 40% shareholding in Stobart Air would take place without the other,
        the two operations are interdependent.
(33)    Furthermore, the Commission considers that the three acquisitions are required to
        transfer to Virgin Atlantic, Cyrus and Stobart Aviation a single business, i.e. a
        single economic entity managed for a common commercial purpose to which all
        the assets contribute. The Commission notes in particular that, according to Virgin
        Atlantic, Cyrus and Stobart Aviation, “the acquisition of Stobart Air and Propius
        by Connect Airways is therefore an integral part of the formation of the Connect
        Airways business” and “combining Flybe and Stobart Air in a more integrated
        commercial co-operation with Virgin Atlantic’s long-haul operations will create a
        fully-fledged UK network carrier under the Virgin Atlantic brand.”22
(34)    In light of the above considerations, the first and second transactions, which
        comprise the acquisition of joint control over Flybe Group, Flybe, Propius and
        Stobart Air, are interdependent and lead to the acquisition of joint control by Virgin
        Atlantic, Cyrus and Stobart Aviation over a single business. This jointly controlled
        single business, consisting of Flybe Group, Flybe, Propius and Stobart Air, will be
        a full-function joint venture, since it will have sufficient own staff, financial
        resources and dedicated management for its operations, it will consist of pre-
        existing businesses, will not be limited to exercising a specific function for its
        parents thus having its independent market presence, it will not have significant
        sale or purchase relationships with its parent and will operate on a lasting basis.23
  19 Form CO, paragraph 143 et seq.
  20 More specifically, part of Stobart Aviation’s investment in Connect Airways is to be satisfied by way
     of a contribution in kind of Propius and a shareholding in Stobart Air, see Form CO, paragraphs 14
     and 140.
  21 See paragraph 3.10 of the Application for a derogation and Form CO, paragraphs 134 and 140.
  22 See paragraphs 3.10 and 3.19 of the Application for a derogation and Form CO, paragraphs 66 and
     140.
  23 The first transaction (the acquisition of Flybe by Virgin Atlantic, Cyrus and Stobart Aviation) will lead
     to several undertakings acquiring joint control of another undertaking from a third party. Since the
     undertaking is acquired from a third party, the first transaction does not trigger an assessment of the
     full-functionality criterion (para. 91 of the Consolidated Jurisdictional Notice). However, the second
     transaction (the acquisition of Stobart Air and Propius by Virgin Atlantic, Cyrus and Stobart Aviation)
     leads to the acquisition of joint control from one of the parties that will acquire joint control, namely
     Stobart Aviation. The second transaction therefore triggers the need to assess whether the single
     business that is being acquired (Flybe, Stobart Air and Propius) and that will be jointly controlled is a
                                                           9
 ---pagebreak--- (35)     Therefore, the first and second transactions constitute a single concentration within
         the meaning of Article 3 of the Merger Regulation.
  2.4    Conclusion
(36)     The Transaction, by which Virgin Atlantic, Cyrus and Stobart Aviation acquire
         joint control over the business made of Flybe Group, Flybe, Propius and Stobart
         Air constitutes a concentration within the meaning of Article 3(1)(b) and Article
         3(4) of the Merger Regulation.
(37)     The notification of the Transaction follows the adoption by the Commission of a
         decision under Article 7(3) of the Merger Regulation. Flybe has experienced
         negative operational results in three of the last four financial years and its financial
         position worsened as of spring 2018 leading to Flybe facing the imminent risk of
         insolvency in mid-January 2019. Virgin Atlantic, Stobart Group and Cyrus
         requested a derogation from the standstill obligation in mid-February 2019. The
         Commission granted a derogation decision pursuant to Article 7 (3) EUMR on 21
         February 2019 despite prima facie competition concerns considering that the
         request was justified by the severe financial distress affecting Flybe and the risk
         that it would stop trading if a change of control would not occur by that date (the
         “Derogation Decision”). The derogation was granted subject to conditions aiming
         at preserving effective competition until the Commission completes its merger
         review process. These conditions included, amongst others, the following: that no
         voting rights are exercised by Connect Airways in the Target companies and that
         the acquired business is held separate from Connect Airways.24
(38)     Pursuant to the Derogation Decision, the acquisition of shares in Flybe, Propius
         and Stobart Air was completed on 21 February 2019.25 The first transaction, the
         recommended cash offer to acquire the entire issued and to be issued share capital
         of Flybe Group, by way of a scheme of arrangement under Part 26 of the UK
         Companies Act 2006, became effective on 11 March 2019.26
  3.   EU DIMENSION
(39)     The undertakings concerned have a combined aggregate world-wide turnover of
         more than EUR 5 000 million27 (Virgin Atlantic: c. EUR […]; Cyrus: c. EUR […]
      full-function joint venture (para. 92 of the Consolidated Jurisdictional Notice). See also judgement of
      the Court of 7 September 2017, C-248/16, Austria Asphalt.
  24  Those conditions were subject to certain exceptions, for example the agreement and implementation of
      improved commercial terms with Flybe’s key suppliers by Virgin Atlantic, Cyrus and Stobart
      Aviation. See Commission Decision C(2019) 1605 of 21 February 2019, to be published.
  25  Form CO, paragraph 151.
  26  Form CO, paragraph 149.
  27  Turnover calculated in accordance with Article 5(1) of the Merger Regulation and the Commission
      Consolidated Jurisdictional Notice - CJN (OJ C95, 16.4.2008, p. 1). Virgin Atlantic’s turnover does
      includes Virgin Group, see Form CO, footnote 80. While Delta’s turnover is not included, the turnover
      thresholds for EU merger control are met. (AFKL’s turnover will not be taken into account since the
                                                          10
 ---pagebreak---         million; Stobart Group: c. EUR […] million; Flybe Group: c. EUR […]). Each of
        them has an EU-wide turnover in excess of EUR 250 million (Virgin Atlantic: c.
        EUR […]; Cyrus: c. EUR […]; Stobart Group: c. EUR […]; Flybe Group: c. EUR
        […]),28 and not each of them achieves more than two-thirds of their aggregate EU-
        wide turnover within one and the same Member State.29 The notified operation
        therefore has an EU dimension.
  4.  ANALYTICAL FRAMEWORK AND MARKET DEFINITION
(40)    The activities of the Connect Airways (also through Virgin Atlantic’s parent
        companies AFKL, Delta and Virgin Group) and the Target companies overlap with
        regard to (i) passenger air transport (under both the route-by-route and the airport-
        by-airport approaches), (ii) cargo air transport and, (iii) maintenance, repair and
        overhaul (“MRO”) services for aircraft. In addition, the Transaction gives rise to
        vertical relationships in relation to the provision of (i) access to flights of another
        carrier for connecting passengers (“feeder traffic”), (ii) MRO services, (iii)
        franchise services, (iv) aircraft leasing services, (v) ground-handling services and
        (vi) airport infrastructure services.
(41)    While the Parties accept that post-Transaction there will be an unbroken chain of
        control of AFKL (and Delta) over Flybe, they nevertheless claim that AFKL and
        Flybe would continue to operate as independent undertakings, as AFKL would
        only have a small indirect interest in Flybe (as the result of its future minority
        shareholding in Virgin Atlantic),30 AFKL would only be a minority shareholder in
        Virgin Atlantic and would not have the ability to unilaterally pass decisions
     AFKL transaction was not closed before the date of establishing jurisdiction for the transaction at
     hand, see CJN, para. 172.)
  28 The Commission has identified three possibilities for the geographic allocation of the turnover of air
     carriers: (i) the “50/50 split” method, (ii) the “point of origin” method, and (iii) the “point of sale”
     method (see e.g. Case M.4439 Ryanair/Aer Lingus, recital 13 et seq.). The “50/50 split” method
     consists in allocating the revenue from an individual route operated by an air carrier in a 50%/50%
     ratio to the country of origin and the country of final destination so as to take into account the cross
     border character of the service provided. The “point of origin” method consists in allocating the
     revenue from an individual route operated by an air carrier to the country where the place of departure
     of the flight is located. The “point of sale” method consists in allocating the revenue from an
     individual route operated by an air carrier to the country where the place of departure of the flight is
     located. The “point of sale” method consists in allocating the turnover to the country where the ticket
     sale occurred. The EU-wide turnovers of Virgin Atlantic, Stobart Group and Flybe Group have been
     calculated on the basis of the “point of origin” methodology. The EU turnover thresholds are also met
     under the “50/50 split” method. Virgin Atlantic’s turnover meets the EU turnover thresholds also
     under the “point of sale” method. However, since the vast majority of its bookings are made online,
     Flybe is unable to allocate its turnover on the basis of the “point of sale” method. Stobart Group is also
     unable to allocate its turnover on the basis of the “point of sale” method since Stobart Air operates as a
     franchise carrier for Aer Lingus and the passenger sales data, including the location of the customer
     when a ticket is purchased, is collected by Aer Lingus and not provided to Stobart Air. The Parties
     estimate that the thresholds are also met under the “point of sale” method.
  29 [confidential turnover information].
  30 Form CO, paragraph 46.
                                                           11
 ---pagebreak---         relating to Virgin Atlantic or Connect Airways. [confidential information about the
        transaction structure and governance]31
(42)    The Commission acknowledges that AFKL will have only indirect control over
        Flybe on the basis of the Commission’s clearance decision of 12 February 2019 of
        the acquisition of joint control over Virgin Atlantic by AFKL, Delta and Virgin
        Group. However, as concluded in that decision, AFKL acquires joint control over
        Virgin Atlantic together with Delta and Virgin Group.
(43)    With the Transaction assessed in the present decision, each of Virgin Atlantic,
        Cyrus and Stobart Aviation acquires joint control over Flybe within the meaning of
        Article 3(1)(b) of the Merger Regulation.
(44)    Consequently, AFKL post-Transaction exercises joint control over Flybe through
        an unbroken chain of control. Even if, as the Parties claim, AFKL would, under the
        current governance structure, not have the ability to determine business decisions
        on Flybe in its favour, any such decisions, should they nevertheless pass, would be
        covered by the Commission’s clearance decision under the Merger Regulation. In
        line with its decisional practice in cases involving joint control, the Commission
        will therefore take AFKL’s market position into account for the competitive
        assessment of the Transaction at hand.
(45)    Proper examination of the competitive effects of a transaction under the Merger
        Regulation rests in particular on a sound understanding of (i) the competitive
        constraints under which the merged entity will operate, and (ii) the specific causal
        effects of the transaction on the development of competition in the market.
(46)    Along those lines, and taking account of the forward-looking nature of merger
        control, the Commission will first define the markets that may be relevant for the
        purpose of the competitive assessment of the Transaction (Sections 4.1-4.8). The
        Commission will then determine the circumstances likely to prevail on the relevant
        markets absent the Transaction, including whether the failing firm defence applies
        (Section 4.9-4.10) and discuss how it will assess the competitive situation of air/rail
        overlaps for the purpose of this Decision (Section 4.10).
  4.1   Air transport of passengers - O&D approach
  4.1.1 Relevance of the O&D approach
(47)    In respect of air transport services of passengers, the Commission has, in its prior
        decision practice related to air transport, defined the relevant markets for scheduled
        passenger air transport services on the basis of two approaches: (i) the “point of
        origin/point of destination” (“O&D”) city-pair approach, where the target was an
  31  Form CO, paragraph 355 et seq.
                                                    12
 ---pagebreak---          active air carrier;32 and (ii) the “airport-by-airport” approach, when the target held
         an important slot portfolio.33
(48)     Under the O&D approach, every combination of an airport or city of origin to an
         airport or city of destination is defined as a distinct market. Such a market
         definition reflects the demand-side perspective whereby passengers consider all
         possible alternatives of travelling from a city of origin to a city of destination,
         which they do not consider substitutable for a different city pair. The effects of a
         transaction on competition are thus assessed for each O&D separately.
(49)     As a result, every combination of a point of origin and a point of destination is
         considered a separate market.34, 35
  4.1.2 Distinction between groups of passengers
(50)     The Parties submit that the Commission can leave open the question as to whether
         a distinction should be made between time sensitive (“TS”) and non-time-sensitive
         (“NTS”) passengers on short-haul routes and submitted data not distinguishing
         between categories groups of passengers.36
(51)     The Commission has in its decisional practice (mostly concerning network carriers)
         considered distinguishing, for a given O&D route, between (i) TS or premium
         passengers who tend to travel for business purposes, require significant flexibility
         for their tickets and are willing to pay higher prices for this flexibility, and (ii) NTS
         or non-premium passengers who travel predominantly for leisure purposes, do not
         require flexibility with their booking and are more price-sensitive than the first
         category.37
(52)     However, in recent decisions, the Commission has considered that the distinction
         between TS and NTS passengers has become blurred. Passengers are becoming
         increasingly price-sensitive and more and more corporate customers apply lowest
  32  See e.g. Cases M. 8964 – Delta/Air France-KLM/Virgin Group/Virgin Atlantic, paragraph 48; M. 8869
      – Ryanair/LaudaMotion, paragraph 96; M.7541 – IAG/Aer Lingus, paragraph 14; M.7333 –
      Alitalia/Etihad, paragraph 63; M.6447 - IAG/bmi, paragraph 31.
  33  See e.g. Cases M. 8964 – Delta/Air France-KLM/Virgin Group/Virgin Atlantic, paragraph 48; M.8869
      – Ryanair/LaudaMotion, paragraph 116, M.8672 – easyJet/Certain Air Berlin Assets, paragraph 41;
      M.8633 – Lufthansa/Certain Air Berlin Assets, paragraph 58; M.6447 – IAG/bmi, paragraph 483. For
      Cases M.8672 – easyJet/Certain Air Berlin Assets and M.8633 – Lufthansa/Certain Air Berlin Assets,
      the Commission only carried out an airport-by-airport assessment, since the target assets did not
      constitute an active air carrier since Air Berlin had definitively ceased its flight operations on all O&D
      markets due to its insolvency.
  34  See e.g Case M.8869 – Ryanair/LaudaMotion, paragraph 62.
  35  If follows from the O&D approach that connecting passengers are not part of the same market as O&D
      passengers, see e.g. Case M.7333 – Alitalia/Etihad, paragraph 65.
  36  Form CO, paragraph 274.
  37  See e.g. Cases M.7333 – Alitalia/Etihad, paragraphs 70 et seq.; M.7270 – Cesky Aeroholding Travel
      Service/Ceske Aerolinie, paragraph 20 et seq.; M.6663 – Ryanair/Aer Lingus III, recital 382; M.6607 –
      US Airways/American Airlines, paragraph 8; M.6447 – IAG/bmi, paragraph 36.
                                                            13
 ---pagebreak---         fare policies. Moreover, on short-haul flights, the distinction between TS and NTS
        has become somewhat artificial, as the offerings for TS and NTS passengers on
        these routes have become very similar. The transportation of both categories of
        passengers usually takes place in the same cabin and further product differentiation
        (e.g. included meals, newspapers and magazines) are mostly also available to NTS
        passengers for an upgrade fee. The Commission found that it was not appropriate
        on short-haul routes to define separate markets for TS and NTS and instead
        considered a market comprising all passengers.38
(53)    In this context, the Commission notes that the relevant routes for the purpose of the
        competitive assessment of the Transaction are all short-haul routes, with Flybe
        operating only a single cabin.39
(54)    Moreover, the market investigation has not produced evidence indicating that the
        Commission should depart from the approach it has recently taken in respect of
        short-haul routes. In particular, respondents have not submitted material comments
        suggesting that there is any need to define separate markets for the different
        categories of passengers for the purpose of analysing the Transaction.40
(55)    In the light of the above, the Commission concludes that, for the purposes of the
        Transaction, it is not appropriate to define separate markets for different categories
        of passengers, whether according to the distinction between TS and NTS
        passengers.
  4.1.3 Distinction between direct and indirect flights
(56)    On a given O&D pair, passengers can travel by way of a direct flight between the
        point of origin and the point of destination or by way of an “indirect” flight on the
        same O&D pair via an intermediate destination.41
(57)    In previous cases, the Commission considered that the substitutability between
        direct and indirect flights on a route-by-route basis depends on various factors,
        including notably the flight duration, but also price considerations or the
        inconvenience associated with the indirect flight. In particular, with regard to short-
        haul routes (generally below 6 hours flight duration) it was considered that indirect
        flights do not generally provide a competitive constraint to direct flights absent
        exceptional circumstances, for example, the direct connection does not allow for a
  38  See e.g. Case M. 8869 – Ryanair/LaudaMotion, paragraph 138 et seq.; M.7541 – IAG/Aer Lingus,
      paragraph 28; M.6663 – Ryanair/Aer Lingus III, paragraph 387.
  39  Form CO, paragraph 274.
  40  Replies to eQ1 – Questionnaire to Airlines, question 66; eQ2 – Questionnaire to Corporate Customers,
      question 17 and eQ3 – Questionnaire to Travel Agents, question 18.
  41  See e.g. Cases M. 8361 – Qatar Airways/Alisarda/Meridiana, paragraph 24; M. 7541 – IAG/Aer
      Lingus, paragraph 30; M.7333 – Alitalia/Etihad, paragraph 75; M.6663 – Ryanair/Aer Lingus III,
      paragraph 373.
                                                         14
 ---pagebreak---          one-day return trip or the share of indirect flights in the overall market is
         significant.42
(58)     The Parties submit that, should direct and indirect flights be considered
         substitutable, the Transaction gives rise to 22 affected direct/indirect overlap
         routes.43 The Parties consider that the indirect services do not provide a
         competitive constraint on the direct service on the direct/indirect overlap routes.44
(59)     However, on 10 routes, also the share of indirect flights in both seasons is
         significant, i.e. higher than [10-20]%.45 On 20 of the 22 direct/indirect overlap
         routes, the direct flight does not allow for a one-day return trip. Therefore, the
         criterion of exceptional circumstances would in principle be fulfilled.
(60)     It can however be left open if direct and indirect flights are substitutable in this
         case as the Transaction would not raise serious doubts as to its compatibility with
         the internal market under any plausible market definition as assessed in Section
         5.1.1.6 below.
  4.1.4 Airport substitutability
  4.1.4.1 Analytical framework
(61)     When defining the relevant O&D markets for passenger air transport services, the
         Commission has previously found that flights to or from airports with sufficiently
         overlapping catchment areas can be considered as substitutes in the eyes of
         passengers (particularly if the airports serve the same main city). In order to
         correctly capture the competitive constraint that flights to or from two different
         airports exert on each other, a detailed analysis taking into consideration the
         specific characteristics of the relevant airports is necessary.46
(62)     The evidence used to characterise airport substitutability includes inter alia a
         comparison of actual distances and travelling times to the indicative benchmark of
  42  See e.g. Cases M. 8361 – Qatar Airways/Alisarda/Meridiana, paragraph 25; M. 7541 – IAG/Aer
      Lingus, paragraph 32; M.7333 – Alitalia/Etihad, paragraph 77; M.6663 – Ryanair/Aer Lingus III,
      paragraph 375.
  43  These are the following routes: BER-BHX, BER-CWL, BES-BHX, BHX-HAJ, BHX-HAM, BHX-
      MIL, BHX-NTE, BHX-STR, BHX-TLS, BUD-HUY, CWL-DUS, CWL-GVA, CWL-MUC, CWL-
      ROM, CWL-VCE, GVA-SOU, HAJ-MAN, HUY-VCE, INV-AMS, LUX-MAN, LYS-SOU, MAN-
      TLS.
  44  Form CO, paragraph 540.
  45  See Cases M.2672 – SAS/Spanair, paragraph 15 and M.3280 – Air France/KLM, paragraph 80. See
      also e.g. Cases M.7541 – IAG/Aer Lingus, paragraphs 151 et seq. and M.7333 – Alitalia/Etihad,
      paragraphs 171 et seq., for the filters applied by the Commission for direct/indirect overlap routes to
      exclude likely unproblematic routes from the scope of its investigation, for example short-haul routes
      where the total share of indirect operations in the relevant market was below 10%.
  46  See e.g. Cases M.8361 – Qatar Airways/Alisarda/Meridiana, paragraph 29; M.7333 –Alitalia/Etihad,
      paragraph 82; M.6663 – Ryanair/Aer Lingus III, paragraph 65.
                                                            15
 ---pagebreak---          100 km/1 hour driving time,47 the outcome of the market investigation (views of
         the competitors and other market participants), and the competitors’ practices in
         terms of monitoring of competition.
(63)     In the present case, taking account of the relevant routes where the Parties’
         activities overlap, the question of airport substitutability arises for the routes to or
         from the following cities: Paris, Birmingham, London and Manchester.
(64)     Conversely, for the purpose of this Decision, the question of airport substitutability
         is not relevant for Berlin, Duesseldorf and Milan.48
  4.1.4.2 Assessment of airport substitutability
  4.1.4.2.1 Paris
(65)     Paris has two main airports, namely Paris Charles de Gaulle (CDG) and Paris Orly
         (ORY). Paris is also served by Beauvais airport (BVA).
(66)     In its prior decision practice, the Commission has considered ORY and CDG as
         substitutable airports, but ultimately left the question open.49 The Commission has
         also considered whether CDG and BVA were substitutable.50
(67)     The Notifying Parties do not contest the Commission’s approach and have
         provided a competitive assessment for each plausible airport pair.51
(68)     For the purposes of the O&D assessment of the Transaction, the question of airport
         substitutability is relevant for the following direct/direct overlap routes: Paris-
         Manchester, Paris-Birmingham and Paris-Edinburgh.
  47  The 100 km/1 hour driving time is nevertheless used as a first proxy only. It was defined by the
      Commission in the specific case of routes served out of Dublin by two airlines with typical attributes
      of low-frills point-to-point carriers. This "rule" is thus not necessarily strictly applicable for other cases
      (see Case M.6663 – Ryanair/Aer Lingus III, paragraph 82). In this regard, in "Airport Competition:
      Myth or Reality? IATA Economics Briefing", November 2017, it is noted that "[w]hile isochrones are
      a simple and powerful visual tool, they are of limited use in understanding the choices that passengers
      actually make. (…) Moreover, the proximity of an alternative airport can only represent a relevant
      choice if the airlines which compete with each other offer a substitutable service, for instance a
      comparable itinerary. Isochrone maps do not reflect the availability of services at comparator airports
      and are therefore likely to overstate the extent of effective airport competition."
  48  Berlin, Duesseldorf and Milan are cities where the Parties are active and which are served by several
      airports. Nevertheless, the question of airport substitutability does not arise given that the Parties only
      operate the affected routes to/from the same airport (namely Berlin Tegel, Duesseldorf and Milan
      Malpensa airports). As a result, the market shares of the Parties would be the same or lower when
      taking account of competitors’ flights from the other hypothetically substitutable airports. Therefore,
      should the Commission take account of potential substitutable airports, the outcome of the competitive
      assessment would remain unchanged.
  49  In case M.5830 – Olympic/Aegean Airlines, paragraph 1676, the Commission concluded that CDG and
      ORY are substitutable for TS and NTS passengers on the Athens-Paris route.
  50  In case M.4439 – Ryanair/Aer Lingus, paragraph 163, the Commission concluded that CDG and BVA
      belonged to the same market for flights to Dublin.
  51  Form CO, paragraph 297.
                                                              16
 ---pagebreak---  ---pagebreak---          diverge, making it difficult to draw conclusions.57 While the majority of travel
         agents offer flights to and from the two airports to their customers, corporate
         customers’ replies as to whether they choose flights to/from either CDG and ORY
         airports are diverging.58
(75)     The outcome of the market investigation is therefore inconclusive with respect to
         the substitutability of CDG and ORY on the routes Paris-Birmingham and Paris-
         Edinburgh.
(76)     In any event, for the purpose of the assessment of the effects of the Transaction
         under the O&D approach, the question whether flights to and from Paris Charles de
         Gaulle airport and Paris Orly airport belong to the same market can be left open, as
         the competitive assessment would remain unchanged, under any plausible market
         definition.
  4.1.4.2.2 Birmingham
(77)     The city of Birmingham is served by two main airports, namely Birmingham
         airport (BHX) and East Midlands Airport (EMA).
(78)     In its prior decisional practice, the Commission has considered whether passenger
         air transport services to and from Birmingham comprised flights from and to BHX
         and EMA. While the Commission considered that BHX and EMA were
         substitutable with respect to the Birmingham-Knock route, the Commission left
         open whether BHX and EMA were substitutable with respect to the Birmingham-
         Dublin route.59
(79)     The Notifying Parties do not contest the Commission’s approach and have
         provided a competitive assessment for each plausible airport pair.60
(80)     For the purposes of the O&D assessment of the Transaction, the question of airport
         substitutability is relevant for the following direct/direct overlap routes:
         Birmingham-Amsterdam and Birmingham-Paris. The question of airport
         substitutability is also relevant for direct/indirect overlap routes61 and air/rail
         overlaps.62
  57  Replies to eQ1 – Questionnaire to Airlines, question 9.
  58  Replies to eQ2 – Questionnaire to Corporate Customers, question 6 and eQ3 – Questionnaire to Travel
      Agents, question 7.
  59  In case M.6333 – Ryanair/Aer Lingus III, paragraph 174.
  60  Form CO, paragraph 303.
  61  Those are routes between (i) Birmingham and (ii) Brest, Nantes, Berlin, Hannover, Hamburg, Stuttgart
      and Milan. For completeness, the route Birmingham-Toulouse used to be an overlap route but has been
      exited by Flybe prior to and independently from the Transaction.
  62  Those are routes between (i) Birmingham and (ii) Edinburgh and Glasgow.
                                                          18
 ---pagebreak---  ---pagebreak--- (86)     In any event, for the purpose of the assessment of the effects of the Transaction
         under the O&D approach, the question whether flights to and from Birmingham
         airport and East Midlands airport belong to the same market can be left open as the
         competitive assessment would remain unchanged, under any plausible market
         definition.
  4.1.4.2.3 London
(87)     London has six main airports, namely Heathrow (LHR), Gatwick (LGW), City
         (LCY), Stansted (STN), Luton (LTN) and Southend (SEN).
(88)     In previous decisions, the Commission has considered whether short-haul flights to
         and from London would comprise flights to and from (i) each airport individually,
         (ii) LHR, LGW, LCY, LTN and STN (“London(five)”) airports, or (iii) LHR,
         LGW, LCY, LTN, STN and SEN (“London(six)”) airports. With respect to
         London(five), the Commission left the question open whether they are substitutable
         in case M.6447 – IAG/bmi.70 With respect to London(six), the Commission
         considered that the six airports were substitutable with respect to routes to/from
         Dublin and Belfast.71
(89)     The Notifying Parties do not contest the Commission’s approach and have
         provided a competitive assessment for each plausible airport pair.72
(90)     For the purposes of the O&D assessment of the Transaction, the question of airport
         substitutability is relevant for the one direct/direct overlap route, namely London-
         Amsterdam. The question of airport substitutability is also relevant for one air/rail
         overlap route, namely London-Edinburgh.
(91)     On the London-Amsterdam route, Flybe and AFKL operate direct services to/from
         LCY. AFKL also operates direct services to/from LHR. None of Virgin Atlantic,
         Delta or Stobart Air operated on this route.73
(92)     On the London-Edinburgh route, Flybe operates an air service from LHR and LCY
         while Virgin Trains operates a rail service from London Euston Station.74
(93)     The travel distances and times between Heathrow, Gatwick, City, Stansted, Luton
         and Southend airports and the centre of London are summarised below:
  70  For instance, in case M.6447 – IAG/bmi, paragraph 58, the Commission considered but ultimately left
      open the question whether London(five) airports belong to the same market with respect to short-haul
      domestic and European routes such as London-Manchester, London-Nice or London-Basel.
  71  In case M.7541 – IAG/Aer Lingus, paragraph 74.
  72  Form CO, paragraph 293.
  73  Form CO, paragraphs 423-426.
  74  Form CO, paragraph 561.
                                                        20
 ---pagebreak---  ---pagebreak--- (96)    In any event, for the purpose of the assessment of the effects of the Transaction
        under the O&D approach, the question whether flights to and from London(five) or
        London(six) airports belong to the same market can be left open because the
        Transaction would not raise serious doubts as to its compatibility with the internal
        market, under any plausible market definition.
  4.1.4.2.4 Manchester
(97)    The city of Manchester is served by three airports, namely Manchester (MAN),
        Liverpool John Lennon (LPL), and Leeds-Bradford (LBA) airports.
(98)    In its prior decisional practice relating to short-haul services to or from Manchester,
        the Commission examined the effects of the notified transaction on markets
        comprising flights to and from MAN, LPL and LBA, but left the exact market
        definition open.79
(99)    The Notifying Parties do not contest the Commission’s approach and have
        provided a competitive assessment for each plausible airport pair.80
(100) For the purpose of the O&D assessment of the Transaction, the question of airport
        substitutability is relevant for the following direct/direct overlap routes:
        Manchester-Amsterdam and Manchester-Paris. This question is also relevant for
        direct/indirect overlaps, indirect/indirect overlaps and air/rail overlap routes.
(101) On the Manchester-Amsterdam route, Flybe and AFKL operate direct services to
        and from MAN. easyJet also offers a direct flight on this airport pair. In addition,
        AFKL operates direct services to and from LBA. Virgin Atlantic, Delta and Stobart
        Air do not operate on this city pair.81
(102) On the Manchester-Paris route, Flybe and AFKL operate direct services to and
        from MAN. easyJet operates on this route to and from (i) MAN and (ii) LPL.
        Virgin Atlantic, Delta and Stobart Air do not operate on this city pair.82
(103) The travel distances and times between MAN, LPL and LBA and the centre of
        Manchester are summarised below.
  79  See e.g. Case M.6663 – Ryanair/Aer Lingus, paragraph 241 for the Manchester-Dublin route.
  80  Form CO, paragraph 300.
  81  Form CO, paragraph 437.
  82  Form CO, paragraph 505.
                                                       22
 ---pagebreak---  ---pagebreak---         considered in cases where alternative modes of transport on the respective O&D
        route can be considered comparable in terms of price, quality and (global) travel
        time and can therefore be considered valuable alternatives by customers.87
(108) The question of substitutability of train transport services with air transport services
        is relevant in this case for the London-Edinburgh, Birmingham-Glasgow,
        Birmingham-Edinburgh, Edinburgh-Manchester and Glasgow-Manchester routes.
        On those routes, Flybe operates an air passenger transport service. Virgin Trains is
        operating the West Coast Rail Franchise, which includes train services between
        London Euston, the West Midlands, North Wales, Manchester, Liverpool,
        Edinburgh and Glasgow.88
(109) The Parties submit that the market definition can be left open as no competition
        concerns would arise.89
(110) The UK Competition and Markets Authority (“CMA”), when assessing rail
        franchises, takes rail travel as a starting point and considers which other modes of
        transport to include in its market definition. In this regard, the CMA takes into
        account (a) the cost of the journey; (b) journey time; (c) time spent travelling to and
        from the starting point of the journey (for public transport); and (d) frequency and
        waiting time.90 In previous cases, the CMA concluded for the London-Edinburgh
        and London-Glasgow that air services exert a competitive constraint on the rail
        services on this flow whereas it was considered that air services did not sufficiently
        constrain train services on the London-Exeter flow.91
(111) The Parties have explained that on Birmingham-Glasgow, Birmingham-Edinburgh,
        Edinburgh-Manchester and Glasgow-Manchester routes [strategic information on
        Flybe’s price monitoring].92
(112) From a supply-side perspective, the majority of airlines operating intra-UK routes
        and expressing their views, explained that they do not monitor rail services.93
  87 See e.g. Cases M.6447 – IAG/bmi, paragraph 75.
  88 Form CO, paragraph 249 and 552.
  89 Form CO, paragraph 558.
  90 See CMA Rail franchise mergers: Review of methodologies and guidance, para 4.3,
     https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment data/file/6527
     49/rail-franchises-review-of-methodologies-and-guidance.pdf.
  91 See decision Inter City Railways Limited/ICEC Franchise (2014), paragraphs 80-88 and 95-100,
     https://assets.publishing.service.gov.uk/media/54f9947be5274a1417000007/ICRL-
     ICEC Full text decision v2.pdf and decision First MTR South Western Trains Limited/South
     Western                  Franchise               (2017),             paragraphs               98-99,
     https://assets.publishing.service.gov.uk/media/5975f6c240f0b649a7000012/swt-firstgroup-mtr-slc-
     decision.pdf.
  92 Form CO, paragraph 572, 578, 587, 593.
  93 See replies to eQ1 – Questionnaire to airlines, question 10 and 11.
                                                          24
 ---pagebreak--- (113) From a demand-side perspective, the travel agents having expressed their view
        gave mixed replies as to whether passengers consider rail services as an alternative
        to air transport within the UK and only around half of those travel agents explained
        that they also offer train tickets to their customers.94 When asked if they consider
        train services as an alternative to air transport with regard to the five air/rail
        overlaps, only a minority of corporate customers having expressed their views
        answered in the negative.95 When asked if they purchase train tickets for the five
        air/rail overlaps, the majority of corporate customers having expressed a view
        explained that they purchase train tickets.96 One customer explained that “Rail
        travel between London to Edinburgh is utilised due to the availability of an
        overnight sleeper service. The other routes are three to four hours each way so in
        terms of overall journey time, taking into account clearing airport security etc.,
        there is no significant time difference. Rail journeys account for approximately
        25% of the London to Edinburgh route and 50% of the other routes (versus air
        travel).”97
(114) When asked which criteria would make customers choose rail services over air
        transport, respondents to the Commission’s market investigation identified most
        frequently price difference and total travel duration, followed by schedules, but
        also mentioned other criteria. For example, one customer explained that “[…]
        travellers can be more productive during train versus air travel due to the
        improved travel conditions. Encouraging rail travel helps with environmental
        targets.”98
(115) In any event, for the purposes of this Decision, the Commission considers that the
        question whether air and rail transport services are substitutable on the London-
        Edinburgh, Birmingham-Glasgow, Birmingham-Edinburgh, Edinburgh-Manchester
        and Glasgow-Manchester routes can be left open, as the Transaction would not
        raise serious doubts as to its compatibility with the internal market under any
        plausible market definition.
  4.1.6 Relevance of the market for air transport services to tour operators
(116) Carriers, both charter and scheduled airlines, may sell seats (or entire flights) to
        tour operators, which then integrate the flights into package holidays or resell only
        seats to end customers.
(117) In prior decisions, the Commission has regarded the wholesale supply of airline
        seats to tour operators as a distinct market from the supply of scheduled air
  94  See replies to eQ3 – Questionnaire to travel agents, question 8 and 9.
  95  See replies to eQ2 – Questionnaire to corporate customers, question 7 and 8.
  96  See replies to eQ2 – Questionnaire to corporate customers, question 8.
  97  See replies to eQ2 – Questionnaire to corporate customers, question 8.
  98  See replies to eQ1 – Questionnaire to airlines, question 13; eQ2 – Questionnaire to corporate
      customers, question 9 and eQ3 – Questionnaire to travel agents, question 10.
                                                           25
 ---pagebreak---          transport services to end customers.99 From a demand-side perspective, tour
         operators have different requirements from those of individual passengers (for
         example, purchase of large seat packages in advance from the start of the season or
         negotiation of rebates).100
  4.1.6.1 Parties’ views
(118) The Parties consider that Flybe is only […] in the wholesale supply of seats to tour
         operators, and, therefore, it is not necessary to consider this market any further.101
  4.1.6.2 Commission’s assessment
(119) The Commission considers that, for the purpose of assessing the horizontal effects
         of the Transaction, the supply of airline seats to tour operators only constitutes a
         meaningful market on routes where either Flybe or Virgin Atlantic (or its parents,
         in particular AFKL) are active to a significant extent.102 Indeed, in the absence of
         any (material) overlap, the market for the supply of airline seats to tour operators
         cannot be considered as meaningful for the purpose of the Transaction. Therefore,
         this market is not considered as a relevant market and will not be further assessed
         in this decision.
  4.2    Air transport of passengers – Airport-by-airport approach
  4.2.1 Relevance of the airport-by-airport approach
(120) Under the airport-by-airport approach, every airport (or substitutable airports) is
         defined as a distinct market. Such a market definition has notably been adopted to
         assess the risks of foreclosure entailed by the concentration of slots at certain
         airports in the hands of a single undertaking.103 Under this approach, the effects of a
         transaction on competition are thus assessed for all O&Ds taken together to or from
         an airport (or substitutable airports).
  99  See e.g. Cases M.8046 – TUI/Transat France, paragraphs 66-88; M.5867 – Thomas Cook/Öger Tours,
      paragraph 14-16; M.4601 – KarstadtQuelle/MyTravel, paragraphs 39-43; M.4600 – TUI/First Choice,
      paragraph 52-57; M.3770 – Lufthansa/Swiss, paragraph 20.
  100 Decision of 27 February 2013, case M.6663 – Ryanair/Aer Lingus III, paragraph 409.
  101 Form CO, paragraph 551 and response to QP7 of 30 April 2019, question 9.
  102 In the absence of data on the total size of the market for supply of airline seats to tour operators, the
      Commission considers that Flybe (or Virgin Atlantic and its parents, in particular AFKL) can be
      considered as only […] on that market when the number of seats sold to tour operators represents less
      than [0-5]% of the number of seats sold by Virgin Atlantic and its parents, in particular AFKL (or
      Flybe when relevant). See also Case M.8964 – Delta/Air France-KLM/Virgin Group/Virgin Atlantic,
      paragraph 44.
  103 See e.g. Case M.8633 – Lufthansa/Certain Air Berlin Assets, paragraphs 164 et seq.
                                                          26
 ---pagebreak---   4.2.1.1    Introduction
  4.2.1.1.1 Slots as an input for air transport services
(121) By virtue of the Slot Regulation,104 slots, i.e. the permission to land and take-off at
         a specific date and time at congested airports, are essential for airlines’ operations.
         Indeed, only air carriers holding slots are entitled to get access to the airport
         infrastructure services delivered by airport managers and, consequently, to operate
         routes to or from those airports.
(122) The Commission has, in its prior decision practice, highlighted that the lack of
         access to slots constitutes a significant barrier to entry or expansion at Europe’s
         busiest airports, such as London Heathrow airport.105
(123) The Commission has also insisted, in the framework of its airport policy, that
         “slots are a rare resource” and “access to such resources is of crucial importance
         for the provision of air transport services and for the maintenance of effective
         competition.”106
(124) In addition, the Slot Regulation recalls that, with the increase of air traffic, there is
         a continuously growing demand for capacity at congested airports.107 Therefore,
         the lack of available slots has become a prominent feature of the EU airline
         industry and is expected to become an even more critical issue for air carriers in the
         near future.
  4.2.1.1.2 Rules for the allocation of slots
(125) In the context of the imbalance between demand and supply of airport capacity, the
         Slot Regulation defines the rules for the allocation of slots at EU airports. It aims to
         ensure that, where airport capacity is scarce, the latter is used in the fullest and
         most efficient way and slots are distributed in an equitable, non-discriminatory and
         transparent way.
(126) Under the Slot Regulation, the general principle regarding slot allocation is that an
         air carrier having operated its particular slots for at least 80% during the summer or
         winter scheduling period is entitled to the same slots in the equivalent scheduling
         period of the following year (the “grandfather rights”).108 Conversely, slots which
  104 Council Regulation (EEC) No 95/93 of 18 January 1993 on common rules for the allocation of slots at
      Community airports (the “Slot Regulation”).
  105 See e.g. Cases M.7541 – IAG/Aer Lingus, paragraphs 188 et seq.; M.6447 – IAG/bmi, paragraphs 174
      and 663.
  106 Recital (4) of the Commission Proposal for a Regulation of the European Parliament and of the
      Council on common rules for the allocation of slots at European Union airports (COM/2011/827 final
      of 01 December 2011).
  107 Slot Regulation, first recital: “Whereas there is a growing imbalance between the expansion of the air
      transport system in Europe and the availability of adequate airport infrastructure to meet that
      demand; whereas there is, as a result, an increasing number of congested airports in the Community.”
  108 Slot Regulation, Article 8(2).
                                                           27
 ---pagebreak---          are not sufficiently used by air carriers (below 80%) are reallocated to other air
         carriers (the “use it or lose it” rule).
(127) The Slot Regulation also provides for the setting up of “slot pools” containing
         newly-created time slots, unused slots and slots which have been given up by a
         carrier or have otherwise become available (e.g. via the “use it or lose it” rule).
         50% of the slots from the slot pool shall first be offered to new entrants. The other
         50% of the slots from the slot pool shall be placed at the disposal of other applicant
         airlines (incumbent airlines). If applications by new entrants amount to less than
         50% of the capacity made available through slots from the slot pool, this remaining
         capacity shall also be placed at the other applicants’ disposal.109
(128) Under the Slot Regulation, slots cannot be traded. They may however be
         exchanged or transferred between airlines in certain specified circumstances and
         subject to the explicit confirmation from the coordinator under the Slot
         Regulation.110
  4.2.1.2 The Notifying Parties’ views
(129) The Notifying Parties state that the airport-by-airport approach “may have been
         necessary in the circumstances of these decisions where the O&D approach may
         have failed to capture all of the structural effects on competition brought about by
         the transaction. By contrast, in circumstances where the effects of the transaction
         can effectively be assessed by reference to relevant O&D markets, the parties do
         not consider that it is necessary to also consider these same effects on an airport-
         by-airport approach.”111 The Parties do not consider it necessary to reach a
         conclusion regarding the relevance of the airport-by-airport approach because they
         consider that no competition concerns would arise from assessing the transaction
         under the airport-by-airport approach.112
  4.2.1.3     Commission’s assessment
(130) According to the Explanatory Memorandum for the Commission Proposal for a
         Regulation of the European Parliament and of the Council on common rules for the
         allocation of slots at European Union airports,113 “the emergence of a strong
         competitor at a given airport requires it to build up a sustainable slot portfolio to
         allow it to compete effectively with the dominant carrier (usually the “home”
         carrier).”
  109 Slot Regulation, Article 10(6).
  110 The coordinator is the person responsible for the allocation of slots (Slot Regulation, Article 4(5)).
      According to the first sentence of Article 8a(2) of the Slot Regulation, “[t]he transfers or exchanges
      referred to in paragraph 1 shall be notified to the coordinator and shall not take effect prior to the
      express confirmation by the coordinator.”
  111 Form CO, paragraph 269.
  112 Form CO, paragraph 703.
  113 COM/2011/827 final of 01 December 2011.
                                                          28
 ---pagebreak--- (131) In this context, in a number of prior decisions related to transactions entailing the
         transfer of slots at certain airports, the Commission has considered the effects of
         the transaction on the operation of passenger air transport services at a given airport
         in terms of the slot portfolio held by a carrier at the airport, without distinguishing
         between the specific routes served to or from that airport.114 Under this approach,
         the Commission assesses how the transaction strengthens the merged entity’s
         position at certain airports and the potential effects thereof on the merged entity’s
         ability and incentive to foreclose other air carriers from accessing the relevant
         airport infrastructure services. Foreclosing access to airport infrastructure services
         may in turn foreclose those other air carriers from operating routes from/to the
         relevant airports.115
(132) In this respect, the Commission notes that the O&D approach and the airport-by-
         airport approach are complementary and not mutually exclusive. In cases where the
         transaction involves the acquisition of an active air carrier and brings about a
         transfer of slots, it is appropriate to conduct an analysis under both approaches for a
         full competitive assessment of the transaction.
(133) In the present case, Flybe, Stobart and Virgin Atlantic (or its parents AFKL, Delta
         and Virgin Group) have overlapping slot portfolios at 29 coordinated (Level 3)
         airports, including Amsterdam Schiphol and Paris Charles de Gaulle airport.116 The
         potential effects resulting from this overlap are not fully covered by the O&D
         approach.
(134) Therefore, in view of the above, the Commission considers it appropriate, for the
         purpose of this Decision, to apply the analytical framework designed to address the
         risk of foreclosure from access to airport infrastructure services and air transport of
         passengers to and from the relevant airports, potentially resulting from the
         acquisition of joint control over Flybe, at airports where the slot portfolio of Virgin
         Atlantic (including Virgin Atlantic’s parent companies) and Stobart Group
         overlapped with the slot portfolio of Flybe, in Winter 2018/2019 and/or Summer
         2018 IATA Seasons.117
  114 See e.g. Cases M.8869 – Ryanair/LaudaMotion, paragraph 116; M.8672 – easyJet/Certain Air Berlin
      Assets, paragraph 41; M.8633 – Lufthansa/Certain Air Berlin Assets, paragraph 58; M.6447 –
      IAG/bmi, paragraph 483.
  115 See e.g. Cases M.8869 – Ryanair/LaudaMotion, paragraph 506 et seq.; M.8672 – easyJet/Certain Air
      Berlin Assets, paragraph 91 et seq.; M.8633 – Lufthansa/Certain Air Berlin Assets, paragraph 160 et
      seq.; M.6447 – IAG/bmi, paragraph 483.
  116 Those are: Alicante (ALC), Amsterdam (AMS) , Arlanda (ARN), Birmingham (BHX), Bristol (BRS),
      Paris Charles de Gaulle (CDG), Dublin (DUB), Duesseldorf (DUS), Göteborg Landvetter (GOT),
      Geneva (GVA), Hannover (HAJ), Hamburg (HAM), Innsbruck (INN), London City (LCY), Gatwick
      (LGW)), Lyon-Saint-Exupery (LYS), Manchester (MAN), Munich (MUC), Milano Malpensa (MXP),
      Nice Côte d’Azur (NCE), Palma de Mallorca (PMI), Prague (PRG), London Stansted (STN), Stuttgart
      (STR), Trondheim (TRD), Berlin-Tegel (TXL), Venice (VCE), Vienna (VIE) and Zürich (ZRH)
      airports. Flybe does not have any historic rights on slots at London Heathrow airport. It operates on the
      basis of slots released by IAG under the commitments in Case M.6447 – IAG/bmi and slot leases
      agreements with Virgin Atlantic.
  117 Pre-Transaction, Cyrus or any entity controlled by it does not hold slots.
                                                           29
 ---pagebreak--- (135) The Commission will consider below the various possible delineations of these two
        relevant markets under the airport-by-airport approach (i.e. the markets for air
        transport services of passengers to or from the relevant airports and the market for
        airport infrastructure services provided at the relevant airports).
  4.2.2 Relevant markets for the assessment of the effects of the Transaction on
          passenger air transport services under the airport-by-airport approach
  4.2.2.1 Air transport services of passengers to or from the relevant airports
  4.2.2.1.1 Relevant product market
(136) In prior decisions, when applying the airport-by-airport approach, the Commission
        has not deemed it necessary to consider the same distinctions as those considered
        when each O&D market is examined separately (e.g. time sensitive vs. non-time
        sensitive passengers, direct vs. indirect flights, charter flights vs. scheduled flights,
        wholesale vs. retail supply of airline seats).118 On the basis of the information in
        the file, the Commission considers that there are no grounds for it to deviate from
        this past practice for the purposes of this Decision.
  4.2.2.1.2 Relevant geographic market
(137) In prior decisions, the Commission has considered whether the relevant airports
        were substitutable with other airports in view of their overlapping catchment
        areas.119
(138) With respect to the overlap airports where the question of a broader geographic
        scope encompassing several airports might be relevant, the Commission will focus
        its assessment of airport substitutability where the Parties would have a slot
        holding above 20% on average at a specific airport or at a combination of airports
        within the same catchment area, considering that a combined average slot holding
        below 20% is unlikely to give the Parties the ability to foreclose access to the
        market for the provision of passenger air transport services. As explained in section
        5.1.2.3 below, the only airport where the Parties and the Target Companies would
        have a combined slot holding above 20% and where the question of airport
        substitutability would be relevant is Paris Charles de Gaulle airport. Therefore, he
        Commission will assess whether Paris Charles de Gaulle is substitutable with other
        airports within the same catchment area.
(139) In the present case, the substitutability from the point of view of passengers of
        Paris Charles de Gaulle, Paris Orly and Beauvais has already been considered in
        section 4.1.4.2 above, and the Commission considered that Paris Charles de Gaulle
        and Paris Orly might be considered as substitutable with respect to the relevant
        overlap routes but ultimately left the question open.
  118 See Cases M.8964 – Delta/Air France-KLM/Virgin Group/Virgin Atlantic, paragraph 128; M.8869 –
      Ryanair/LaudaMotion, paragraph 222; M.8672 – easyJet/Certain Air Berlin assets, paragraph 52;
      M.8633 – Lufthansa/Certain Air Berlin assets, paragraph 58; M.6447  IAG/bmi, paragraphs 492-506.
  119 See Cases M.8964 – Delta/Air France-KLM/Virgin Group/Virgin Atlantic, paragraph 129-130;
      M.8869 – Ryanair/LaudaMotion, paragraphs 223-226 ; M.8672 – easyJet/Certain Air Berlin assets,
      paragraphs 53 et seq.; M.8633 – Lufthansa/Certain Air Berlin assets, paragraphs 59 et seq.
                                                        30
 ---pagebreak---   4.2.2.1.3 Conclusion
(140) For the purpose of its airport-by-airport assessment of the Transaction in this
         Decision, the Commission will assess the competitive effects of the Transaction on
         the markets for the provision of passenger air transport services, encompassing all
         routes to or from an airport, or to or from substitutable airports.
(141) For the purpose of its airport-by-airport assessment of the Transaction in this
         Decision, the question of whether the relevant geographic market consists of flights
         to/from Paris Charles de Gaulle only or Paris Charles de Gaulle and Paris Orly can
         be left open, as the Transaction would not raise serious doubts as to its
         compatibility with the internal market under either plausible market definition (see
         section 5.1.2. below).
  4.2.2.2 Airport infrastructure services
(142) For the purpose of providing passenger air transport services at congested airports,
         airlines have to source infrastructure services at those airports. As indicated in
         section 4.2.1.1 above, at congested airports, infrastructure capacity is managed
         through the allocation of slots, which enable air carriers to fly to and from the
         airports. A slot is therefore defined, from the point of view of airports, as “a
         planning tool for rationing capacity at airports where demand for air travel
         exceeds the available runway and terminal capacity.”120 From the point of view of
         airlines, the granting of a slot at an airport means that the airline may use the entire
         range of infrastructure necessary for the operation of a flight at a given time
         (runway, taxiway, stands and, for passenger flights, terminal infrastructure). This in
         turn enables the airlines to provide passenger air transport services to and from that
         airport.
(143) As a consequence, through the Transaction and the combination of slot portfolios,
         the Parties together obtain a right of access to a higher share of airport
         infrastructure capacity. The Transaction therefore has an impact on (the demand-
         side of) the markets for airport infrastructure services at the relevant airports and
         also on the markets for passenger air transport to and from those airports.
(144) In addition, Stobart Aviation is active in the provision of airport infrastructure
         services. Stobart Aviation owns (i) London Southend airport (“SEN”), (ii) Carlisle
         Lake District airport (“Carlisle”) and (iii) a minority controlling stake in Durham
         Tees Valley airport (“DTVA”).121 The Transaction could therefore give rise to
         vertical links between Stobart Aviation’s activities in the upstream market for
         airport infrastructure services and the activities of Flybe in the downstream market
         for the provision of passenger air transport services.
  4.2.2.2.1 Relevant product market
(145) The Commission has, in its prior decisional practice, delineated a product market
         for the provision of airport infrastructure services to airlines, which includes the
  120 Press release of 1 December 2011 accompanying the Airport Package (http://europa.eu/rapid/press-
      release MEMO-11-857 en.htm).
  121 Form CO, paragraphs 1441 and 1461.
                                                     31
 ---pagebreak---         development, maintenance, use and provision of the runway facilities, taxiways and
        other airport infrastructure.122
(146) In cases where the Transaction could give rise to horizontal overlaps, the
        Commission has considered sub-dividing the market for airport infrastructure
        services on the basis of airline customers (i.e. charter operators, scheduled full
        service carriers and scheduled low cost carriers) and on the basis of the type of
        flights (i.e. short-haul and long-haul).123
(147) In prior decisions relating to the transfer of slots at airports, the Commission has
        not considered it appropriate to further distinguish within the market for airport
        infrastructure services, considering that slot portfolios give access to all
        infrastructure services necessary to operate at the airport. The Commission
        considers that there is no element in the file that would require deviating from the
        Commission’s past practice for the purposes of this Decision with respect to the
        assessment of the effects of the Transaction on passenger air transport under the
        airport-by-airport approach.
(148) In prior decisions where the transaction could give rise to vertical links, the
        Commission has not considered it appropriate to further distinguish within the
        market for airport infrastructure services, considering that slot portfolios give
        access to all infrastructure services necessary to operate at the airport.124 The
        Commission considers that there is no element in the file that would require
        deviating from the Commission’s past practice for the purposes of this Decision
        with respect to the assessment of the vertical effects of the Transaction.125
  4.2.2.2.2 Relevant geographic market
(149) In its prior decisional practice, the Commission has, defined the geographic scope
        of the market for airport infrastructure services as the catchment area of individual
        airports.
(150) The Commission has also considered additional criteria relevant for assessing
        airport substitutability in relation to the market for airport infrastructure services,
        while acknowledging that the airlines’ choice of airports ultimately depends on
        passengers’ demand. In addition to the catchment area of a particular airport, the
        Commission has notably analysed the capacity constraints for slots and facilities,
        passenger volumes or the positioning of the airport (e.g. a niche airport serving
        high yield time-sensitive passengers or an airport serving mainly leisure, less time-
        sensitive passengers).126
  122 See e.g. Cases M.7270  Český Aeroholding/Travel Service/České aerolinie, paragraph 50; M.7008 –
      Aena International/Axa PE/LLAGL, paragraph 12.
  123 See e.g. Case M.7398  MIRAEL/ Ferrovial/NDH1, paragraph 19; M.5648 - OTPP/Macquarie/Bristol
      Airport, paragraph 10.
  124 See e.g. Cases M.7270  Český Aeroholding/Travel Service/České aerolinie, paragraph 50.
  125 The Transaction would not give rise to any horizontal overlap.
  126 See e.g. Cases M.5652 – GIP/Gatwick Airport, paragraph 14; M.4164 – Ferrovial/Quebec/GIC/BAA,
      paragraphs 15-17; M.3823 – MAG/Ferrovial Aeropuertos/Exeter Airport, paragraphs 16-19.
                                                         32
 ---pagebreak--- (151) The Commission has taken account of all the above-mentioned criteria when
        assessing the geographic scope of the airport infrastructure services markets
        relevant for the assessment of the effects of transfer of slots.127
(152) The question of the exact geographic market definition is relevant (i) for the
        assessment of the effects of the Transaction on passenger air transport services
        under the airport-by-airport approach and (ii) for the assessment of the potential
        vertical links between Stobart Aviation and Flybe.
Relevant geographic market for the assessment of the effects of transport of slots on the
access to airport infrastructure services
(153) For the purpose of the assessment of the effects of the Transaction on the market
        for passenger air transport under the airport-by-airport approach, with respect to the
        overlap airports where the question of a broader geographic scope encompassing
        several airports might be relevant, the Commission will focus its assessment of
        airport substitutability on markets where the Parties would have a slot holding
        above 20% on average at a specific airport or at a combination of airports within
        the same catchment area. The Commission considers that a combined average slot
        holding below 20% is unlikely to give the Parties the ability to foreclose access to
        the market for airport infrastructure services. As explained in section 5.1.2 below,
        the only airport where Parties would have a combined slot holding above 20% and
        where the question of airport substitutability would be relevant is Paris Charles de
        Gaulle airport. Therefore the Commission will assess whether Paris Charles de
        Gaulle is substitutable with other airports within the same catchment area.
(154) According to the Parties, Paris Charles de Gaulle (CDG), Paris Orly (ORY) and
        Beauvais (BVA) airports belong to the same geographic market with respect to
        airport infrastructure services.128
(155) The city of Paris is served by three airports, namely CDG, ORY and BVA.
(156) Delta, AFKL and Flybe hold slots at CDG. AFKL also holds slot at ORY. The
        Transaction therefore gives rise to an overlap between AFKL/Virgin Atlantic and
        Flybe at CDG and on a broader geographic scope comprising at least (i) CDG and
        (ii) ORY and/or BVA. However, BVA is neither a Level 2 or Level 3 airport and is
        therefore not slot constrained. Its positioning differs from CDG and ORY. BVA
        focuses on short-haul and is mainly used by low-cost carriers.129 The Commission
        will therefore focus its assessment on whether CDG and ORY belongs to the same
        geographic market with respect to airport infrastructure services. In any event,
        given that the Parties do not hold slots at BVA, taking account of BVA would only
        dilute the Parties’ combined slot holding and the increment brought about by the
        Transaction.
  127 See Cases M.8964 – Delta/Air France-KLM/Virgin Group/Virgin Atlantic, paragraph 142 et seq.;
      M.8869 – Ryanair/LaudaMotion, paragraphs 238 et seq., M.8672 – easyJet/Certain Air Berlin assets,
      paragraphs 73 et seq.; M.8633 – Lufthansa/Certain Air Berlin assets, paragraphs 117 et seq.
  128 Form CO, paragraph 722.
  129 Form CO, paragraph 739.
                                                        33
 ---pagebreak--- (157) The question of the catchment area of Paris airports is addressed in section 4.1.4.2
         above. From the point of view of passengers, CDG and ORY might be considered
         as substitutable with respect to certain routes.130
(158) As regards capacity constraints, both CDG and ORY are coordinated (Level 3)
         airports in both IATA Seasons.
(159) In 2018, 72.2 million passengers used Paris Charles de Gaulle airport131, while
         33.1 million passengers used Paris Orly airport.132
(160) As regards positioning, CDG is the largest international airport in France in terms
         of passenger traffic. CDG is served by more than 60 passenger and cargo airlines,
         which mainly focus on international long-haul flights.133 In Summer 2018, direct
         flights were offered to 318 destinations134 and 90% of flights were to international
         destinations.135 Based on data from ADP, approximately 13% of the traffic at CDG
         was operated by low-cost carriers.136
(161) ORY is the second largest airport in France in terms of passenger traffic. ORY is
         served by 35 airlines which operate primarily to short-haul destinations in mainland
         France, Europe, North Africa and the French Overseas Territories. 137 In Summer
         2018, direct flights were offered to 139 destinations138 and 59% of flights were to
         international destinations.139 In 2017, approximately 38% of the traffic was
         operated by low-cost airlines.140
(162) Considering that Paris Charles de Gaulle and Paris Orly have different positioning
         and strategy, the Commission concludes that, for the purpose of the assessment of
         the effects of the Transaction on passenger air transport services under the airport-
  130 In Case M.5830 – Olympic/Aegean Airlines, paragraph 1676, the Commission concluded that CDG
      and ORY are substitutable for TS and NTS passengers on the Athens-Paris route. With respect to the
      overlap routes between AFKL and Flybe, it cannot be concluded that CDG and ORY are substitutable.
  131 Form CO, paragraph 725.
  132 Form CO, paragraph 725.
  133 Form CO, paragraph 726.
  134 Form CO, paragraph 724.
  135 Form CO, paragraph 727.
  136 Form CO, paragraph 729.
  137 Form CO, paragraphs 732-733.
  138 Form CO, paragraph 724.
  139 Form CO, paragraph 734.
  140 Form CO, paragraph 737.
                                                       34
 ---pagebreak---          by-airport approach, the geographic scope of the market for the provision of airport
         infrastructure services to airlines is limited to Paris Charles de Gaulle airport.141
  Relevant geographic market for the assessment of the vertical effects created by the
           Transaction
(163) Considering that Stobart Aviation is active in the market for the provision of airport
         infrastructure services at several airports in the United Kingdom, the Commission
         will assess the geographic scope of airport infrastructure services for London
         Southend (SEN) airport and DTVA airport.142
(164) The question of the catchment area of London airports is addressed in section
         4.1.4.2 above. From the point of view of passengers, the relevant markets consists
         of flights to/from London Heathrow only, or to/from Heathrow, Gatwick and City
         airports (“London(three)”), or Heathrow, Gatwick, City, Luton, Stansted and
         Southend (“London(six)”). As regards capacity constraints, LHR, LGW, LCY,
         LTN and STN are coordinated (Level 3) airports while SEN is neither schedules
         facilitated nor coordinated. The question whether airport infrastructure services at
         SEN constitute a separate market or whether airport infrastructure services should
         be considered for London(six) airports can be left open, because the Transaction
         would not raise serious doubts as to its compatibility with the internal market under
         any plausible geographic market definition.
(165) With respect to the geographic scope of the provision of airport infrastructure
         services in the Tees Valley (UK), the Parties submit that the geographic scope
         comprises DTVA, Leeds airport (“LBA”) and Newcastle airport (“NCL”).143 The
         three airports are within 100 km of Middlesbrough city, the closest city centre to
         DTVA. The results of the market investigation are inconclusive as to whether
         DTVA, LBA and NCL belongs to the same market.144 The Commission considers
         that the question whether the market for the provision of airport infrastructure
         services consists in DTVA only or encompasses DTVA, LBA and NCL can be left
         open because the Transaction would not raise serious doubts as to its compatibility
         with the internal market, under any plausible geographic market definition.
  4.2.2.2.3 Conclusion
(166) For the purpose of the assessment of the effects of the Transaction on passenger air
         transport services under the airport-by-airport approach, the Commission will
         assess the effects of the Transaction on the market for the provision of airport
         infrastructure services to airlines, without further delineation. Similarly, for the
  141 For the sake of completeness, the Parties have provided their slot holding for a geographic market
      comprising ORY and CDG. The competitive assessment remains unchanged under any plausible
      geographic market definition.
  142 The Parties do not suggest any substitutable airport to Carlisle airport. The Transaction would not raise
      serious doubts as to its compatibility with the internal market, even on a market defined as
      encompassing Carlisle airport only.
  143 Form CO, paragraph 1464.
  144 Replies to eQ1 – Questionnaire to Airlines, question 60.
                                                           35
 ---pagebreak---          purpose of assessing the vertical links created between Stobart Aviation and Flybe,
         the Commission will assess the effects of the Transaction on the market for the
         provision of airport infrastructure services to airlines, without further delineation.
(167) For the purpose of the assessment of the effects of the Transaction on passenger air
         transport services under the airport-by-airport approach, the Commission considers
         that the geographic scope of the market for airport infrastructures services is
         limited to the individual airport with respect to airport infrastructure services at
         Paris Charles de Gaulle airport. Considering that the Transaction would not raise
         serious doubts as to its compatibility with the internal market with respect to
         passenger air transport under the airport-by-airport approach, the question of the
         exact geographic market for airport infrastructure at the overlap airports can be left
         open. For the purpose of assessing the vertical links created between Stobart
         Aviation and Flybe, the Commission will assess the vertical effects under every
         plausible geographic market definition given that the exact geographic market
         definition can be left open with respect to airport infrastructure services at SEN and
         DTVA.
  4.3    Market for the provision of access to flights of another carrier for connecting
         passengers in the context of interlining arrangements
  4.3.1 Relevance of feeder traffic analysis
(168) Passengers travelling on indirect flights, in particular for long-haul flights, connect
         from one flight to the other flight at a certain airport. These passengers do not
         necessarily travel each “leg” of their journey with the same airline. Traffic made up
         by passengers connecting at either one or both ends of the route, in particular for
         long haul flights, is referred to as “feeder traffic”.145
  4.3.1.1 Parties’ views
(169) The Notifying Parties consider that, while the vast majority of Flybe’s activities
         focus on point-to-point flying, Flybe has entered into a number of interlining and
         codeshare agreements with third party carriers to enhance connectivity for its
         customers.146 According to the Notifying Parties, as a result of the Transaction, the
         Parties will not have the ability or incentive to foreclose third party long-haul
         carriers’ access to feeder traffic on any specific route. On the contrary, the rationale
         for the Transaction is to allow enhanced connectivity for customers to travel to
         destinations globally.147
(170) According to the Notifying Parties, the acquisition will enable Flybe to benefit
         from committed strategic investment partners in terms of Cyrus, Stobart Aviation
         and Virgin Atlantic (through Connect Airways) and through linking an enhanced
  145 See e.g. Case M.7541 – IAG/Aer Lingus, paragraph 106.
  146 Form CO, paragraph 883.
  147 Form CO, paragraph 56.
                                                       36
 ---pagebreak---          Flybe regional network with Virgin Atlantic’s long-haul operations, increasing
         feeder traffic, particularly at LHR and MAN.148
  4.3.1.2 Commission’s assessment
(171) In its prior decision practice, the Commission has analysed if one of the merging
         airlines has provided competitors with feeder traffic. Such feeder traffic may
         constitute an essential input for a competitor, the Commission therefore analysed
         an input foreclosure theory of harm, assessing ability and incentive of the merging
         parties to engage in input foreclose post-Transaction, as well as the overall likely
         impact on effective competition of such potential foreclosure.149
(172) Flybe has interlining and codeshare agreements with several third party airlines,
         and provides feeder traffic to those third party airlines’ long-haul flights (including
         where these third party airlines compete with Virgin Atlanta, Delta or AFKL for
         the long-haul flights).150
(173) For the purpose of the competitive assessment of the Transaction, the Commission
         will therefore apply the analytical framework designed to address the risk of input
         foreclosure in relation to feeder traffic resulting from the change of control over
         Flybe. This theory of harm is assessed in Section 5.1.3 below.
  4.3.2 Market definition
  4.3.2.1 Parties’ views
(174) The Parties have considered the impact of the Transaction on the market for the
         provision of access to flights of another carrier for connecting passengers in the
         context of interlining arrangements, which is defined on an O&D and city-pair
         basis for each input flight151, in line with the approach taken by the Commission in
         previous decisions.152
  4.3.2.2 Commission’s assessment
(175) “Connecting” or “transfer passengers” are passengers who fly indirectly on a given
         city-pair (e.g. Dublin-Chicago via London Heathrow). These passengers do not
         necessarily travel each “leg” or “sector” of their journey on the same carrier (e.g.
         the carrier who sold them the ticket). In particular for long-haul flights, traffic
         made up by passengers connecting at either or both ends of the route is commonly
         referred to as “feeder traffic”.
  148 Form CO, paragraph 184.
  149 See e.g. Case M.7541 – IAG/Aer Lingus, paragraph 442 et seq.
  150 Form CO, paragraph 56.
  151 Form CO, paragraph 881.
  152 See Cases M.6447 – IAG/bmi of 30 March 2012 and M.7541 – IAG/Aer of 14 July 2015.
                                                       37
 ---pagebreak--- (176) There is a variety of agreements whereby single tickets may be sold for indirect
         routes including two legs operated respectively by the two carriers which
         concluded the agreement. In the framework of such agreements, the carrier
         granting access to its flights to passengers connecting onto another carrier’s flight
         and travelling with a single ticket issued by this second carrier provides an “input”
         to the latter and is remunerated for it. This “input” is used to supply the
         downstream service, i.e. a ticket for an indirect route on a given city-pair. Two
         carriers that interline are thus engaged in a vertical relationship when one of them
         sells tickets for indirect routes including one leg operated by the other carrier.153
(177) The main different types of “feeder traffic” or “interlining arrangements” are the
         following:154
      a) Interline agreements, which are commercial agreements between airlines to
           handle passengers travelling on multiple airlines on the same itinerary. These
           agreements allow one carrier to issue the main itinerary ticket while each carrier
           is marketing its own sector.
      b) Codeshare agreements, which allow one carrier to sell tickets on another carrier’s
           flight under its own name and flight code, thereby broadening their service
           offering and destinations.
      c) Special Prorate Agreements (“SPAs”), which support interlining and codesharing,
           and which specifically define the distribution of the revenues and the settlement
           of ticket costs between carriers.
      d) Alliance memberships, which typically entail codesharing (although the actual
           codeshare agreements are still concluded between two airlines) but which also
           imply a number of mutual obligations which go beyond those required by
           codesharing (such as, for example, mutual Frequent Flyer Programme
           participation155).
(178) These agreements are in principle mutually beneficial as they give each party the
         opportunity to increase its load factors. In principle, they also benefit passengers as
         they increase connection opportunities, allow passengers to be compensated in case
         of missed connections and spare them from taking back luggage at the connection
         airport.
(179) There are cases where both carriers can sell tickets for indirect routes including one
         leg operated by the other party to the agreement. In such a situation, the vertical
         relationship is symmetrical: both carriers are active upstream and downstream in
         respect of one another. There are also cases where the ticket for the indirect route is
         sold by a third party (e.g. a travel agent).
  153 See Case M.6447 – IAG/bmi, paragraph 78; Case M.7541 IAG/Aer Lingus, paragraph 107.
  154 Form CO, paragraph 872
  155 Final report of January 2007 on the competition impact of airline code-share agreements, prepared by
      a.o. European Commission Directorate General for Competition Unit D-2 ‘Transport’.
                                                        38
 ---pagebreak--- (180) The carrier or distributor operating the downstream service (in casu long-haul
        routes) provides passenger air transport services between two cities. The
        downstream service is the market for the provision of air transport services between
        these two cities. As assessed above, this market has to be defined on an O&D basis,
        i.e. by reference to the two cities (or as the case may be, to the two airports) at both
        ends of the flight itinerary.
(181) The carrier operating the upstream service (carrying the feeder traffic) provides to
        the downstream carrier access to its flights to one end of the city pair (i.e. the
        connecting airport). For example, for routes between Manchester and Orlando
        operated by the downstream carrier, the upstream market concerned for the
        provision of access to flights for connecting passengers would comprise all routes
        to and providing feeder traffic at Manchester. Such an upstream market has to be
        defined as comprising all routes to the connecting airport where the flights carrying
        the feeder traffic are operated. Indeed, a carrier wanting to supply flights e.g.
        between Manchester and Orlando may rely on and need as an input access to flights
        feeding traffic to Manchester. Flights to other cities cannot, in principle, constitute
        a valid substitute.
  4.3.2.3 Conclusion
(182) As a conclusion, the relevant markets for the provision of access to flights from a
        number of airports in Europe for connecting passengers in the context of interlining
        arrangements have to be defined on an O&D basis.
  4.4    Air transport of cargo
  4.4.1.1 Relevant product market
(183) In prior decisions, the Commission considered a market for air transport of cargo
        including all kinds of transported goods provided by all types of air cargo
        carriers,156 without any further subdivision to be made according to the nature of
        the goods transported (for example, dangerous or perishable goods) or the type of
        air cargo carrier.157
(184) In fact, the Commission has concluded that four types of air cargo carriers, namely
        (i) cargo airlines with dedicated freighter planes; (ii) airlines with only belly space
        cargo capacity on passenger flights; (iii) combination airlines (i.e. airlines with
        both dedicated freighter airplanes and belly space cargo capacity); and (iv)
        integrators, compete with each other for business with the same kinds of
        customers.158
  156 See Cases M.8361 – Qatar Airways/Alisarda/Meridiana, paragraph 37; M. 6828 – Delta Airlines/
      Virgin Group / Virgin Atlantic Limited, paragraph 76; M.6447 – IAG/bmi, paragraph 92; M.5747 –
      Iberia/British Airways, paragraph 40.
  157 See Cases M. 6828 – Delta Airlines/ Virgin Group / Virgin Atlantic Limited, paragraphs 73-74;
      M.6447 – IAG/bmi, paragraphs 91-92; M.5747 – Iberia/British Airways, paragraph 40.
  158 See Cases M. 6828 – Delta Airlines/ Virgin Group / Virgin Atlantic Limited, paragraph 75; M.6447 –
      IAG/bmi, paragraph 89; M.5747 – Iberia/British Airways, paragraph 38.
                                                        39
 ---pagebreak--- (185) Based on the Commission’s prior decisions, the O&D approach to market
         definition is not appropriate for air cargo transport services because cargo is (i) in
         principle less time-sensitive than passengers, and (ii) usually transported “behind”
         and “beyond” the points of origin and destination by trans-modal transport methods
         and thus can be routed via a higher number of stops than passengers.159
         Consequently, the Commission considers that a wider market for air transport of
         cargo exists as, unlike passengers, cargo can be transported with a higher number
         of stopovers and therefore any one-stop route is a substitute for any non-stop
         route.160 In addition, as established in previous Commission decisions, air cargo
         transport markets are inherently unidirectional due to differences in demand at each
         end of the route and must hence be assessed on a unidirectional basis.161
(186) The Parties agree with the Commission’s decision-making practice.162
(187) In line with its prior decisional practice, the Commission will assess the effects of
         the Transaction on a broader market for air transport of cargo encompassing all
         types of air cargo carriers and including all kinds of transported goods on a
         unidirectional basis in Section 5.5 below.
  4.4.1.2 Relevant geographic market
(188) In prior decisions, the Commission defined the market in intra-European routes of
         air cargo transport as European-wide.163 As regards intercontinental routes, the
         Commission established that catchment areas at each end of the route broadly
         correspond to continents where local infrastructure is adequate to allow for onward
         connections (for example, by road, train, or inland waterways, etc.), such as Europe
         and North America. As regards continents where local infrastructure is less
         developed, the relevant catchment area has been considered the country of
         destination.164
  159 See Cases M.8361 – Qatar Airways/Alisarda/Meridiana, paragraph 38; M.6828 – Delta Airlines/
      Virgin Group / Virgin Atlantic Limited, paragraph 72; M.6447 – IAG/bmi, paragraph 87; M.5747 –
      Iberia/British Airways, paragraph 36.
  160 See Cases M.6828 – Delta Airlines/ Virgin Group/ Virgin Atlantic Limited, paragraph 73; M.6447 –
      IAG/bmi, paragraph 88; M.5747 – Iberia/British Airways, paragraph 37.
  161 See Cases M.8964 – Delta / Air France-KLM / Virgin Group / Virgin Atlantic, paragraph 159; M.8361
      – Qatar Airways/Alisarda/Meridiana, paragraph 39; M.6828 – Delta Airlines/ Virgin Group / Virgin
      Atlantic Limited, paragraph 77; M.6447 – IAG/bmi, paragraph 90; M.5747 – Iberia/British Airways,
      paragraph 39.
  162 Form CO, paragraph 1086.
  163 See Cases M.8361 – Qatar Airways/Alisarda/Meridiana, paragraph 39; M.6447 – IAG/bmi, paragraph
      93; M.5747 – Iberia/British Airways, paragraph 41.
  164 See Cases M.8964 – Delta / Air France-KLM / Virgin Group / Virgin Atlantic, paragraph 162; M.8361
      – Qatar Airways/Alisarda/Meridiana, paragraph 39; M.6828 – Delta Airlines/ Virgin Group / Virgin
      Atlantic Limited, paragraph 79; M.6447 – IAG/bmi, paragraph 94; M.5747 – Iberia/British Airways,
      paragraph 42.
                                                         40
 ---pagebreak--- (189) The Parties consider that the Commission’s previous finding of unidirectional
         markets defined on a continent-to-continent basis (or country basis, where
         connecting transport infrastructure is less developed) is still appropriate.165
(190) Therefore, in line with its prior decisional practice, the Commission will assess the
         effects of the Transaction on a continent-to-continent basis (or continent-to country
         basis as the case may be), in particular on an EEA-wide (intra-European) basis.
  4.4.1.3 Conclusion
(191) Therefore, in line with its prior decisional practice, the Commission will assess the
         effects of the Transaction on an EEA-wide market for air transport of cargo
         encompassing all types of air cargo carriers and including all kinds of transported
         goods on a unidirectional basis.
  4.5    Maintenance, repair and overhaul (“MRO”) services
  4.5.1.1 Relevant product market
(192) In prior decisions, the Commission distinguished four separate segments within the
         MRO market based on the part of the aircraft to be serviced and the level of service
         required, namely (i) line maintenance (minor checks carried out on aircraft and
         performed at the different airports), (ii) heavy maintenance (comprehensive
         inspection and overhaul of the aircraft, for which the aircraft is taken out of
         service), (iii) engine maintenance, and (iv) components maintenance (inspection,
         repair and overhaul of specific aircraft components).166 The Commission also
         considered but ultimately left the question open, whether a distinction between
         commercial and business aviation is appropriate.167 It moreover noted that line
         maintenance and heavy maintenance can be further subdivided according to nature
         and frequency of the checks involved (A, B, C and D-checks).168
(193) The Parties submit that the precise scope of the product market definition for MRO
         can be left open as no serious doubts would arise under any plausible market
  165 Form CO, paragraph 1089.
  166 See Cases M.8425 – Safran/Zodiac Aerospace, paragraph 289; M.6447 – IAG/bmi, paragraph 105;
      M.6554 – EADS/STA/Elbe Flugzeugwerke JV, paragraph 25; M.6410 – UTC/Goodrich, paragraph 174;
      M.5747 – Iberia/British Airways, paragraph 48; M.3374 – SR Technics/FLS Aerospace, paragraph 9;
      M.3280 – Air France/KLM, paragraph 39.
  167 See Cases M.8425 – Safran/Zodiac Aerospace, paragraph 289.
  168 See Cases M.8425 – Safran/Zodiac Aerospace, paragraph 289; M.6554 – EADS/STA/Elbe
      Flugzeugwerke JV, paragraph 25; M.6410 – UTC/Goodrich, paragraph 174; M.3280 – Air
      France/KLM, paragraph 39. An A-check is performed approximately every 800 flight hours and
      requires around 200-300 man-hours to complete. B-checks are performed approximately every 4-6
      months and are usually performed within 3 days at an airport hangar. C-checks are performed
      approximately every 18 to 24 months or after a specific amount of actual Flight Hours as defined by
      the manufacturer. D-checks/structural checks are the most comprehensive and demanding checks,
      since the entire aircraft structure is taken apart for inspection and overhaul. Intermediate structural
      checks occur after 5-6 years and heavy structural checks occur after 10-12 years. Such checks will
      usually demand around 15,000 to 20,000 man-hours and around 1 month to complete at suitably
      equipped maintenance bases.
                                                           41
 ---pagebreak---          definition.169 However, in line with the Commission’s decisional practice, they
         provided data for each of the following MRO segments (i) line maintenance; (ii)
         heavy maintenance; (ii) engine maintenance; and (iv) components maintenance.
(194) In light of the above, the Commission concludes that the precise scope of the
         product market definition for MRO services can be left open since the Transaction
         does not raise serious doubts as to its compatibility with the internal market under
         any plausible product market definition, as assessed in Section 5.6 below.
  4.5.1.2 Relevant geographic market
(195) In prior decisions, the Commission considered that the geographic scope of the
         market for heavy maintenance services might be at least EEA-wide, whereas line
         maintenance services could be local in scope and even limited to the airport where
         services are provided.170 Indeed, line maintenance services are usually carried out
         at the airport of origin or destination, or at the aircraft’s operational base. 171 As
         regards to engine maintenance services and components maintenance services, the
         Commission has considered these services to be worldwide in scope.172
(196) The Parties submit that the precise scope of the geographic market definition for
         MRO can be left open as no serious doubts would arise under any plausible market
         definition.173
(197) For the assessment of the Transaction, the Commission concludes that the precise
         geographic market definition for MRO services can be left open, since the
         Transaction does not raise serious doubts as to its compatibility with the internal
         market under any plausible geographic market definition, as assessed in Section 5.6
         below.
  4.6     Dry-leasing, wet-leasing and franchise services to other airlines
(198) Dry-leasing involves the leasing of an aircraft to an airline, without crew,
         maintenance services and insurance. Dry-leased aircraft are usually used by airlines
         to increase capacity on a route without the burden of buying an aircraft. In contrast
         to dry-leasing services, wet-leasing to airlines involves the leasing of an aircraft to
  169 See Reply to RFI 6 of 1 July 2019. Form CO, paragraphs 1125, 1157-58, 1202, 1254. The Parties claim
      that, for heavy maintenance, in most cases and for most types of aircraft, “C” and “D” checks form
      part of the same market or are very close alternatives and should be analysed jointly (see Form CO,
      paragraph 1158).
  170 See Cases M.7545 – IAG/Aer Lingus, paragraph 121; M.6554 – EADS/STA/Elbe Flugzeugwerke JV,
      paragraph 26; M.6447 – IAG/bmi, paragraph 108; M.3374 – SR Technics/FLS Aerospace, paragraph
      12.
  171 See Cases M.7545 – IAG/Aer Lingus, paragraph 121; M.6554 – EADS/STA/Elbe Flugzeugwerke JV,
      paragraph 26; M.3374 – SR Technics/FLS Aerospace, paragraph 12; M.3280 – Air France/KLM,
      paragraph 40.
  172 See Cases M.7545 – IAG/Aer Lingus, paragraph 121; M.6554 – EADS/STA/Elbe Flugzeugwerke JV,
      paragraph 26; M.6447 – IAG/bmi, paragraph 108.
  173 See Reply to RFI 6 of 1 July 2019; Form CO, paragraphs 1127, 1162, 1203, 1256.
                                                         42
 ---pagebreak---         an airline with crew, maintenance and insurance (‘ACMI’). Wet-leasing also allows
        an airline to increase its capacity or operate new routes without having to buy an
        aircraft or provide itself for crew, insurance and maintenance. Finally, a franchise
        agreement also allows an airline to increase its capacity or to operate new routes.
        Under a franchise agreement, the airline wishing to expand is the franchisor putting
        its brand and livery at the disposal of the franchisee for use under the franchise
        agreement. The franchisee operates with its own aircraft, crew, maintenance,
        insurance and slots, using the brand and livery of the franchisor. The franchisee
        bears the commercial risk, including setting fares, but the franchisor markets the
        route as part of its network and sells the tickets. In return for the use of the brand
        and for the services provided, the franchisee pays a fee to the franchisor.
(199) Propius provides intra-group dry-leasing services of regional aircraft to Stobart Air.
        Stobart Air is active in the market for the provision of wet-leasing services to
        airlines, while Flybe marginally provides such services to […]. With regard to
        franchise services, Stobart Air is active as franchisee while Flybe is active as
        franchisor.
(200) The Commission has not yet defined the product and geographic markets for the
        provision of dry-leasing, wet-leasing and franchise services. The Commission is
        however familiar with wet-leasing agreements.174 Similarly, the Commission has
        not yet defined the market for the provision of franchise services but has examined
        franchise agreements.175
(201) Airlines can source aircraft and aircraft operations in different ways. For dry
        leasing agreements, wet leasing agreements and franchising agreements there
        would be different degrees of commercial risk, but also of skill and expertise
        required on the side of the airline operator for each of these agreements.
(202) The Parties explained the main differences in the allocation of responsibilities and
        commercial risk between dry lease agreements, wet lease agreements and franchise
        agreements, which are summarised in the chart below.
  174 See e.g. Case M.8633 – Lufthansa/Certain Air Berlin Assets.
  175 See case M.6663 – Ryanair/Aer Lingus III.
                                                        43
 ---pagebreak---                                    Source: Form CO, paragraph 1291
(203) The Parties explained that in a dry lease, only the aircraft would be leased to an
        airline (which would be operating the aircraft and selling the tickets). Dry leasing
        services would normally be provided by leasing companies and aircraft
        manufactures rather than airlines. Dry leasing would not require the lessor to have
        any authorisation to fly, in addition, no Air Operator Certificate (“AOC”) would be
        required.176
(204) For wet-lease and franchise agreements, the Parties explained which party of the
        agreement is responsible for the different aspects of the business operations.
                                   Source: Form CO, paragraph 1292
  176 Form CO, paragraphs 1293 and 1295 et seq.
                                                     44
 ---pagebreak--- (205) The main features distinguishing franchise and wet leasing are the commercial risk
        and the duration of the agreement.
(206) The Parties explained that under a franchise agreement, the commercial risk would
        be passed on to the franchisee (the operating airline) who generates revenues
        through the sale of seats by the franchisor (and the franchisee pays the franchisor a
        franchise fee). Franchising would also be a method to expand brand presence,
        without further investments and financial risk.177
(207) In a wet lease agreement, the lessee would retain the commercial risk of selling
        tickets. Wet-leasing would allow the airline to continue its operations and thereby
        not losing its own slots, without the need to acquire additional aircraft and to hire
        crew.178
(208) In terms of duration, franchise agreements would tend to have a duration between 5
        and 10 years, whereas wet lease agreements would be normally shorter than 2
        years.179
(209) The Parties submitted that from the supply-side, for a supplier of wet-leasing
        services (lessor) to offer franchise services (franchisee), it would have to assume
        the commercial risk for the flight, including setting prices and would have to create
        the internal structure for revenue management and pricing.180 The Parties consider
        that a supplier of franchise services (franchisee) would in contrast not require
        significant investments to offer wet-leasing services, because the franchisee would
        have access to aircraft, crew and maintenance, which are needed to provide wet-
        leasing services. In addition, wet-lease agreements would not require the lessor to
        bear the commercial risk and would usually be of a shorter duration than franchise
        agreements, so a supplier of franchise services could enter into a wet-lease
        agreement without requiring further investments.181
(210) The market investigation has not produced any evidence indicating that dry-
        leasing, wet-leasing and franchising services are considered substitutable.
        Respondents have not submitted any comment suggesting that there is any need to
        define a combined market for dry-leasing, wet-leasing and franchising services.182
        With regard to wet-leasing and franchising services, respondents answering that
        they procure wet-leasing services explained with a majority that they do not
        procure franchising services.183
  177 Form CO, paragraph 1310 et seq.
  178 Form CO, paragraph1310 et seq.
  179 Form CO, paragraph 1293 and 1295 et seq.
  180 Form CO, paragraph 1310 et seq.
  181 Form CO, paragraph 1312 et seq.
  182 Replies to eQ1 – Questionnaire to Airlines, question 66; eQ2 – Questionnaire to Corporate Customers,
      question 17 and eQ3 – Questionnaire to Travel Agents, question 18.
  183 Replies to eQ1 – Questionnaire to Airlines, questions 40 and following and question 50.
                                                          45
 ---pagebreak--- (211) The Commission considers that, from the demand side of the airlines, dry-leasing
        appears not be substitutable with wet-leasing or franchising services, because dry-
        leasing only provides the airline seeking to expand with an aircraft whereas wet-
        leasing and franchising services provide also crew and other services. In addition,
        dry-leasing does not seem to be substitutable with wet-leasing or franchising
        services from the supply side because the suppliers of dry leasing services would
        need significant additional resources (e.g. crew) and fulfil regulatory requirement
        (e.g. an AOC) to offer wet-leasing or franchising services.
(212) Concerning wet-leasing and franchising services, the Commission considers that
        wet-leasing and franchising have different business models and offer different
        solutions for an airline seeking to expand.
(213) For those reasons, the Commission considers that dry-leasing services, wet-leasing
        services and franchise services constitute distinct markets. The plausible
        segmentations of those three markets are assessed in the following.
  4.6.1.1 Dry leasing
(214) The market investigation aimed at determining whether the product market for the
        supply of dry-leasing services to airlines could be segmented on the basis of
        aircraft size and type.
(215) The majority of airlines responding to the market investigation and having
        expressed a view did not consider that large commercial aircraft (i.e. aircraft with
        more than 100 seats and a range of greater than 2000 nautical miles) and regional
        aircraft (aircraft with around 30 to 100 seats and a range of less than 2000 nautical
        miles) could be regarded as substitutable for reason of their technical
        characteristics, price and intended end-use.184 One airline explained that “Two
        aircraft types with very different capacities are largely not substitutable. An airline
        would choose the aircraft type to be deployed on a specific route portfolio
        according to the actual or expected demand on a route to be able to operate the
        aircraft on a profitable basis. With an aircraft of a different capacity, not matching
        the demand, it will in most cases be very difficult to achieve this.”185
(216) When airlines were asked if, as a customer of aircraft dry-leasing services, they had
        switched from large commercial aircraft to regional aircraft in the past, or vice
        versa, the majority of airlines explained that they had not switched. One airline
        explained that they had changed in some instances aircraft sizes according to the
        demand from bookings.186
(217) With regard to the dry-leasing of large commercial aircraft, the majority of airlines
        responding to the market investigation explained that they do not consider wide-
  184 See replies to eQ1 – Questionnaire to airlines, question 32.
  185 See replies to eQ1 – Questionnaire to airlines, question 32.
  186 See replies to eQ1 – Questionnaire to airlines, question 33.
                                                           46
 ---pagebreak---         body aircraft with 200-400+ seats and narrow-body aircraft with 100-200 seats as
        substitutable for them as customers of dry-leasing services.187
(218) Concerning regional aircraft, the majority of airlines responding to the market
        investigation explained that they do not consider small regional aircraft with 30-50
        seats and large regional aircraft with 70-90+ seats to be substitutable for them as
        customers of dry-leasing services.188
(219) The Commission therefore considers that the market for the provision of dry
        leasing services should be segmented according to the aircraft size (seat capacity).
        The precise market definition can however be left open since the Transaction does
        not raise serious doubts under any plausible market definition.
(220) Concerning the geographic market definition, a majority of the airlines responding
        to the market definition explained that they purchase dry-leasing services
        worldwide.189 Some of the airlines responding to the market investigation
        explained that they also supply aircraft dry-leasing services and would do so
        worldwide.190
(221) The Commission therefore considers that the geographic market for the provision
        of dry-leasing services is worldwide.
  4.6.1.2 Wet-leasing
(222) Aircraft can be used for passenger transport or for cargo transport. The Parties
        submitted that the aircraft and crew for cargo and for passenger transport are
        different: for cargo air transport, aircraft would not be equipped with passenger
        seats and only pilots would be required, no flight attendants. Cargo aircraft would
        typically be aircraft that had been retired from passenger services and they would
        be older and cheaper to lease than passenger aircraft.191 In addition, the Parties
        submitted that the providers of passenger and cargo aircraft would be generally
        different. The providers of wet-leasing services for air passenger transport would
        not generally provide wet-leasing services for air cargo transport. Cargo aircraft
        would normally be operated by a small number of specialist suppliers. From a
        supply-side perspective, for a supplier of wet-leasing services for air cargo
        transport to switch to wet-leasing services for air passenger transport, it would need
        different aircraft and crew.
(223) The Commission therefore considers that wet-leasing services for air cargo and
        passenger air transport services appear to constitute distinct markets. However,
        since Stobart Air and Flybe only provide wet-leasing services for passenger air
  187 Reply of an air carrier to eQ1 – Questionnaire to airlines, question 34.
  188 See replies to eQ1 – Questionnaire to airlines, question 35.
  189 See replies to eQ1 – Questionnaire to airlines, question 36.
  190 See replies to eQ1 – Questionnaire to airlines, question 37.
  191 Form CO, paragraph 1318.
                                                           47
 ---pagebreak---         transport, the Commission will only assess this market segment further in this
        decision, which is in any event the narrowest plausible market.
(224) The market investigation aimed at determining whether the product market for the
        supply of wet-leasing services to airlines could be segmented on the basis of
        aircraft size and type.
(225) The majority of airlines responding to the market investigation and having
        expressed a view did not consider that large commercial aircraft (i.e. aircraft with
        more than 100 seats and a range of greater than 2000 nautical miles) and regional
        aircraft (aircraft with around 30 to 100 seats and a range of less than 2000 nautical
        miles) could be regarded as substitutable for reason of their technical
        characteristics, price and intended end-use.192
(226) When airlines were asked if, as a customer of aircraft wet-leasing services, they
        had switched from large commercial aircraft to regional aircraft in the past, or vice
        versa, the majority of airlines explained that they had not switched.193
(227) With regard to the wet-leasing of large commercial aircraft, the majority of airlines
        responding to the market investigation explained that they do not consider wide-
        body aircraft with 200-400+ seats and narrow-body aircraft with 100-200 seats as
        substitutable for them as customers of wet-leasing services.194
(228) Concerning regional aircraft, the majority of airlines responding to the market
        investigation explained that they do not consider small regional aircraft with 30-50
        seats and large regional aircraft with 70-90+ seats to be substitutable for them as
        customers of wet-leasing services.195
(229) The Commission therefore considers that the market for the provision of wet-
        leasing services could be segmented according to aircraft size. The precise product
        market definition can however be left open since the Transaction does not raise
        serious doubts as to its compatibility with the internal market under any plausible
        market definition.
(230) Geographically, the Parties submitted that the market for wet-leasing services
        would be at least EEA-wide in scope. Wet-leasing companies would be based
        across the EEA and would typically bid for wet-leasing contracts across the EEA.
        The Parties also explained that wet-leasing companies from outside the EEA would
        need to fulfil the EEA regulatory requirements and the national requirements
        before they could offer or bid for wet-leasing contracts within the EEA (for
        example concerning the AOC, maintenance requirements for aircraft or
        insurance).196
  192 See replies to eQ1 – Questionnaire to airlines, question 40.
  193 See replies to eQ1 – Questionnaire to airlines, question 41.
  194 See replies to eQ1 – Questionnaire to airlines, question 42.
  195 See replies to eQ1 – Questionnaire to airlines, question 43.
  196 Form CO, paragraph 1325 et seq.
                                                           48
 ---pagebreak--- (231) When airlines were asked if they purchase wet-leasing services within the EEA or
        worldwide, the replies to the market investigation were mixed. Around half of the
        airlines answering explained that they purchase at EEA level, whereas around the
        other half of the respondents purchased at worldwide level.197 Some airlines
        responding to the market investigation explained that they also supply wet-leasing
        services to other airlines, whereby around half the respondents explained that they
        supply at worldwide level whereas around the other half of the respondents supply
        at EEA level.198
(232) It can however be left open if the geographic market for the provision of wet-
        leasing services is EEA-wide or worldwide because the Transaction does not raise
        serious doubts as to its compatibility with the internal market under any plausible
        market definition.
  4.6.1.3 Franchise services
(233) As explained above in paragraph (199), the Transaction creates a vertical link
        between Stobart Air as franchisee and Flybe as franchisor. In a previous decision,
        the Commission has not considered a franchisee as an independent competitor from
        its franchisor.199 For the purpose of the assessment of the vertical link created by
        this Transaction, the Commission will consider the provision of franchising
        services to other airlines as an upstream market and input to the operation of air
        passenger transport services.
(234) Geographically, the Parties submitted that the provision of franchising services
        might be EEA-wide, but would be at least UK and Ireland wide (based on the
        routes operated under the Stobart Air-Flybe franchise agreement).200 None of the
        airlines having replied to the market investigation and having expressed an opinion
        stated that they would purchase franchising services only from franchisees based in
        the same country.201
(235) Therefore, the Commission considers for the purpose of this decision the provision
        of franchising services to be an EEA-wide market.
  4.7   Ground-handling services
  4.7.1.1 Relevant product market
(236) Aircraft ground-handling refers to the servicing of an aircraft while it is on the
        ground. It covers a variety of airport services such as ramp services, passenger and
        baggage handling, fuel and oil handling, aircraft maintenance, ground
        administration and supervision and crew administration. In its previous decisional
  197 See replies to eQ1 – Questionnaire to airlines, question 44.
  198 See replies to eQ1 – Questionnaire to airlines, question 45.
  199 See Case M.6663 – Ryanair/Aer Lingus III, paragraph 459.
  200 Form CO, paragraphs 1343 et seq.
  201 See replies to eQ1 – Questionnaire to airlines, question 50 and 51.
                                                           49
 ---pagebreak---         practice, the Commission has defined ground-handling services as a product market
        consisting of ramp, passenger, and baggage handling services as well as airside
        cargo handling services.202
(237) The Parties consider that the Commission does not need to reach a view on the
        market definition in this case as the Transaction will not give rise to any horizontal
        or vertical affected markets, even on the narrowest plausible market.203
(238) The Commission considers that the product market as defined in its relevant
        precedents is still appropriate. In line with its prior decisional practice, the
        Commission will assess the effects of the Transaction on the market for the
        provision of ground-handling services comprising ramp, passenger, and baggage
        handling services as well as airside cargo handling services.
  4.7.1.2    Relevant geographic market
(239) As regards the geographic scope for the provision (or contracting) of ground-
        handling services, the Commission has in its prior decisional practice considered
        that the geographic scope of the market is restricted to a specific airport (or
        possible two neighbouring airports), given that the services required at a particular
        airport could not normally be substituted by services provided at other airports.204
(240) The Parties consider that the Commission does not need to reach a view on the
        market definition in this case as the Transaction will not give rise to any horizontal
        or vertical affected markets, even on the narrowest plausible market.
(241) The Commission considers that, in any event, the precise definition can be left
        open as the Transaction does not raise serious doubts irrespective of the precise
        geographic market definition adopted.
  4.8   Competitive situation most likely to prevail absent the Transaction
(242) In assessing the competitive effects of a concentration, the Commission compares
        the competitive conditions that would result from the Transaction with the
        conditions that would have prevailed absent the Transaction. In most cases, the
        competitive conditions existing at the time of the Transaction constitute the
        relevant comparison for evaluating its effects. However, in some circumstances, the
        Commission may take into account future changes to the market to the extent that
        they can be reasonably predicted. It may, in particular, take account of the likely
        entry or exit of firms if the merger did not take place when considering what
        constitutes the relevant comparison.205
  202 See e.g. Cases M.8470 – DAAM/INFRAVIA/FIH/AI, paragraph 16; M.8137 – HNA Group/Servair,
      paragraph 51.
  203 Form CO, paragraph 1419.
  204 See e.g. Cases M.9270 – Vinci/ Gatwick airport, paragraph 12; M.8470 – DAAM/INFRAVIA/FIH/AI,
      pargraph 19; M.8137 – HNA Group/ Servair, paragraph 52.
  205 Guidelines on the assessment of horizontal mergers under the Council Regulation on the control of
      concentrations between undertakings, paragraph 9 (OJ C 31, 5.2.2004, p.5).
                                                        50
 ---pagebreak---   4.8.1 Flybe’s history and financial background
(243) While Flybe has experienced negative operational results in three of the last four
         financial years, its financial position worsened in Spring 2018. Flybe issued a profit
         warning to the market on 3 April 2018.206 [confidential information about Flybe’s
         financial situation.] As recognised by Flybe’s board in approving entry into the
         share purchase agreement described in paragraph (17) above, Flybe faced an
         imminent risk of insolvency by 15 January 2019.
(244) In February 2019, the Parties requested a derogation decision under Article 7(3) of
         the EU Merger Regulation, claiming that the suspension obligation under Article
         7(1) would cause irreparable damage to Flybe and third parties.207
  4.8.2 Failing Firm
(245) In the case at hand, the Notifying Parties argue that absent the Transaction, Flybe
         would become insolvent and exit all markets since the Notifying Parties would not
         provide the financial support to this loss-making company.208
(246) In this context, the Notifying Parties consider that Flybe meets the criteria of the
         failing firm defence as set out in paras. 89-91 of the Commission’s Horizontal
         Merger Guidelines. Namely, the Horizontal Merger Guidelines and the case law of
         Court of Justice establish a three-pronged test to determine whether a “rescue
         merger” may be allowed (that is to say, a failing firm defence can be accepted)
         despite its adverse effects on competition:
         i.    the allegedly failing firm would, in the near future, be forced out of the
               market because of financial difficulties if not taken over by another
               undertaking;
        ii.    there is no less anti-competitive alternative purchase than the notified merger;
               and
       iii.    in the absence of a merger, the assets of the failing firm would inevitably exit
               the market.209
(247) More generally, a merger that is found to give rise to significant impediment of
         effective competition may be found compatible with the internal market if it can be
         proved that without the merger the competition would be deteriorated at least to the
         same extent as if the failing firm would simply disappear from the market.210 In
         that context, “the Commission may decide that an otherwise problematic merger is
         nevertheless compatible with the common market if one of the merging parties is a
  206 Another profit warning was issued on 25 January 2019.
  207 See Derogation Decision.
  208 Form CO, paragraph 186.
  209 Horizontal Merger Guidelines, paragraph 90.
  210 Horizontal Merger Guidelines, paragraph 89.
                                                        51
 ---pagebreak---          failing firm. The basic requirement is that the deterioration of the competitive
         structure that follows the merger cannot be said to be caused by the merger. This
         will arise where the competitive structure of the market would deteriorate to at
         least the same extent in the absence of the merger.”211
(248) It is then for the Notifying Parties to provide in due time all the relevant
         information necessary to demonstrate that the deterioration of the competitive
         structure that follows the merger is not caused by the merger.212
  4.8.2.1 Commission’s assessment
(249) The criteria of the failing firm defence as laid down in paragraphs 89-91 of the
         Commission’s Horizontal Merger Guidelines are cumulative. For the reasons, set
         out below, the Notifying Parties failed to demonstrate that all three criteria are met
         and therefore that the deterioration of the competitive structure that follows the
         merger is not caused by the merger.
  4.8.2.1.1 Flybe’s exit from the market
(250) Whilst the Commission acknowledges Flybe’s precarious financial position as set
         out in the Derogation Decision, it nevertheless cannot conclude that the most likely
         scenario absent the Transaction would be that Flybe would have completely and
         definitively exited the market for air transport services in the immediate or short
         term, since it considers that it does not have sufficient evidence to exclude that
         Flybe may have been acquired by another interested purchaser instead (and, as
         such, would have continued its operations as an active provider of air transport
         services).
(251) Indeed, other potential purchasers expressed interest in a possible acquisition of
         Flybe (albeit they did not materialise into any formal offers).213 It can therefore not
         be excluded that at least parts of Flybe’s operations would have continued in some
         form.
  4.8.2.1.2 No less anticompetitive purchaser than Connect Airways
(252) The Notifying Parties argue that there was no less anti-competitive alternative
         purchaser than Connect Airways that had demonstrated an ability to execute and
         complete a transaction sufficient to rescue Flybe in the required timeframe.214
(253) Whilst Flybe Group did receive some interest from potential purchasers (including
         from Virgin Atlantic on its own and Stobart separately215), before and during the
  211 Horizontal Merger Guidelines, paragraph 89.
  212 Guidelines on the assessment of horizontal mergers under the Council Regulation on the control of
      concentrations between undertakings, para 91 (OJ C 31, 5.2.2004, p.5). See also COMP/M.308
      KALI+SALZ and Joined Cases C-68/94 and C-30/95 France and Others v Commission (Kali & Salz)
      [1998] ECR I-1375.
  213 Form CO, paragraph 187(a).
  214 Form CO, paragraph 373.
                                                      52
 ---pagebreak---          formal sale process to acquire Flybe Group as a whole or part, no other potential
         interest materialised into an offer according to the Parties.
(254) The Commission considers that, in any event, as the criteria for a failing firm
         defence are cumulative, and the first and third criteria are not met, the defence
         cannot be relied upon in this case.
  4.8.2.1.3 The assets would inevitably exit the market
(255) One of the cumulative criteria laid down in the Horizontal Guidelines to accept a
         failing firm defence is that absent the merger, “the assets of the failing firm would
         inevitably exit the market” (emphasis added).216
(256) Among the main assets of Flybe are the [10-20] slot pairs (for WS18; [10-20] for
         SS18) it holds at Amsterdam Schiphol and [10-20] slot pairs (for WS18, [10-20]
         for SS18) at Paris Charles de Gaulle. In case of insolvency, and due to the severe
         congestion affecting these airports, all Flybe slots would be reallocated to other
         carriers, most likely via the slot pool managed by the slot coordinator. Nothing
         would prevent carriers obtaining such slots to use them on the routes where they
         are currently used by Flybe.
(257) Therefore, it is concluded that at least some of these slots would likely continue to
         be used and these assets would not “inevitably” exit the market.
  4.8.2.1.4 Overall causality criterion
(258) The overall criterion for assessing a failing firm defence requires the Notifying
         Parties to demonstrate that the deterioration of the competitive structure (or the
         significant impediment to effective competition or “SIEC”) that follows the merger
         is not caused by the merger.217 In the case at hand, for the reasons set out below,
         the Notifying Parties fail to demonstrate this.
(259) Namely, in order to conclude that the Transaction is compatible with the internal
         market, it is necessary to establish whether, absent the Transaction, the competitive
         structure in the market would likely deteriorate to a similar degree compared to the
         merger.
(260) As explained below in Section 4.8.3.1, the Commission has indications that absent
         the Transaction, competition in the market would not deteriorate to the same extent
         as it would should the Transaction go through.
(261) In particular, the reallocation of Flybe’s slots, in particular its portfolio at highly
         congested Schiphol and congested Charles de Gaulle, would increase opportunities
         and incentives for entry and expansion by other airlines than AFKL, in particular
         on the routes of concern. The same opportunities would not arise in the post-
         Transaction scenario.
  215 See Reply to RFI 2 to AFKL of 11 June 2019.
  216 See Horizontal merger guidelines, paragraph 90.
  217 See Horizontal merger guidelines, paragraph 91.
                                                      53
 ---pagebreak--- (262) To conclude, the overall causality criterion is not fulfilled.
  4.8.2.2 Conclusion on the failing firm defence
(263) The Commission concludes that the Parties have failed to demonstrate that the
          criteria for meeting the failing firm test as set out in the Horizontal Merger
          Guidelines are met. In addition, it has not been shown that the deterioration of the
          competitive structure that follows from the Transaction would not be directly
          caused by the Transaction. Instead, the Transaction would most likely deteriorate
          competition beyond the extent of the deterioration that could occur absent the
          Transaction. In addition, it appears likely that the negative effects of a possible
          bankruptcy of Flybe would be short term while the negative effects likely to be
          caused by the Transaction would be structural in nature.
  4.8.3 Most likely situation absent the Transaction
  4.8.3.1 Scenario 1: Flybe’s insolvency and market exit
(264) Pursuant to Article 8(2) and 10(2) of Council Regulation (EEC) No 95/93 of 18
          January 1993 on common rules for the allocation of slots at Community airports
          (hereafter: “the EU Slot Regulation”), a carrier holding a slot series in a given
          scheduling season is entitled to retain the same series in the next equivalent
          scheduling season if it can demonstrate to the slot coordinator that the series of
          slots has been operated for at least 80% of the time during the scheduling period for
          which it has been allocated for the operation of scheduled and programmed non-
          scheduled air services. This is referred to as the “use-it-or-lose-it” rule.
(265) If the Commission considers the scenario that Flybe would have exited the market,
          it would take account of the fact that, in such case, Flybe’s slots would be made
          available to other carriers during or shortly before the insolvency proceedings, e.g.
          through fall back to the slot pools and subsequent reallocation by the relevant slot
          coordinators, including in Amsterdam.
(266) The relatively short timespan before slots would be withdrawn in application of
          this rule, part – and probably most of – Flybe’s slots at Amsterdam and Paris for
          the ongoing season would end up in the slot pool. Indeed, Flybe’s liquidator /
          administrator would likely face difficulties to transfer Flybe’s activity including the
          slots linked to it before these slots fall back to the pool in application of the “use-it-
          or-lose-it” rule. As regards slots for the following season, Flybe (or its liquidator)
          may have more time to transfer Flybe’s activity including the slots linked to it.
          However, AFKL would be unlikely to be the only air carrier being transferred these
          slots, for the reasons explained below.
(267) Amsterdam Schiphol Airport is generally known to be heavily congested, and Paris
          Charles De Gaulle also constitutes a congested airport, which means that available
          slots at these airports are insufficient to satisfy airlines’ demand. In that context, in
          case of Flybe’s exit from the relevant markets, all the slots currently held by Flybe
          would be very likely to be taken up, e.g. through re-allocation via the pool.218
  218  As regards the slots that would fall back to the pool, pursuant to Article 10(6) of the EU Slot
      Regulation, 50 % of the slots included in the pool are destined to incumbents and 50% to airlines which
      qualify as "new entrants" under Article 2(b) of the above-mentioned Regulation. In practice, numerous
      airlines would qualify as potential new entrants at Amsterdam and in Paris.
                                                           54
 ---pagebreak---          Moreover, a significant proportion of Flybe’s slots (most likely 50%219) at
         Amsterdam and Paris would be likely to end up with other carriers than AFKL,220
         unlike in the post-Transaction scenario where AFKL would indirectly take control
         of all these slots. The fact that a relatively large portfolio of slots at Amsterdam and
         Paris airports would be made available through reallocation via the pool would
         significantly facilitate the implementation of potential entry plans by other airlines.
(268) Therefore, one difference between this scenario and the post-Transaction situations
         relates to the distribution of slots at Amsterdam Schiphol and Paris Charles De
         Gaulle. In the absence of the Transaction, the likelihood that carriers other than
         AFKL may acquire part of Flybe’s slot portfolio at Amsterdam and Paris and enter
         routes where AFKL would be in a monopoly or dominant position because of
         Flybe’s exit, would be higher than in the post-Transaction situation, where the
         entirety of Flybe’s slot portfolio would be (indirectly) controlled by AFKL. Indeed,
         post-Transaction, due to the heavy congestion prevailing at Amsterdam Schiphol
         and Paris Charles de Gaulle, entry opportunities would remain strongly limited by
         the scarcity of slots whereas in absence of the Transaction, entry barriers would be
         lowered by the reallocation via the pool of Flybe's slots portfolio between various
         carriers.
(269) The Transaction is not expected to have the same effect as Flybe’s market exit on
         potential new entrants’ incentives to enter/expand on routes. This is because
         Flybe’s exit would lead to an immediate reduction in capacity on these routes,
         whereas post-Transaction, this capacity would be taken up by AFKL. The capacity
         which disappears as a consequence of Flybe’s exit would create an incentive for
         other carriers to enter the route in order to respond to the remaining demand and
         thereby increase more (than post-Transaction) their incentives to enter/expand.
(270) It thus appears that in this scenario, Flybe’s exit would have heightened other
         carrier's incentives to enter the exited routes, at least to some extent. Besides, as
         explained above, the ability of these carriers to enter would have been heightened
         by the reallocation of Flybe’s slots at Amsterdam and Paris.
(271) In conclusion, post-Transaction, AFKL would likely be less threatened by new
         entries on the routes where Flybe currently operates than in this scenario (i.e.
         Flybe’s market exit). This is due to lower incentives and higher barriers to entry in
         the post-Transaction scenario than in this insolvency scenario.
  4.8.3.2 Scenario 2: Flybe’s continuation of operations
(272) As mentioned above, the Commission does not consider that it has sufficient
         evidence to conclude that Flybe’s exit from the market and the cessation of its
         operations as an independent air carrier would be the most likely situation absent
         the Transaction, since it may have been acquired by another purchaser and
         continued its operations on the market for air transport services as such. Indeed,
         other potential purchasers expressed interest in a possible acquisition of Flybe
  219 See EU Slot Regulation, Article 10(6).
  220 There is no reason why the reallocated slots should all end up with AFKL should Flybe become
      insolvent.
                                                      55
 ---pagebreak---          (albeit they did not materialise into any formal offers).221 It can therefore not be
         excluded that at least parts of Flybe’s operations would have continued in some
         form.
(273) In particular, earlier in 2018, Virgin Atlantic showed interest in acquiring 100% of
         Flybe and considered making an offer for Flybe on its own, as did Stobart.222
(274) If, absent the Transaction, Flybe would not have become insolvent, because an
         alternative buyer (whether Virgin Atlantic on its own or Stobart or other) would
         have taken over all or parts of Flybe, the latter would have continued its operations
         on many or all of the relevant routes and would have continued to exert a
         competitive pressure on AFKL on these routes, remaining in control over its slots
         at the relevant airports (at least those not lost under the “use it or lose it” rule). This
         competitive pressure would be removed following the proposed Transaction.
  4.8.4 Conclusion
(275) For the purpose of this Decision, the Commission does not need to take a firm
         position as to whether, absent the Transaction, Flybe would have exited the market
         and ceased all operations, or would have continued following the acquisition by an
         alternative purchaser, as the Transaction raises serious doubts as to its
         compatibility with the internal market under both scenarios. Namely, the
         Transaction would most likely impede competition beyond the extent of the
         impediment that could occur under either possible scenario absent the Transaction.
  4.9    Competitive situation for the assessment of air/rail overlaps
(276) As stated above, when assessing the competition effects of a proposed transaction
         under the Merger Regulation, the Commission needs to compare the competitive
         conditions that would result from the notified concentration with those that would
         have prevailed in the absence of the concentration. As a general rule, the
         competitive conditions prevailing at the time of notification constitute the relevant
         framework for evaluating the effects of a transaction. In some circumstances,
         however, the Commission may take into account future changes to the market that
         can be reasonably predicted.223
(277) The Parties explained that Virgin Trains currently operates the West Coast Train
         Franchise in the United Kingdom. Virgin Trains has operated the West Coast Train
         Franchise since October 2012. The West Coast Train Franchise was extended in
         December 2018 until March 2020. The Department for Transport has an option to
         terminate the franchise from November 2019 on.224 The West Coast Train
         Franchise will be replaced by the West Coast Partnership franchise. When the West
  221 Form CO, paragraph 187(a).
  222 See Reply to RFI 2 to AFKL of 11 June 2019.
  223 Guidelines on the assessment of horizontal mergers under the Council Regulation on the control of
      concentrations between undertakings, paragraph 9 (OJ C 31, 5.2.2004, p.5).
  224 Form CO, paragraph 250 and 552 et seq.
                                                        56
 ---pagebreak---         Coast Partnership franchise begins, the West Coast Franchise will be terminated.225
        As a result, the West Coast Train Franchise will expire before March 2020, most
        likely around November 2019.226
(278) The West Coast Partnership franchise is awarded through a tender process by the
        UK DfT. The consortium involving Virgin Group was disqualified from the tender
        process in relation to the West Coast Partnership franchise.227
(279) [confidential strategic information related to Virgin Trains’ disqualification from
        the West Coast Partnership]228
(280) The Commission notes that for Virgin Trains to be awarded the West Coast
        Partnership franchise, the consortium involving Virgin Trains would need to
        challenge the decision in court, be successful in this challenge, be re-admitted to
        the tender process and be ultimately selected as the successful bidder in the tender
        process.
(281) Due to these uncertainties, the Commission considers that for the purpose of this
        decision, it cannot be reasonably predicted that Virgin Trains would be awarded the
        West Coast Partnership franchise. The Commission will therefore assess the effects
        of this Transaction against a situation absent the Transaction in which Virgin
        Trains operates train services on the London-Edinburgh, Birmingham-Glasgow,
        Birmingham-Edinburgh, Edinburgh-Manchester and Glasgow-Manchester routes
        until November 2019 and a third party train operator operates these routes under the
        West Coast Partnership Franchise as of November 2019. As a result, the
        Transaction gives only rise to air/rail overlaps until November 2019.
  5.   COMPETITIVE ASSESSMENT
  5.1    Passenger air transport services
  5.1.1 Passenger air transport services under the O&D approach
  5.1.1.1 Flybe’s and Virgin Atlantic’s (including its shareholders’) business models in
           air passenger transport
(282) Flybe is a UK regional airline and currently operates passenger services on 190
        routes from 73 departure points in the UK. Flybe operates a fleet of 76 aircraft.
        Flybe operates short-haul flights primarily within the UK and between the UK and
        Continental Europe. Flybe’s operations are not based around specific airports, its
  225 Form CO, paragraph 596.
  226 Form CO, paragraph 601.
  227 Form CO, paragraph 596.
  228 Form CO, paragraph 598.
                                                   57
 ---pagebreak---         business model was described by the Parties as most akin to a point-to-point
        model.229
(283) Virgin Atlantic is operating long-haul flights from the United Kingdom to 34
        destinations worldwide. Virgin Atlantic does not operate flights within the UK or
        any short-haul routes.
(284) Delta is an US airline. Delta’s network was explained by the Parties to be operated
        on a system of hub and key airports, for example Minneapolis-St. Paul, New York-
        LaGuardia and New York-JFK, Amsterdam, Paris-Charles de Gaulle and London
        Heathrow. Delta does not operate routes within the UK or any European short-haul
        routes.
(285) AFKL operates a network organised around Paris-Charles de Gaulle and
        Amsterdam. It operates short-haul flights within Europe as well as long-haul flights
        worldwide. AFKL does not operate on any domestic UK routes.
  5.1.1.2 Treatment of Stobart Air and its franchise agreements
(286) Stobart Air operates on routes out of the UK and Ireland pursuant to franchise
        agreements with Aer Lingus (on a number of routes between Dublin and Cork and
        the United Kingdom) and Flybe (on a number of routes between the United
        Kingdom and Continental Europe).
(287) In a previous decision, the Commission has concluded that Aer Arann (who was
        taken over by Stobart Group) operated flights pursuant to a franchise agreement
        with Aer Lingus, cannot be considered as an independent competitor from Aer
        Lingus and that it is appropriate to add Aer Arann’s shares of the market to those of
        Aer Lingus for the purpose of the competitive assessment.230
(288) The key terms of Aer Lingus – Stobart Air franchise agreement and the Flybe –
        Stobart Air franchise agreement are as follows.
(289) Stobart Air as the franchisee bears the commercial risk for the performance on the
        routes that it operates pursuant to the franchise agreement, including setting the
        prices on these routes.231
(290) Under the Aer Lingus-Stobart Air franchise agreement, Stobart Air pays a franchise
        fee to Aer Lingus and Flybe, respectively.232
(291) Stobart Air operates its routes using Aer Lingus and Flybe’s brand and flight
        numbers. Stobart Air uses the Aer Lingus Regional brand and operates under Aer
  229 Form CO, paragraph 232 et seq.
  230 See Case M.6663 – Ryanair/Aer Lingus III, paragraphs 431 et seq.
  231 Form CO, paragraph 319 et seq.
  232 Form CO, paragraph 321 and 322.
                                                       58
 ---pagebreak---         Lingus’ code (EI). For flights operated under the Flybe-Stobart Air franchise
        agreement, Stobart Air uses Flybe’s brand and code.233
(292) [confidential information about Stobart Air’s franchise agreements with Aer Lingus
        and with Flybe]234
(293) [confidential information about marketing in relation to Stobart Air’s franchise
        agreements with Aer Lingus and with Flybe] For example, the Stobart Air routes
        under the Flybe-Stobart Air franchising agreement are advertised on Flybe’s
        website as Flybe flights “operated by Stobart Air”. Destinations only served under
        the Flybe-Stobart Air franchise agreement are advertised as Flybe destinations and
        the timetables of Stobart Air’s routes under the franchise agreement are displayed
        as Flybe flights on Flybe’s website. [confidential marketing information about
        marketing in relation to Stobart Air’s franchise agreements with Aer Lingus and
        with Flybe] 235
(294) [confidential information about Stobart Air’s franchise agreements with Aer Lingus
        and with Flybe]236
(295)    [confidential marketing information about Stobart Air’s franchise agreements with
        Aer Lingus and with Flybe] 237
(296) It appears therefore that Stobart Air cannot be considered as an independent
        competitor from Flybe and Aer Lingus, respectively. The Commission is thus
        considers it appropriate to add Stobart Air’s market shares to the market shares of
        Flybe and Aer Lingus, respectively, for the purposes of the competitive assessment.
  5.1.1.3 Treatment of interlining and codeshare agreements for the purpose of the
            competitive assessment
(297) Airlines operating scheduled air passenger transport services can enter into
        cooperative agreements with other airlines.
(298) An interline agreement is a commercial agreement between airlines to enable one
        airline to book passengers on another airline’s flights and the passengers to travel
        on one ticket despite their journey being on flights operated by multiple airlines. It
        also enables passengers to check their bags from the point of origin through to their
        final destination.
(299) In case of an interline agreement, the carrier which issues the main itinerary ticket
        does not market the flight operated by the third-party carrier as its own and does
        not determine the fare for the flight operated by the third-party carrier. The carrier
  233 Form CO, paragraph 324.
  234 Form CO, paragraph 324.
  235 Form CO, paragraph 324.
  236 Form CO, paragraph 324.
  237 Form CO, paragraph 324.
                                                  59
 ---pagebreak---          selling the ticket to the passenger for an interline itinerary collects the entire fare.
         The third-party carrier that transports the passengers then bills the carrier which
         issued the tickets and collects the fare.238
(300) Interlining agreements between airlines can be based on IATA’s Multilateral
         Interline Traffic Agreement (“MITA”) or on a bilateral interline traffic agreement
         (“BITA”). MITA enables an airline to interline with other airlines signed up to the
         MITA without having to enter into a separate bilateral agreement. 239 In the case of
         BITA, the airlines participating prorate the revenue relating to the itinerary on
         terms that are commercially negotiated between the airlines on a bilateral basis.240
(301) Codeshare agreements allow flights operated by one airline to be marketed also by
         its codeshare partner under its own code.241 In a codeshare, the marketing carrier
         adds its own code on flights operated by the operating carrier and markets them via
         its own distribution network.242,243
(302) Codeshares can be unilateral or parallel. The codeshare is unilateral if only one
         codeshare partner is operating on the route; it is parallel when both codeshare
         partners fly on the route and codeshare on each other’s flights. Unilateral codeshare
         allows the marketing carrier to expand its network by allowing it to reach
         destinations to which it does not fly its own aircraft. Through parallel codeshare,
         carriers can increase frequencies without deploying additional aircraft. Parallel
         codeshare normally allows for fare combinability, which enables passengers to fly
         on each leg of a roundtrip with different carriers. In both unilateral and parallel
         codeshares, the operating carrier receives indirect access to the distribution network
         and customer base of the marketing carrier(s).244
(303) Seats on flights operated by a codeshare partner can be sold on a “free flow” (also
         known as “free-sell”) or “blocked space” basis. In a free-flow codeshare, the
         marketing carrier can sell codeshare seats as long as there are seats available. As it
         acts as an agent of the operating carrier, the marketing carrier does not bear any
         economic risk. In order to monitor seats availability in each booking class, the
         marketing carrier has access to the operating carrier’s IT system in real time. In a
         blocked space codeshare, the marketing carrier can purchase a block of seats from
  238 Form CO, paragraphs 309 and 311.
  239 Form CO, paragraphs 308 et seq.
  240 Form CO, paragraph 312.
  241 In computer reservation systems, each airline is identified by a two-letter "airline designator code".
  242 See e.g. Case M.7333 – Alitalia/Etihad, paragraph 156 et seq.
  243 As explained above in Section 4.6, under a franchise agreement, the franchisee operates with its own
      aircraft, crew, maintenance, insurance and slots, using the brand and livery of the franchisor. The
      franchisee bears the commercial risk, including setting fares, and pays a franchise fee to the franchisor.
      The flight is operated under the franchisor’s flight number and it is the franchisor who sells and
      distributes the tickets. The Commission has assessed the treatment of Stobart Air and its franchise
      agreements for the purpose of this decision in Section 5.1.1.2.
  244 See e.g. Case M.7333 – Alitalia/Etihad, paragraph 156 et seq.
                                                           60
 ---pagebreak---         the operating carrier in advance and resell them under its own code. Blocked space
        codeshares can be further distinguished in “soft” and “hard” block. In a “soft
        block” codeshare, the marketing carrier has an option to return some or all of the
        unsold seats to the operating carrier at an agreed number of days before departure.
        Under this system, the economic risk can lay mainly on the marketing carrier or the
        operating carrier depending on the specific features of the agreement. In a “hard
        block” codeshare, the marketing carrier cannot in principle return the tickets it has
        purchased and therefore the economic risk lies on it.245
(304) Codeshare agreements are a common feature of the air passenger transport industry
        and it is not unusual for carriers to have in place at any given time a substantial
        number of agreements with multiple carriers.246
  Flybe’s and AFKL’s […] codeshare agreements
(305) Flybe has a […] codeshare agreement with Air France on the following routes:
        Birmingham-Paris Charles de Gaulle (CDG), Manchester-Paris CDG and
        Edinburgh-Paris CDG.
(306) Air France and Flybe both operate the Birmingham-Paris CDG and the
        Manchester-Paris CDG routes and, in addition, codeshare on each other’s flights on
        these two routes within the scope of the […].247 These two routes are assessed as
        direct-direct operating overlaps in the competitive assessment.
(307) The Edinburgh-Paris CDG route is only operated by Air France. Flybe does not
        operate a direct connection on this route with its own metal.248 Flybe puts its code
        on and sells tickets for these Air France operated flights […].249 The Commission
        will therefore apply the most conservative approach and assess the Edinburgh-Paris
        Charles de Gaulle route as an operating overlap route […]. It is however not
        necessary to assess in detail […] for the Edinburgh-Paris Charles de Gaulle route,
        since no competition concerns arise even under this most conservative approach.
  Flybe’s and AFKL’s interlining and […] codeshare agreements
(308) The Parties have identified 39 direct-direct marketing overlaps. These are routes on
        which either Flybe or AFKL operates and the other carrier is able to book
        passengers onto the flight of the operating carrier as a result of interlining or
        codeshare agreements.250 On two routes, the marketing overlap arises as a result of
  245 See e.g. Case M.7333 – Alitalia/Etihad, paragraph 156 et seq.
  246 See e.g. Case M.7333 – Alitalia/Etihad, paragraph 156 et seq.
  247 Form CO, footnote 265.
  248 Form CO, paragraph 517.
  249 Form CO, paragraph 533 and footnote 265.
  250 Form CO, paragraph 533.
                                                         61
 ---pagebreak---         interlining,251 on the other routes the marketing overlap arises as a result of a […]
        codeshare agreement between Flybe and AFKL.252,253
(309) The Parties do not view the two routes overlapping as a result of an interline
        agreement to constitute a “marketing overlap”. They explain that the code of the
        operating carrier [...] remains on the tickets, which means that the operating carrier
        is also marketing the tickets with its own code (the interlining partner airline, -
        […]) - is only issuing and pricing the tickets but its code does not appear on the
        tickets). [confidential information about Flybe’s commercial agreements] 254
(310) The Commission concludes that since […] is only issuing tickets because of
        interlining in the framework of MITA, it is not active on a market with regard to
        those two routes. Therefore, the activities of Flybe and AFKL do not overlap
        concerning these two routes.
(311) With regard to the […] codeshare agreement, the Parties explained that under a
        […] codeshare agreement, […]. The marketing carrier would price independently
        of the operating carrier and receive a percentage commission for the flights that it
        sells on a marketing carrier basis.255 The marketing carrier would be subject to the
        inventory availability from the operating carrier on any given day or time, which
        means that the marketing carrier has no certainty of availability. If the marketing
        carrier would not sell a seat, […]. The marketing carrier also would have no ability
        to determine flight schedules or frequencies.256
(312) Considering these arguments, the Commission concludes that the marketing carrier
        is not active on routes, which it only markets because of a […] codeshare
        agreement. Therefore, the activities of Flybe and AFKL do not overlap concerning
        the routes identified by the Parties as marketing overlaps.
(313) In any case, for the avoidance of doubt, should this be viewed differently and these
        routes be assessed as overlap routes (quod non), no serious doubts would arise for
        the following reasons:
  251 These are the routes […] and […], Form CO, paragraph 533, footnote 263.
  252 These are the following routes: Aberdeen-Paris, Avignon-Birmingham, Avignon-Southampton,
      Birmingham-Bastia,       Birmingham-Biarritz,      Birmingham-Bordeaux,      Birmingham-Chambery,
      Birmingham-Bergerac, Birmingham-Guernsey, Birmingham-Jersey, Birmingham-Lyon, Birmingham-
      Rennes, Bordeaux-Southampton, Caen-London, Chambery-Cardiff, Chambery-Exeter, Chambery-
      Manchester, Chambery-Southampton, Cardiff-Paris, Duesseldorf-Manchester, Bergerac-Exeter,
      Bergerac-Manchester, Bergerac-Southampton, Exeter-Paris, Exeter-Rennes, Glasgow-Manchester,
      Limoges-Southampton, London-Rennes, La Rochelle-Manchester, La Rochelle-Southampton, Lyon-
      Manchester, Manchester-Milan, Manchester-Nantes, Manchester-Rennes, Newcastle-Paris,
      Southampton-Paris, Perpignan-Southampton, Rennes-Southampton, Form CO, paragraph 533,
      footnote 263 and reply of the Parties to QP7 of 3 May 2018, question 8 (as amended in QP7a).
  253 Form CO, paragraph 533, footnote 264.
  254 Reply of the Parties to QP7 of 3 May 2019, question 8 (as amended in QP7a).
  255 Reply of the Parties to QP7 of 3 May 2019, question 8 (as amended in QP7a).
  256 Form CO, paragraph 533.
                                                          62
 ---pagebreak--- (314) The Commission has found in its prior decision practice that for routes on which
        the activities of airlines overlap due to a unilateral codeshare, the Transaction could
        give rise to serious doubts as to its compatibility with the internal market only if (i)
        despite the codeshare agreements, the operating carrier and the marketing carrier
        exert a significant constraint on each other as actual competitors for the sales of
        seats on the operating carrier's flights; or (ii) there is a significant likelihood that
        the marketing carrier would grow into an effective competitive force, e.g. by
        starting to operate on the route with its own aircraft. It was found that anti-
        competitive effects might occur in particular where the marketing carrier is very
        likely to incur the necessary sunk costs to enter the relevant codeshare route as an
        operating carrier in a relatively short period.257
(315) As already explained above, under the […] codeshare agreements between AFKL
        and Flybe, the marketing carrier receives a commission for each of the tickets it
        sells. The marketing carrier prices independently of the operating carrier. However,
        the incentives for the marketing carrier to price aggressively are limited. The
        commission the marketing carrier receives for the flights it sells on a marketing
        carrier basis is a percentage of the fare it charges for the ticket, most commonly
        […]% of the fare.258 Therefore, the higher the price at which the marketing carrier
        sells the tickets, the greater its commission per ticket will be.
(316) The likelihood that the marketing carrier would represent a material competitive
        constraint for the operating carrier is further limited by the operating carrier’s
        ability to terminate the codeshare agreement if the marketing carrier started to offer
        fares substantially lower than the operating carrier, thus depriving the marketing
        carrier of any benefit of an aggressive pricing policy. In the case at hand, either
        party to the […] codeshare can terminate the respective codeshare agreement for
        any reason at […].259
(317) As a result, should the marketing overlaps be assessed as overlap routes, the
        Commission concludes that the marketing carrier does not exert more than a
        residual constraint on the operating carrier.
(318) Furthermore, the Parties’ explained that, in the absence of the Transaction, neither
        [confidential strategic information on Flybe and AFKL future operations].260
  5.1.1.4 Methodology to calculate market shares
(319) The Commission has previously used Marketing Information Data Tapes
        (“MIDT”) data261 and PaxIS PLUS data262 as appropriate proxies to estimate
        market shares for air transport of passengers.
  257 See Case M.7333 – Alitalia/Etihad, paragraph 160.
  258 Reply of the Parties to QP7 of 3 May 2019, question 8 (as amended in QP7a).
  259 Reply of the Parties to QP7 of 3 May 2019, question 8 (as amended in QP7a).
  260 Reply of the Parties to QP7 of 3 May 2019, question 8 (as amended in QP7a).
  261 See e.g. Cases M.6447 – IAG/bmi; M.5889 – United Airlines/Continental Airlines; M.5747 –
      Iberia/British Airways.
                                                        63
 ---pagebreak--- (320) To take account of the increasing number of direct sales, the Commission has
         considered it necessary in the most recent airline merger case, to use a data source
         that captures direct sales by the Parties and their competitors and considered Direct
         Data Solutions (“DDS”) data as the best proxy.263 DDS is an IATA database.264
(321) The DDS database includes data from the IATA Billing and Settlement Plan, the
         Amadeus Airline booking system as well as direct and indirect data contributed by
         airlines. DDS includes the actual booking data from the carriers subscribing to it.
         To the extent that direct and indirect booking data for an airline is not contributed,
         an algorithm is applied to estimate the market shares for those airlines.265, 266
(322) The Commission is of the view that DDS data are the best proxy to estimate market
         shares and are appropriate for the assessment of the affected overlap routes in this
         case.
(323) The O&D assessment in the following sections of this decision is based on point-
         to-point bookings only, because connecting passengers are not included in the
         relevant O&D market.267
  5.1.1.5 Direct-direct operating overlaps268
(324) The transaction gives rise to six direct-direct operating overlap routes between the
         UK and Continental Europe, all resulting from overlaps between Flybe and
         AFKL.269
  262 See e.g. Cases M.7333 – Alitalia/Etihad, paragraphs 135 et seq.; M.7541 – IAG/Aer Lingus,
      paragraphs 135 et seq.
  263 See Case M.8964 – Delta/Air France-KLM/Virgin Group/Virgin Atlantic, paragraph 179 et seq.
  264 See e.g. https://www.iata.org/services/statistics/intelligence/Pages/direct-data-solutions.aspx.
  265 Form CO, paragraph 329 et seq.
  266 The Commission has in previous cases considered that most of the services offered by charter
      companies (package holiday sales, seat sales to tour operators) are not in the same market as scheduled
      point-to-point air passenger transport services. However, as regards charter carriers selling dry seats
      (seats only without other services) and scheduled point-to-point air passenger transport services, the
      Commission has left open whether they are part of the same relevant product market, see e.g. Case
      M.6663 – Ryanair/Aer Lingus III, paragraph 418 et seq. The DDS data submitted is an appropriate
      proxy to assess scheduled point-to-point air passenger transport services, because it does not include
      charter flights, see Form CO, paragraph 329.
  267 Form CO, paragraph 329 and 333.
  268 Both Flybe and AFKL operated the Amsterdam-Southampton route during the Winter 2017/2018
      IATA Season and Summer 2018 IATA Season. However, in December 2018, KLM announced that it
      will cease operating this route as of March 2019. The decision to exit this route was taken by KLM
      independently and prior to the Transaction, see Form CO, paragraph 527. Therefore, the Amsterdam-
      Southampton will not be assessed as an affected direct-direct overlap route in this decision.
  269 As regards potential substitutability between relevant airports, please refer to Section 4.1.4 above.
                                                             64
 ---pagebreak---   5.1.1.5.1 London-Amsterdam
(325) In the Summer 2018 IATA Season, [300,000-400,000] passengers travelled
         between London City and Amsterdam airports and [900,000-1,000,000] passengers
         flew between London City/ London Heathrow and Amsterdam airports. In Winter
         2017/2018 IATA Season, [200,000-300,000] passengers travelled between London
         City and Amsterdam airports and [600,000-700,000] passengers flew between
         London City/ London Heathrow and Amsterdam airports.270
(326) In Summer 2018 and Winter 2017/2018 IATA Seasons, both Flybe and AFKL
         operated direct services on the London City-Amsterdam airport pair. In addition,
         AFKL operated direct services on the London Heathrow-Amsterdam airport pair in
         both seasons. Neither Virgin Atlantic, nor Delta or Stobart Air operated on the
         London-Amsterdam city pair.271
(327) The Commission will therefore assess the effect of the Transaction on the London
         City-Amsterdam and London Heathrow/London City-Amsterdam airport pairs. If
         other London airports were considered substitutable with London City or with
         London City and London Heathrow airport, the Parties’ combined market shares
         and market position post-Transaction would necessarily be lower than on the
         London City-Amsterdam and London Heathrow/London City-Amsterdam airport
         pairs.
(328) The table below provides the market shares and frequencies of AFKL and Flybe as
         well as its biggest competitor British Airways on London City-Amsterdam airport
         pair.
                            Summer 2018 IATA Season                     Winter 2017/2018 IATA Season
                            AFKL     Flybe    Combined       British    AFKL      Flybe   Combined    British
                                                             Airways                                  Airways
           Market           [50-     [5-      [60-70]%       [30-       [40-      [5-     [50-60]%    [40-
           share            60]%     10]%                    40]%       50]%      10]%                50]%
           Weekly           45       8        53             29         41        9       50          32
           frequencies
(329) The table below provides the market shares and frequencies of AFKL and Flybe as
         well as its biggest competitor British Airways on London City/London Heathrow-
         Amsterdam airport pair.
  270 Form CO, paragraphs 431 and 433.
  271 Form CO, paragraph 423. The Parties submit that the DDS data shows minor bookings for Delta on
      this city pair on a marketing carrier basis. As explained above, the starting point for the Commission’s
      assessment of the Transaction is a market structure in which Virgin Atlantic is jointly controlled by
      AFKL, Delta and Virgin Group. Therefore, applying the most conservative approach, the Commission
      has included those minor bookings for Delta on a marketing carrier basis in AFKL’s market share.
      However, taking those bookings into account in AFKL’s market share does not change to any material
      extent AFKL’s market share or market position.
                                                            65
 ---pagebreak---                           Summer 2018 IATA Season                    Winter 2017/2018 IATA Season
                          AFKL     Flybe     Combined       British  AFKL     Flybe Combined   British
                                                            Airways                            Airways
          Market          [50-     [0-       [50-60]%       [40-     [50-     [0-   [50-60]%   [40-
          share           60]%     5]%                      50]%     60]%     5]%              50]%
          Weekly          116      8         124            84       113      9     121        90
          frequencies
(330) British Airways is UK airline. It carries more than 40 million passengers a year and
        has a fleet of nearly 300 aircraft.272 British Airways is a competitor with a strong
        presence in the United Kingdom. It has its main hub at London Heathrow and it
        operates bases at London City and London Gatwick.273 The Commission considers
        that on both airport pairs, the Parties will face significant competition from British
        Airways post-Transaction.
(331) The Commission therefore considers that the competitive constraints on the Parties
        would be sufficient to prevent them from raising prices post-Transaction on the
        London-Amsterdam route.
(332) Finally, the majority of respondents to the market investigation having expressed a
        view considers that there will be sufficient competition on the route to prevent the
        Parties from raising prices post-Transaction.274
(333) In the light of the above, the Commission considers that the Transaction does not
        raise serious doubts as to its compatibility with the internal market with respect to
        the London-Amsterdam route under any plausible market definition.
  5.1.1.5.2 Manchester-Amsterdam
(334) In the Summer 2018 IATA Season, [300,000-400,000] passengers travelled
        between Manchester and Amsterdam airports and [400,000-500,000] passengers
        flew between Manchester/ Leeds Bradford and Amsterdam airports. In Winter
        2017/2018 IATA Season, [200,000-300,000] passengers travelled between
        Manchester and Amsterdam airports and [300,000-400,000] passengers flew
        between Manchester/ Leeds Bradford and Amsterdam airports.275
(335) In Summer 2018 and Winter 2017/2018 IATA Seasons, both Flybe and AFKL
        operated direct services on the Manchester-Amsterdam airport pair. In addition,
        AFKL operated direct services on the Leeds Bradford-AMS airport pair in both
  272 See reply to eQ1 – Questionnaire to airlines, question 1.
  273 See Case M.7541 – IAG/Aer Lingus, paragraph 4.
  274 See replies to eQ1 – Questionnaire to airlines, question 18; eQ2 – Questionnaire to corporate
      customers, question 14 and eQ3 – Questionnaire to travel agents, question 15.
  275 Form CO, paragraphs 442 and 446.
                                                           66
 ---pagebreak---          seasons. Flybe and AFKL did not operate direct services on Liverpool John
         Lennon-Amsterdam airport pair. Neither Virgin Atlantic, nor Delta or Stobart Air
         operated on the Manchester-Amsterdam city pair.276
(336) The Commission will therefore assess the effect of the Transaction on the
         Manchester-Amsterdam and Manchester/Leeds Bradford-Amsterdam airport pairs.
         If Liverpool John Lennon airport were considered substitutable with Manchester
         airport or with Manchester and Leeds Bradford airport, the Parties’ combined
         market shares and market position post-Transaction would necessarily be lower
         than on Manchester-Amsterdam and Manchester/Leeds Bradford-Amsterdam
         airport pairs.
(337) The table below provides the market shares and frequencies of AFKL and Flybe as
         well as its biggest competitor easyJet on the Manchester-Amsterdam airport pair.
                           Summer 2018 IATA Season                      Winter 2017/2018 IATA Season
                           AFKL       Flybe     Combined      easyJet   AFKL      Flybe     Combined     easyJet
           Market          [30-       [10-      [50-60]%      [40-      [20-      [20-      [50-60]%     [40-
           share           40]%       20]%                    50]%      30]%      30]%                   50]%
           Weekly          41         21        63            18        34        27        61           20
           frequencies
(338) The table below provides the market shares and frequencies of AFKL and Flybe as
         well as its biggest competitor easyJet on the Manchester/Leeds Bradfort-
         Amsterdam airport pair.
                         Summer 2018 IATA Season                      Winter 2017/2018 IATA Season
                         AFK     Flyb    Combin      easyJ     Jet2   AFK     Flyb     Combin      easyJ    Jet2
                         L       e       ed          et               L       e        ed          et
           Market        [30-    [10-    [50-        [30-      [5-    [30-    [20-     [50-        [30-     [5-
           share         40]%    15]     60]%        40]%      10]    40]%    30]      60]%        40]%     10]
                                 %                             %              %                             %
           Weekly        62      21      83          18        7      54      27       80          20       7
           frequenci
           es
  276 Form CO, paragraph 437. The Parties submit that the DDS data shows minor bookings for Delta on
      this city pair on a marketing carrier basis. As explained above, the starting point for the Commission’s
      assessment of the Transaction is a market structure in which Virgin Atlantic is jointly controlled by
      AFKL, Delta and Virgin Group. Therefore, applying the most conservative approach, the Commission
      has included those minor bookings for Delta on a marketing carrier basis in AFKL’s market share.
      However, taking those bookings into account in AFKL’s market share does not change to any material
      extent AFKL’s market share or market position.
                                                            67
 ---pagebreak--- (339) easyJet is a low-cost point-to-point airline domiciled in the United Kingdom that
         operates in the European short-haul aviation market and is focused primarily on
         Western and Northern Europe. Between August 2016 and August 2017, easyJet
         carried more than 79 million passengers and had, in 2017, a fleet of 279 aircraft.277
         Jet2 is a UK airline primarily operating scheduled air passenger transport services
         between the United Kingdom and Europe. Jet2 has a fleet of around 90 aircraft.278
(340) On both airport pairs, the Parties will face significant competition from easyJet, but
         also from Jet2 post-Transaction. The Commission therefore considers that the
         competitive constraints on the Parties would be sufficient to prevent them from
         raising prices post-Transaction on the London-Amsterdam route.
(341) Finally, the majority of respondents to the market investigation having expressed a
         view considers that there will be sufficient competition on the route to prevent the
         Parties from raising prices post-Transaction.279
(342) In the light of the above, the Commission considers that the Transaction does not
         raise serious doubts as to its compatibility with the internal market with respect to
         the Manchester-Amsterdam route under any plausible market definition.
  5.1.1.5.3 Birmingham-Amsterdam
(343) In the Summer 2018 IATA Season, [200,000-300,000] passengers travelled
         between Birmingham and Amsterdam airports and [100,000-200,000] passengers
         in Winter 2017/2018 IATA Season.280
(344) In Summer 2018 and Winter 2017/2018 IATA Seasons, both Flybe and AFKL
         operated direct services on the Birmingham-Amsterdam airport pair. Neither Virgin
         Atlantic, Delta or Stobart Air operated on the Birmingham-Amsterdam city pair.281
(345) The table below provides the market shares and frequencies of AFKL and Flybe on
         the Birmingham-Amsterdam airport pair.
  277 See e.g. Case M.8672 – easyJet/Certain Air Berlin assets, paragraphs 2 et seq.
  278 See reply to eQ1 – Questionnaire to airlines, question 1.
  279 See replies to eQ1 – Questionnaire to airlines, question 18; eQ2 – Questionnaire to corporate
      customers, question 14 and eQ3 – Questionnaire to travel agents, question 15.
  280 Form CO, paragraphs 462.
  281 Form CO, paragraph 451. The Parties submit that the DDS data shows minor bookings for Delta on
      this city pair on a marketing carrier basis. As explained above, the starting point for the Commission’s
      assessment of the Transaction is a market structure in which Virgin Atlantic is jointly controlled by
      AFKL, Delta and Virgin Group. Therefore, applying the most conservative approach, the Commission
      has included those minor bookings for Delta on a marketing carrier basis in AFKL’s market share.
      However, taking those bookings into account in AFKL’s market share does not change to any material
      extent AFKL’s market share or market position.
                                                            68
 ---pagebreak---                          Summer 2018 IATA Season          Winter       2017/2018     IATA
                                                          Season
                         AFKL      Flybe    Combined      AFKL      Flybe     Combined
          Market         [40-      [50-     [90-100]%     [30-      [60-      [90-100]%
          share          50]%      60]%                   40]%      70]%
          Weekly         38        33       71            30        42        72
          frequencies
(346) Flybe and AFKL’s combined market shares post-Transaction on the Birmingham/
        East Midlands–Amsterdam airport pair amount to [90-100]% in Summer 2018
        IATA Season and [90-100]% in Winter 2018 IATA Season.
(347) The majority of respondents to the market investigation having expressed a view
        gave mixed replies as to whether there will be sufficient competition on the route to
        prevent the Parties’ from raising prices post-Transaction.282
(348) The Commission notes that the Flybe and AFKL were the only operators on the
        Birmingham-Amsterdam route in the past four IATA Seasons for which the Parties
        provided market share data and will thus post-Transaction become a monopoly
        route.283 The Commission thus considers that post-Transaction the merged entity is
        not constrained by competitive pressure on this route.
(349) The market investigation has not allowed identifying any entry project on the
        Birmingham-Amsterdam route, which, in the absence of relevant commitments,
        could be considered as timely, likely and sufficient to deter or defeat the
        anticompetitive effect of the Transaction on the route.
(350) As explained above in Section 4.9, if, absent the Transaction, Flybe would have
        exited this route, AFKL would likely have been more threatened by new entry on
        this route than in a post-Transaction scenario.
(351) Therefore, in the light of the above, the Commission considers that the Transaction
        raises serious doubts as to its compatibility with the internal market with respect to
        the Birmingham-Amsterdam route under any plausible market definition.
  5.1.1.5.4 Birmingham-Paris
(352) In the Summer 2018 IATA Season, [100,000-200,000] passengers travelled
        between Birmingham and Paris CDG airports and [100,000-200,000] passengers in
        Winter 2017/2018 IATA Season.284
  282 See replies to eQ1 – Questionnaire to airlines, question 18; eQ2 – Questionnaire to corporate
      customers, question 14 and eQ3 – Questionnaire to travel agents, question 15.
  283 Form CO, paragraph 462 and 457.
  284 Form CO, paragraphs 494.
                                                        69
 ---pagebreak--- (353) In Summer 2018 and Winter 2017/2018 IATA Seasons, both Flybe and AFKL
         operated direct services on the Birmingham-Paris CDG airport pair. Flybe and
         AFKL did not operate on the East Midlands-Paris CDG airport pair. Neither Virgin
         Atlantic, Delta or Stobart Air operated on the Birmingham-Paris city pair.285
(354) The table below provides the market shares and frequencies of AFKL and Flybe on
         the Birmingham-Paris CDG airport pair.
                          Summer 2018 IATA Season           Winter      2017/2018     IATA
                                                            Season
                          AFKL        Flybe   Combined      AFKL     Flybe    Combined
           Market         [60-        [20-    [90-100]%     [60-     [30-     [90-100]%
           share          70]%        30]%                  70]%     40]%
           Weekly         19          23      42            19       20       39
           frequencies
(355) Flybe and AFKL have a combined market shares post-Transaction on the
         Birmingham-Paris of around [90-100]% in the past four IATA Seasons irrespective
         of whether Birmingham and East Midlands airports or Paris CDG and Paris Orly
         airports are considered substitutable. The only exception is the Summer 2017
         IATA Season when the combined market shares of AFKL and Flybe were around
         [70-80]% on the Birmingham/East Midlands-Paris CDG/Paris Orly airport pair and
         on the Birmingham-Paris CDG/Paris Orly airport pair. The Parties explained that
         this was due to the direct service that Vueling (IAG) operated for one season, the
         Summer 2017 IATA Season, between Birmingham and Paris Orly airport. Since
         this service was only provided for one season, the Commission does not take the
         competitive pressure exerted by Vueling as an active competitor into account in the
         assessment but will assess the possibility of potential entry and potential
         competition.286
(356) The majority of respondents to the market investigation having expressed a view
         gave mixed replies as to whether there will be sufficient competition on the route to
         prevent the Parties’ from raising prices post-Transaction.287
  285 Form CO, paragraphs 472, 478 and 487. The Parties submit that the DDS data shows minor bookings
      for Delta on this city pair on a marketing carrier basis. As explained above, the starting point for the
      Commission’s assessment of the Transaction is a market structure in which Virgin Atlantic is jointly
      controlled by AFKL, Delta and Virgin Group. Therefore, applying the most conservative approach, the
      Commission has included those minor bookings for Delta on a marketing carrier basis in AFKL’s
      market share. However, taking those bookings into account in AFKL’s market share does not change
      to any material extent AFKL’s market share or market position.
  286 Form CO, paragraphs 478, 487 and 491. Concerning Paris Beauvais airport, the Parties stated that no
      bookings are recorded in the DDS data from either Birmingham or East Midlands airports to Paris
      Beauvais airport, see Form CO paragraph 473.
  287 See replies to eQ1 – Questionnaire to airlines, question 18; eQ2 – Questionnaire to corporate
      customers, question 14 and eQ3 – Questionnaire to travel agents, question 15.
                                                          70
 ---pagebreak--- (357) The Commission notes that the Flybe and AFKL were the only operators on the
         Birmingham-Paris route in the past IATA Seasons and will thus post-Transaction
         become a monopoly route. The Commission thus considers that post-Transaction
         the merged entity is not constrained by competitive pressure on this route.
(358) Finally, the market investigation has not allowed identifying any entry project on
         the Birmingham-Paris route, which, in the absence of relevant commitments, could
         be considered as timely, likely and sufficient to deter or defeat the anticompetitive
         effect of the Transaction on the route.
(359) As explained above in Section 4.9, if, absent the Transaction, Flybe would have
         exited this route, AFKL would likely have been more threatened by new entry on
         this route than in a post-Transaction scenario.
(360) Therefore, in the light of the above, the Commission considers that the Transaction
         raises serious doubts as to its compatibility with the internal market with respect to
         the Birmingham-Paris route under any plausible market definition.
  5.1.1.5.5 Manchester-Paris
(361) In the Summer 2018 IATA Season, [200,000-300,000] passengers travelled
         between Manchester and Paris Charles de Gaulle airports and [300,000-400,000]
         passengers flew between Manchester/Liverpool John Lennon and Paris Charles de
         Gaulle airports. In Winter 2017/2018 IATA Season, [100,000-200,000] passengers
         travelled between Manchester and Paris Charles de Gaulle airports and [200,000-
         300,000] passengers flew between Manchester/Liverpool John Lennon and Paris
         Charles de Gaulle airports.288
(362) In both seasons, Flybe and AFKL operated direct services on the MAN-CDG
         airport pair.289 Neither Virgin Atlantic, Delta or Stobart Air operated on the
         Manchester-Paris city pair.290
(363) easyJet operates direct flights on the Manchester-Paris Charles de Gaulle airport
         pair as well as on the Liverpool John Lennon-Paris Charles de Gaulle airport pair,
         whereas neither Flybe nor AFKL operates on the Liverpool John Lennon-Paris
         Charles de Gaulle airport pair.291
  288 Form CO, paragraphs 509 and 513.
  289 Form CO, paragraph 505.
  290 Form CO, paragraph 505. The Parties submit that the DDS data shows minor bookings for Delta and
      Virgin on this city pair on a marketing carrier basis. As explained above, the starting point for the
      Commission’s assessment of the Transaction is a market structure in which Virgin Atlantic is jointly
      controlled by AFKL, Delta and Virgin Group. Therefore, applying the most conservative approach, the
      Commission has included those minor bookings for Delta on a marketing carrier basis in AFKL’s
      market share. However, taking those bookings into account in AFKL’s market share does not change
      to any material extent AFKL’s market share or market position.
  291 Form CO, paragraphs 505 et seq.
                                                        71
 ---pagebreak--- (364) The table below provides the market shares and frequencies of AFKL and Flybe on
        the Manchester-Paris Charles de Gaulle airport pair.292
                       Summer 2018 IATA Season                  Winter 2017/2018 IATA Season
                       AFKL         Flybe  Combined    easyJet  AFKL    Flybe  Combined   easyJet
          Market       [50-60]%     [10-   [60-70]%    [30-     [40-    [20-   [70-80]%   [20-
          share                     20]%               40]%     50]%    30]%              30]%
          Weekly       21           28     49          9        21      26     46         8
          frequencies
(365) The table below provides the market shares and frequencies of AFKL and Flybe on
        the Manchester/Liverpool John Lennon-Paris Charles de Gaulle airport pair.293
                          Summer 2018 IATA Season              Winter 2017/2018 IATA Season
                          AFKL    Flybe   Combined    easyJet  AFKL    Flybe   Combined   easyJet
          Market share    [40-    [10-    [50-60]%    [40-     [40-    [10-    [60-70]%   [30-
                          50]%    20]%                50]%     50]%    20]%               40]%
          Weekly          21      28      49          15       21      26      46         12
          frequencies
(366) As stated above in Section 4.1.4, the market investigation gave mixed replies as to
        whether Manchester and Liverpool John Lennon airport can be considered
        substitutable. Around half of the respondents to the market investigation having
        expressed a view explained that they consider the two airports to be substitutable
        for passengers.
(367) If Manchester and Liverpool John Lennon airport are considered substitutable, the
        Parties will face significant competition from easyJet post-Transaction. easyJet had
        a market share of [40-50]% in Summer 2018 IATA Season and [30-40]% in Winter
        207/2018 IATA Season. The Commission therefore considers that the competitive
        constraints on the Parties on the Manchester/ Liverpool John Lennon – Paris
        Charles de Gaulle airport pair would be sufficient to prevent them from raising
        prices post-Transaction on this route.
(368) The Parties would also face significant competitive constraints if Manchester and
        Liverpool John Lennon airport are not considered substitutable. First, easyJet
  292 Form CO, paragraph 509.
  293 Form CO, paragraph 513.
                                                    72
 ---pagebreak---          provides a significant constraint. In Summer 2018 IATA Season, easyJet accounted
         for a [30-40]% and in Winter 2017/2018 for [20-30]% of the market. Second, the
         majority of respondents to the market investigation having expressed a view
         considers that there will be sufficient competition on the route to prevent the
         Parties’ from raising prices post-Transaction.294 Third, the Commission takes into
         account the fact that for a large number of passengers, the two airports are
         substitutable. As a result, the competitive pressure exerted by EasyJet on the
         Liverpool John Lennon-Paris Charles de Gaulle airport pair constitutes an out-of-
         market constraint on the Parties and mitigates the Parties’ market position post-
         Transaction on the Manchester-Paris Charles de Gaulle airport pair.
(369) Therefore, taking all considerations into account, the Commission considers that
         the Parties will face significant competition from easyJet post-Transaction also on
         the Manchester-Paris Charles de Gaulle airport pair. The Commission therefore
         concludes that the competitive constraints on the Parties on the Manchester – Paris
         Charles de Gaulle airport pair would be sufficient to prevent them from raising
         prices post-Transaction on this route.
(370) In the light of the above, the Commission considers that the Transaction does not
         raise serious doubts as to its compatibility with the internal market with respect to
         the Manchester-Paris route under any plausible market definition.
  5.1.1.5.6 Edinburgh-Paris
(371) In the Summer 2018 IATA Season, [200,000-300,000] passengers travelled
         between Edinburgh and Paris Charles de Gaulle airports and [200,000-300,000]
         passengers flew between Edinburgh and Paris Charles de Gaulle/ Paris Orly
         airports. In Winter 2017/2018 IATA Season, [100,000-200,000] passengers
         travelled between Edinburgh and Paris Charles de Gaulle airports and [100,000-
         200,000] passengers flew between Edinburgh and Paris Charles de Gaulle/ Paris
         Orly airports.295
(372) AFKL and Flybe overlap on the Edinburgh-Paris Charles de Gaulle airport pair due
         to a […] codeshare agreement. Flybe does not operate this airport pair directly with
         its own metal. During the Summer 2018 IATA Season, Flybe marketed bookings
         on 3 direct services each day. AFKL operated direct flights on the EDI-CDG
         airport pair as well as the EDI-ORY airport pair. As already explained above in
         Section 5.1.1.3, under the terms of this […] codeshare agreement, […] bears a
         commercial risk.296 The Commission will therefore apply the most conservative
         approach and assess the Edinburgh-Paris Charles de Gaulle route as an operating
         overlap route because of the commercial risk […]. Neither Virgin Atlantic, Delta or
         Stobart Air operated on the Edinburgh-Paris city pair.297
  294 See replies to eQ1 – Questionnaire to airlines, question 18; eQ2 – Questionnaire to corporate
      customers, question 14 and eQ3 – Questionnaire to travel agents, question 15.
  295 Form CO, paragraphs 521 and 524.
  296 Form CO, paragraph 533 and footnote 265.
  297 Form CO, paragraph 517. The Parties submit that the DDS data shows minor bookings for Delta on
      this city pair on a marketing carrier basis. As explained above, the starting point for the Commission’s
                                                            73
 ---pagebreak--- (373) The table below provides the market shares and frequencies of AFKL and Flybe as
         well as its biggest competitor easyJet on the Edinburgh-Paris Charles de Gaulle
         airport pair.
                           Summer 2018 IATA Season                    Winter 2017/2018 IATA Season
                           AFKL     Flybe    Combined      easyJet    AFKL      Flybe  Combined     easyJet
           Market share    [40-     [5-      [50-60]%      [40-       [30-      [0-    [30-40]%     [60-
                           50]%     10]%                   50]%       40]%      5]%                 70]%
           Weekly          21       2        23            12         20        0      20           11
           frequencies
(374) The table below provides the market shares and frequencies on the Edinburgh-Paris
         Charles de Gaulle/Paris Orly airport pair.
                           Summer 2018 IATA Season                    Winter 2017/2018 IATA Season
                           AFKL     Flybe    Combined      easyJet    AFKL      Flybe  Combined     easyJet
           Market share    [50-     [0-      [50-60]%      [40-       [40-      [0-    [40-50]%     [50-
                           60]%     5]%                    50]%       50]%      5]%                 60]%
           Weekly          24       2        26            12         22        0      22           11
           frequencies
(375) easyJet is a low-cost point-to-point airline domiciled in the United Kingdom that
         operates in the European short-haul aviation market and is focused primarily on
         Western and Northern Europe. Between August 2016 and August 2017, easyJet
         carried more than 79 million passengers and had, in 2017, a fleet of 279 aircraft.298
(376) On both airport pairs, the Parties will face significant competition                  from easyJet
         post-Transaction. Moreover, the majority of respondents to                          the market
         investigation having expressed a view considers that there will                    be sufficient
         competition on the route to prevent the Parties’ from raising                       prices post-
         Transaction.299
      assessment of the Transaction is a market structure in which Virgin Atlantic is jointly controlled by
      AFKL, Delta and Virgin Group. Therefore, applying the most conservative approach, the Commission
      has included those minor bookings for Delta on a marketing carrier basis in AFKL’s market share.
      However, taking those bookings into account in AFKL’s market share does not change to any material
      extent AFKL’s market share or market position.
  298 See e.g. Case M.8672 – easyJet/Certain Air Berlin assets, paragraphs 2 et seq.
  299 See replies to eQ1 – Questionnaire to airlines, question 18; eQ2 – Questionnaire to corporate
      customers, question 14 and eQ3 – Questionnaire to travel agents, question 15.
                                                        74
 ---pagebreak--- (377) The Commission therefore considers that the competitive constraints on the Parties
         would be sufficient to prevent them from raising prices post-Transaction on the
         Edinburgh-Paris route.
(378) In the light of the above, the Commission considers that the Transaction does not
         raise serious doubts as to its compatibility with the internal market with respect to
         the Edinburgh-Paris route under any plausible market definition.
  5.1.1.6 Direct-indirect operating overlaps
  5.1.1.6.1 “Filters”
(379) Should direct and indirect routes be considered substitutable, consistent with
         previous Commission practice, the Parties have applied the following filters for
         direct/indirect overlap routes to exclude likely unproblematic routes from the scope
         of its investigation (all criteria must have been met in the four last completed IATA
         Seasons):300
                   The Parties’ combined market share was below 25%; or
                   One of the Parties had a market share below 2%; or
                   Short-haul routes where the total share of indirect operations in the
                    relevant market was below 10%; or
                   At least one end of the city pair is outside the EU and the total annual
                    traffic was below 30 000 passengers; or
                   The route was below the HHI thresholds of paragraph 20 of the Horizontal
                    Merger Guidelines.
(380) As a result of the above, the Parties submitted that 22 direct/indirect operating
         overlap routes would be affected by the Transaction if direct and indirect routes are
         considered substitutable.301
  5.1.1.6.2 Closeness of competition
(381) As explained above in the market definition section in Section 4.1.3, the
         Commission considered in previous cases that the substitutability between direct
         and indirect flights on a route-by-route basis depends on various factors, including
         notably the flight duration, but also price considerations or the inconvenience
         associated with the indirect flight. In particular, with regard to short-haul routes
         (generally below 6 hours flight duration) it was considered that indirect flights do
  300 See e.g. Cases M.7541 – IAG/Aer Lingus, paragraphs 151 et seq. and M.7333 – Alitalia/Etihad,
      paragraphs 171 et seq.
  301 While the Parties submitted in the Form CO that the Transaction would give rise to 31 affected
      direct/indirect operating overlap routes, they explained at a later stage that 9 of those 31 routes were
      not direct/indirect operating overlaps in Winter 2017/2018 and Summer 2018 seasons, see Form CO,
      paragraph 538 and reply to RFI 5 of 24 May 2019. These are the following routes: […]. These routes
      will therefore not be assessed as direct/indirect operating overlap routes in this decision.
                                                            75
 ---pagebreak---          not generally provide a competitive constraint to direct flights absent exceptional
         circumstances, for example, the direct connection does not allow for a one-day
         return trip or the share of indirect flights in the overall market is significant.302
(382) The Parties submit that, should direct and indirect flights be considered
         substitutable, the Transaction gives rise to 22 affected direct/indirect overlap
         routes.303
(383) On 10 of those 22 routes, the share of indirect flights in both seasons is significant,
         i.e. higher than [10-20]%.304 On 20 of the 22 direct/indirect overlap routes, the
         direct flight does not allow for a one-day return trip.
(384) Therefore, the Commission considered in Section 4.1.3 above that the exceptional
         circumstances to consider direct and indirect flights as substitutable seem to apply
         and that 22 overlap routes would be affected by the Transaction.
(385) However, for the reasons explained in the following, the Commission considers
         that AFKL and Flybe are not close competitors on these 22 overlap routes.
(386) The Commission has in previous airline cases analysed the closeness of
         competition between the Parties to the concentration.305 The concept of “closeness
         of competition” may play an important role in better understanding the competitive
         constraint exerted by different competitors on each other in differentiated markets
         such as airline markets.306
(387) The Commission notes that on all 22 affected direct/indirect overlap routes, Flybe
         is operating the direct flight while AFKL is operating the indirect flight. The only
         exception is the Inverness-Amsterdam route, on which AFKL is operating the
         direct flight and Flybe the indirect flight. [confidential strategic information on
  302 See e.g. Cases M. 8361 – Qatar Airways/Alisarda/Meridiana, paragraph 25; M. 7541 – IAG/Aer
      Lingus, paragraph 32; M.7333 – Alitalia/Etihad, paragraph 77; M.6663 – Ryanair/Aer Lingus III,
      paragraph 375.
  303 These are the following routes: BER-BHX, BER-CWL, BES-BHX, BHX-HAJ, BHX-HAM, BHX-
      MIL, BHX-NTE, BHX-STR, BHX-TLS, BUD-HUY, CWL-DUS, CWL-GVA, CWL-MUC, CWL-
      ROM, CWL-VCE, GVA-SOU, HAJ-MAN, HUY-VCE, INV-AMS, LUX-MAN, LYS-SOU, MAN-
      TLS.
  304 See Cases M.2672 – SAS/Spanair, paragraph 15 and M.3280 – Air France/KLM, paragraph 80. See
      also e.g. Cases M.7541 – IAG/Aer Lingus, paragraphs 151 et seq. and M.7333 – Alitalia/Etihad,
      paragraphs 171 et seq., for the filters applied by the Commission for direct/indirect overlap routes to
      exclude likely unproblematic routes from the scope of its investigation, for example short-haul routes
      where the total share of indirect operations in the relevant market was below 10%.
  305 See e.g. Cases M.7541 – IAG/Aer Lingus, paragraphs 155 et seq.; M.6828 – Delta Air Lines/Virgin
      Group/Virgin Atlantic Limited, paragraphs 168 et seq.
  306 See paragraphs 28-30 of the Horizontal Merger Guidelines.
                                                            76
 ---pagebreak---          Flybe’s and AFKL’s monitoring practices].307 [confidential strategic information
         on Flybe’s and AFKL’s monitoring practices].308
(388) In addition, the majority of competing airlines flying direct services on the
         direct/indirect overlap routes stated that they would not monitor competitors flying
         indirect services.309 Furthermore, the Commission has requested from AFKL and
         Flybe the average fares for direct as well as indirect flights in Summer 2018 and
         Winter 2017/2018 IATA Season on the 22 direct/indirect affected overlap
         routes.310 For each of these direct/indirect overlap routes, the fare for the indirect
         route, despite being longer and involving a stop-over, was higher than the fare for
         the direct flight. This indicates that from the supply-side perspective of Flybe and
         AFKL as well as the other competing airlines, indirect flights exert only a limited
         constraint – if any – on the direct flights on the direct/indirect operating overlap
         routes affected by the Transaction.
(389) When asked if they consider indirect flights as an alternative to direct flights with
         regard to the direct/indirect overlaps affected by the Transaction, only a minority of
         respondents to the market investigation confirmed this, while around half of the
         respondents that expressed an opinion replied that indirect flights would not be
         considered as an alternative to direct flights.311 Other respondents replied that in
         general this would depend on other criteria, for example the price or the total flight
         duration.312
(390) From a demand-side perspective, while the majority of travel agents having
         expressed their views stated that, on each of the affected direct/indirect overlap
         routes, they sell tickets to both direct and indirect flights to their customers;313 the
         majority of corporate customers having expressed their view stated that they only
         buy tickets for direct flights.314
(391) When asked which criteria would make customers choose an indirect flight over a
         direct flight, respondents to the Commission’s market investigation identified most
  307 See reply to RFI 5 of 24 May 2019.
  308 See reply to RFI 5 of 24 May 2019.
  309 Reply to eQ1 – Questionnaire to airlines, question 7.
  310 See reply to RFI 5 of 24 May 2019.
  311 See replies to eQ1 – Questionnaire to airlines, question 5; eQ2 – Questionnaire to corporate customers,
      question 2 and eQ3 – Questionnaire to travel agents, question 3.
  312 See replies to eQ1 – Questionnaire to airlines, question 5; eQ2 – Questionnaire to corporate customers,
      question 2 and eQ3 – Questionnaire to travel agents, question 3.
  313 See replies to eQ3 – Questionnaire to travel agents, question 5.
  314 See replies to eQ3 – Questionnaire to corporate customers, question 4.
                                                           77
 ---pagebreak---         frequently price difference and total travel duration (including stopover time),
        followed by schedules.315
(392) One travel agency responding to the market investigation stated that “[c]ustomers
        usually do not do stopovers for flights under 3 hours, but in some cases could
        consider if they travel for leisure and price is significantly cheaper.”316
(393) With regard to the price difference, as already explained above, the average fare for
        the indirect flight in Summer 2018 and Winter 2017/2018 IATA Season with
        AFKL (and Flybe, respectively, concerning the Amsterdam-Inverness route) on the
        direct/indirect overlap routes was higher than the fare for the direct flight with
        Flybe (and AFKL, respectively).317
(394) Concerning the total travel duration, the Commission notes that of the 22
        direct/indirect overlap routes, 18 routes have a flight duration of the direct flight of
        under or around 2 hours, while 4 routes have a flight duration of the direct flight of
        between 2 and 3 hours.318 The indirect flight duration was at least (with the
        quickest direct connection) more than 80 minutes longer than the direct flight
        duration on 19 of the direct/indirect overlap routes; on 8 of those routes, it was at
        least more than 110 minutes longer than the direct flight duration.319
(395) The Commission considers that, taking into account the short direct flight time of
        the direct/indirect overlap routes of 2-3 hours, the total travel duration of the
        indirect routes is on most routes significantly longer than the direct total travel
        time.
(396) The market investigation showed that one of the criteria that would make
        customers choose an indirect flight over a direct flight is the schedules of the
        flights.320
(397) When assessing the exceptional criteria, the Commission has analysed if a one-day
        return trip is possible with the direct flight and found that on 20 of the 22
        direct/indirect overlap routes, the direct flight does not allow for a one-day return
        trip.
(398) On the 20 routes on which the direct flight does not allow for a day-return trip, the
        indirect flight allows for a one-day return trip in both seasons and both directions
  315 See replies to eQ1 – Questionnaire to airlines, question 6; eQ2 – Questionnaire to corporate customers,
      question 3 and eQ3 – Questionnaire to travel agents, question 4.
  316 See replies to eQ3 – Questionnaire to travel agents, question 3.
  317 See reply to RFI 5 of 24 May 2019.
  318 See reply to QP1 of 19 March 2019, question 16.
  319 See also Case M.5335 - Lufthansa/SN Holding (Brussels Airlines), paragraph 40.
  320 See replies to eQ1 – Questionnaire to airlines, question 6; eQ2 – Questionnaire to corporate customers,
      question 3 and eQ3 – Questionnaire to travel agents, question 4.
                                                           78
 ---pagebreak---         on only 3 routes and it is only possible to do a one-day return trip in one season
        and/ or in one direction on 10 routes.
(399) Furthermore, even on routes and directions on which a one-day return trip by using
        an indirect connection would be possible, this would involve a very long travel day
        with a very short stay in the city. For example on the Birmingham-Nantes route, in
        the Nantes-Birmingham direction, the amount of time in Birmingham before the
        return flight is below three hours, making a day-return trip in this direction
        realistically not possible. In the Birmingham-Nantes direction, the amount of time
        in Nantes city centre would be at most around four hours with an overall travel
        time between departure at Birmingham airport and arriving at Birmingham airport
        of around 15 ½ hours (not taking into account the travel time from/to the airport in
        Birmingham, time for check-in in the morning and disembarking the plane and
        waiting for hold luggage in the evening). AFKL’s data indicates that between April
        2018 and March 2019 it had on average [0-5] return passengers per day on the
        Birmingham-Nantes route, of which only [0-5] took a same day return.321
(400) The Commission considers that, even on routes where a one-day trip might be
        possible with the indirect service while it is not possible with the direct service, this
        is unlikely to be an attractive or workable option. The Commission therefore
        considers that this indicates that indirect flights are not closely competing with
        direct flights on the 22 affected overlap routes.
(401) Taking the above considerations into account, the Commission considers that
        AFKL and Flybe are not close competitors on the 22 affected overlap routes.
  5.1.1.6.3 Overview of the 22 direct/indirect overlap routes
(402) As explained in the previous section, considering that AFKL and Flybe are not
        close competitors, it is not evident that direct and indirect flights are substitutable
        on the 22 direct/indirect overlap routes. However, no serious doubts arise for one of
        the following reasons: the route was exited by Flybe prior to and unrelated to the
        Transaction; the routes has very low passenger numbers; the increment brought
        about by the Transaction is de minimis; or a competitor is active on the route
        sufficiently constraining the Parties post-Transaction.
(403) An overview of the main reason why no serious doubts arise on each of 22 routes is
        provided in the following table:
  321 See reply to RFI 5 of 24 May 2019 and supplementary response of the Parties of 7 June 2019.
                                                      79
 ---pagebreak---                Route     exited Route     with Low increment   Competitor
               prior to and     very      low brought about    sufficiently
               unrelated     to passenger      by          the constraining
               Transaction      number         Transaction     Connect
                                                               Airways post-
                                                               Transaction
Berlin-Cardiff x
Birmingham-    x
Toulouse
Cardiff-       x
Duesseldorf
Cardiff-Munich x
Cardiff-Rome   x
Cardiff-Venice x
Brest-                          x
Birmingham
Birmingham-                     x
Nantes
Budapest-                       x
Humberside
Cardiff-Geneva                  x
Southampton-                    x
Geneva
Humberside-                     x
Venice
Luxembourg-                     x
Manchester
Lyon-                           x
Southampton
Inverness-                                     x
Amsterdam
Berlin-                                        x
Birmingham
Birmingham-                                    x
Hanover
                                          80
 ---pagebreak---                      Route      exited   Route         with Low increment           Competitor
                     prior to and        very           low brought about           sufficiently
                     unrelated       to  passenger            by             the    constraining
                     Transaction         number               Transaction           Connect
                                                                                    Airways post-
                                                                                    Transaction
Birmingham-                                                   x
Milan
Birmingham-                                                   x
Stuttgart
Birmingham-                                                                         x
Hamburg
Hanover-                                                                            x
Manchester
Manchester-                                                                         x
Toulouse
  5.1.1.6.4 Routes exited by Flybe prior to and unrelated to the Transaction
(404) The Transaction does not have any merger specific effect on competition on the
        Berlin-Cardiff, Birmingham-Toulouse, Cardiff-Duesseldorf, Cardiff-Munich,
        Cardiff-Rome and Cardiff-Venice routes.
(405) Flybe exited the Birmingham-Toulouse route in March 2018 and the Cardiff-
        Duesseldorf route in October 2018.322
(406) Concerning the Cardiff-Berlin, Cardiff-Munich, Cardiff-Rome and Cardiff-Venice
        routes, the Parties have explained that the routes all fall within the scope of Flybe's
        [confidential information about Flybe’s commercial agreements and the reasons for
        Flybe exiting certain routes]. Flybe’s schedule for the Winter 2019/2020 IATA
        Season excludes all routes to/from Cardiff airport.323
(407) The Commission considers therefore that Flybe exited these six routes pre-
        Transaction or Flybe decided to exit pre-Transaction and unrelated to the
        Transaction.324
  322 See reply to RFI 5 of 24 May 2019.
  323 Reply to RFI 5 of 24 May 2019 and reply to RFI 6 of 29 May 2019.
  324 Form Co, paragraph 541,reply to RFI 5 of 24 May 2019 and reply to RFI 6 of 29 May 2019.
                                                        81
 ---pagebreak---   5.1.1.6.5 Routes with very low passenger numbers
(408) The Commission has considered, in its previous decision practice, when passenger
         figures where very low, that these direct/indirect overlap routes are not constituting
         a substantial part of the internal market or that no competition concerns were
         deemed to arise.325
(409) Applying a similar reasoning, the Commission considers that no competition
         concerns are deemed to arise on the following routes.
           Route – city pair                  Total        annual        pax
                                              (Summer 2018 IATA
                                              Season        and       Winter
                                              2017/2018 IATA Season)
           Brest-Birmingham326                [0-5,000]
           Birmingham-Nantes327               [15,000-20,000]
           Budapest-Humberside                [0-5,000]
           Cardiff-Geneva                     [0-5,000]
           Southampton-Geneva                 [20,000-25,000]
           Humberside-Venice                  [0-5,000]
           Luxembourg-                        [25,000-30,000]
           Manchester328
           Lyon-Southampton329                [0-5,000]
  325 See e.g. Cases M. 7333 – Alitalia /Etihad, paragraph 299; M. 6607 – US Airways/American Airlines,
      paragraph 32. See also Case M.3280 – Air France/KLM, paragraph 83.
  326 Numbers do not differ irrespective of whether BHX and EMA are considered substitutable or not.
  327 Numbers do not differ materially irrespective of whether BHX and EMA are considered substitutable
      or not. To apply a cautious approach, the annual pax numbers included in the table include passengers
      from BHX and EMA airports.
  328 Numbers do not differ materially irrespective of whether MAN, LPL and LBA airports are considered
      substitutable or not. To apply a cautious approach, the annual pax numbers included in the table
      include passengers from MAN, LPL and LBA airports.
  329 The Parties submitted that Flybe’s direct operations on this route ended in February 2018, while ad-
      hoc operations were conducted in December 2018 to January 2019, see response to RFI 5 of 24 May
      2019. It can be left open if Flybe exited route. Applying a cautious approach and considering that
      Flybe is still operating, the passenger numbers on this route are very low and the route is therefore in
      any case not considered to be substantial part of the internal market.
                                                           82
 ---pagebreak---     5.1.1.6.6 Low increment brought about by the Transaction or sufficient competition on
                  the route
  (410) In previous cases, the Commission has considered increments of around 5% as low
            increments on direct/indirect overlap routes.330 In line with its prior decisional
            practice, the Commission considers that an increment of around 5% on an affected
            direct/indirect overlap is de minimis and that the following routes do not give rise
            to serious doubts as to the compatibility of the Transaction with the internal
            market.
                                      Summer Season                            Winter Season
Route (city –    Airport     Total     Flybe     AFKL331       combined   Total     Flybe    AFKL332    combined
pair)            pair        pax       market                             pax       market
                             summer    share                              winter    share
Inverness-       INV-        [30,000-  [1-       [90-          [90-       [0-       [1-      [90-       [90-
Amsterdam        AMS         40,000]   5]%       100]%         100]%      10,000]   5]%      100]%      100]%
Berlin-          TXL-        [30,000-  [70-      [5-10]%       [80-90]%   [30,000-  [80-     [1-5]%     [80-90]%
Birmingham       BHX333      40,000]   80]%                               40,000]   90]%
Birmingham-      BHX-        [20,000-  [80-      [1-5]%        [90-       [10,000-  [80-     [5-10]%    [90-
Hannover         HAJ334      30,000]   90]%                    100]%      20,000]   90]%                100]%
Birmingham-      BHX-        [30,000-  [70-      [1-5]%        [70-80]%   [20,000-  [60-     [1-5]%     [60-70]%
Milan            MXP335      40,000]   80]%                               30,000]   70]%
Birmingham-      BHX-        [40,000-  [80-      [1-5]%        [90-       [20,000-  [80-     [1-5]%     [90-
                      336
Stuttgart        STR         50,000]   90]%                    100]%      30,000]   90]%                100]%
    330  See e.g. Cases M. 8964 – Delta/Air France-KLM/Virgin Group/Virgin Atlantic, paragraph 198;
         M.7541 – IAG/Aer Lingus, paragraphs 412 et seq.
    331  AFKL’s market share includes the market share of Delta and Virgin Airlines, where applicable.
    332  AFKL’s market share includes the market share of Delta and Virgin Airlines, where applicable.
    333  The Commission is applying a cautious and conservative approach with regard to the Berlin-
         Birmingham route and included in the table the narrowest plausible market comprising of the Berlin
         Tegel-Birmingham airport pair on which the combined market share post-Transaction and the
         increment is highest.
    334  The market shares of the Parties do not differ, irrespective of whether BHX-HAJ or BHX/EMA-HAJ
         are considered.
    335  The Commission is applying a cautious and conservative approach with regard to the Birmingham-
         Milan route and included in the table the narrowest plausible market comprising of Birmingham-MXP
         airport pair on which the combined market share post-Transaction and the increment is highest.
    336  The market shares of the Parties do not differ, irrespective of whether BHX-STR or BHX/EMA-STR
         are considered.
                                                              83
 ---pagebreak--- (411) On the routes briefly assessed in the following paragraphs, the increment brought
        about by the Transaction, while not being a de minimis increment, is lower than
        10% and another airline is active on the route, constraining the merged entity post-
        Transaction: Birmingham-Hamburg, Hannover-Manchester and Manchester-
        Toulouse.
(412) On the Birmingham-Hamburg route, in the Summer 2018 IATA Season,
        [20,000-30,000] passengers travelled on this route. In Winter 2017/2018 IATA
        Season, [10,000-20,000] passengers travelled between Birmingham and Hamburg.
        The table below provides the market shares of the AFKL and Flybe on the
        Birmingham-Hamburg airport pair.337
          Summer 2018 IATA Season                  Winter 2017/2018 IATA Season
          Flybe       AFKL          combined Flybe market AFKL combined
          market      market                       share             market
          share       share                                          share
          [70-        [5-           [70-80]% [70-80]%                [5-        [70-80]%
          80]%        10]%                                           10]%
(413) Lufthansa is also active on this route, a competitor with a strong presence in
        Germany and with a market share of [10-20]% in Summer 2018 IATA Season and
        [10-20]% in Winter 2017/2018 IATA season, which is higher than the increment
        brought about by the Transaction. In addition, the majority of respondents to the
        market investigation having expressed a view considers that there will be sufficient
        competition on the route to prevent the Parties from raising prices post-
        Transaction.338 On this basis, the Commission considers that the competitive
        constraints on the Parties on the Birmingham-Hamburg route would be sufficient to
        prevent them from raising prices post-Transaction on this route.
(414) On the Hanover-Manchester route, in the Summer 2018 IATA Season, [20,000-
        30,000] passengers travelled on this route. In Winter 2017/2018 IATA Season,
        [10,000-20,000] passengers travelled between Hannover and Manchester. While
        AFKL and Flybe’s combined market shares do not differ significantly irrespective
        of whether Manchester, Liverpool John Lennon and Leeds Bradford airport are
        considered substitutable or not, the increment brought about by the Transaction is
        highest if Manchester and Leeds Bradford are considered substitutable. The
        Commission is applying a cautious approach and is therefore assessing the
        competitive effects of the Transaction on the Hanover-Manchester/Leeds Bradford
        airport pair. The table below provides the market shares of the Flybe and AFKL on
        the Hanover-Manchester/Leeds Bradford airport pair.
  337 Market shares do not differ, irrespective of whether BHX-HAM or BHX/EMA-HAM are considered.
  338 See replies to eQ1 – Questionnaire to airlines, question 18; eQ2 – Questionnaire to corporate
      customers, question 14 and eQ3 – Questionnaire to travel agents, question 15.
                                                           84
 ---pagebreak---           Summer 2018 IATA Season              Winter 2017/2018 IATA Season
          Flybe       AFKL        combined Flybe market AFKL combined
          market      market                   share                 market
          share       share                                          share
          [80-        [5-         [80-90]% [70-80]%                  [5-        [80-90]%
          90]%        10]%                                           10]%
(415) Lufthansa is also active on this route. Lufthansa has a strong presence in Germany
        and has a market share of [10-20]% in Summer 2018 IATA Season and [10-20]%
        in Winter 2017/2018 IATA season, which is higher than the increment brought
        about by the Transaction. In addition, the majority of respondents to the market
        investigation having expressed a view considers that there will be sufficient
        competition on the route to prevent the Parties from raising prices post-
        Transaction.339 On this basis, the Commission considers that the competitive
        constraints on the Parties on the Hanover-Manchester route would be sufficient to
        prevent them from raising prices post-Transaction on this route.
(416) On the Manchester-Toulouse route, in the Summer 2018 IATA Season, [30,000-
        40,000] passengers travelled on this route. In Winter 2017/2018 IATA Season,
        [20,000-30,000] passengers travelled between Manchester and Toulouse. While the
        AFKL and Flybe’s combined market shares do not differ significantly irrespective
        of whether Manchester, Liverpool John Lennon and Leeds Bradford airport are
        considered substitutable or not, the increment brought about by the Transaction is
        highest if Manchester and Leeds Bradford are considered substitutable. The
        Commission is applying a cautious approach and is therefore assessing the
        competitive effects of the Transaction on the Toulouse-Manchester/Leeds Bradford
        airport pair. The table below provides the market shares of the AFKL and Flybe on
        the Toulouse-Manchester/Leeds Bradford airport pair.
           Summer 2018 IATA Season             Winter 2017/2018 IATA Season
          Flybe       AFKL        combined Flybe market AFKL combined
          market      market                   share                 market
          share       share                                          share
          [70-        [5-         [80-90]% [60-70]%                  [5-        [70-80]%
          80]%        10]%                                           10]%
(417) On the route also TUI, Lufthansa and British Airways are active. In the Winter
        2017/2018 IATA Season, TUI had a market share of [20-30]%, Lufthansa of [5-
        10]% and British Airways of [0-5]%. In the Summer 2018 IATA Season,
        Lufthansa had a market share of [5-10]%, British Airways of [0-5]% and TUI [0-
  339 See replies to eQ1 – Questionnaire to airlines, question 18; eQ2 – Questionnaire to corporate
      customers, question 14 and eQ3 – Questionnaire to travel agents, question 15.
                                                        85
 ---pagebreak---          5]%. In both seasons, the market share of the biggest competitor is higher or
         similar to the increment brought about by the Transaction. In addition, the majority
         of respondents to the market investigation having expressed a view considers that
         there will be sufficient competition on the route to prevent the Parties from raising
         prices post-Transaction.340 On this basis, the Commission considers that the
         competitive constraints on the Parties on the Manchester-Toulouse route would be
         sufficient to prevent them from raising prices post-Transaction on this route.
  5.1.1.6.7 Conclusion
(418) In the light of the above, the Commission considers that the Transaction does not
         raise serious doubts as to its compatibility with the internal market on any of the
         direct-indirect overlap routes.
  5.1.1.7 Indirect/indirect overlaps
(419) The Parties submitted that 6 indirect/indirect operating overlap routes would be
         affected by the Transaction where Flybe and AFKL both operate only indirect
         flights:341 Bordeaux-Manchester, Cagliari-Manchester, Duesseldorf-Edinburgh,
         Edinburgh-Nantes, Edinburgh-Toulouse and Glasgow-Munich.
(420) The Glasgow-Munich route has not been an overlap route in the last two IATA
         Seasons.342 This route will therefore not be assessed as an indirect/indirect
         operating overlap route in this decision.
(421) According to the data submitted by the Parties, the Cagliari-Manchester route was
         only an overlap in Winter 2017/2018 IATA Season and only on the Cagliari-
         Manchester/Liverpool John Lennon airport pair. In Winter 2017/2018, a total of [0-
         500] passengers was transported on this route. The Commission will therefore not
         assess this route any further in the following paragraphs.
(422) As regards airport substitutability, for the purpose of this decision, the Commission
         has taken a cautious approach and assessed the effects of the Transaction on the
         airport pair on which the combined market shares or the increment brought about
         by the Transaction are highest.
(423) The table below provides the market shares of Flybe and AFKL on the
         indirect/indirect overlap routes.
  340 See replies to eQ1 – Questionnaire to airlines, question 18; eQ2 – Questionnaire to corporate
      customers, question 14 and eQ3 – Questionnaire to travel agents, question 15.
  341 Consistent with previous Commission practice, the Parties have applied the following filters for
      indirect/indirect overlap routes to exclude likely unproblematic routes from the scope of its
      investigation (all criteria must have been met in the four last completed IATA Seasons): The Parties’
      combined market share was below 25%; or one of the Parties had a market share below 2%; or as
      regards short-haul routes where the total annual traffic was below 15 000 passengers or as regards
      long-haul routes where the total annual traffic was below 30 000 passengers; or at least one end of the
      city pair is outside the EU and the total annual traffic was below 30 000 passengers; or the route was
      below the HHI thresholds of paragraph 20 of the Horizontal Merger Guidelines.
  342 Form CO, paragraph 545.
                                                           86
 ---pagebreak---                             Summer 2018 IATA Season                  Winter         2017/2018     IATA
                                                                     Season
                            Flybe       AFKL          combined Flybe               AFKL       combined
          Bordeaux-         [0-5]%      [50-          [60-70]%       [0-5]%        [60-       [70-80]%
          Manchester                    60]%                                       70]%
          (BOD-
          MAN/LPL)
          Duesseldorf- [10-             [5-10]%       [10-20]%       [10-          [5-10]%    [20-30]%
          Edinburgh         20]%                                     20]%
          (DUS-EDI)
          Edinburgh-        [0-5]%      [5-10]%       [10-20]%       [0-5]%        [0-5]%     [5-10]%
          Nantes
          (EDI-NTS)
          Edinburgh-        [0-5]%      [5-10]%       [5-10]%        [0-5]%        [5-10]%    [5-10]%
          Toulouse
          (EDI-TLS)
(424) The Commission notes that two of the indirect/indirect overlaps routes (Edinburgh-
        Nantes and Edinburgh-Toulouse) did not constitute an affected market in the last
        two IATA Seasons.
(425) On the other two routes, no competition concerns arise because either the Parties’
        combined market shares are below 30% (Duesseldorf-Edinburgh) or the increment
        brought about by the Transaction is below 5% (Bordeaux-Manchester), so that no
        material merger specific effect would likely exist. Indirect routes are often
        established in an opportunistic way by carriers and are modified from one IATA
        Season to the next. Furthermore, price increases or reductions of capacity could be
        countered by competitors who could start operating these routes more easily than
        on direct/direct routes, which require the deployment of aircraft dedicated to the
        O&D route. Given the low competitive constraint between indirect services, market
        shares below 60% on routes indicate that there is already prima facie sufficient
        competition from other carriers.343
(426) No respondent to the market investigation raised substantiated concerns as to the
        existence of any competition problem on the indirect-indirect overlap routes.344
(427) In the light of the above, the Commission considers that the Transaction does not
        raise serious doubts as to its compatibility with the internal market on any of the
        indirect-indirect overlap routes.
  343 See e.g. Case M.7541 – IAG/Aer Lingus, paragraph 431.
  344 See replies to eQ1 – Questionnaire to airlines, question 66; eQ2 – Questionnaire to corporate
      customers, question 17 and eQ3 – Questionnaire to travel agents, question 18.
                                                        87
 ---pagebreak---   5.1.1.8 Air/rail overlaps
(428) The Transaction gives rise to affected air/rail overlap markets on the Edinburgh-
         London, Birmingham-London, Birmingham-Glasgow, Manchester-Edinburgh and
         Manchester-Glasgow routes where Flybe operates air passenger transport services
         and Virgin Train operates train passenger transport services.
(429) The following table provides the market shares of Flybe and Virgin Train on the
         five air/rail overlap routes.345
                               Summer 2018 IATA Season               Winter 2017/2018 IATA Season
                               Virgin       Flybe        combined    Virgin        Flybe         combined
                               Trains                                Trains
           Edinburgh-          [5-10]%      [10-20]%     [20-30]%    [0-5]%        [10-20]%      [10-20]%
           London
           (LHR/LCY-
           EDI)346
           Birmingham-         [20-30]%     [70-80]%     [90-        [20-30]%      [70-80]%      [90-100]%
           Edinburgh (BHX-                               100]%
           EDI)347
           Birmingham-         [20-30]%     [70-80]%     [90-        [20-30]%      [70-80]%      [90-100]%
           Glasgow (BHX-                                 100]%
           GLA)348
           Manchester-         [5-10]%      [30-40]%     [40-50]%    [10-20]%      [30-40]%      [40-50]%
           Edinburgh
           (MAN-EDI)
           Manchester-         [20-30]%     [20-30]%     [50-60]%    [30-40]%      [20-30]%      [50-60]%
           Glasgow (MAN-
           GLA)
  345 The Parties submitted the air passenger data based on the DDS data base and the rail passenger data
      based on the Lennon database, a databased used by rail operators to allocate ticket revenue in
      circumstances where a passenger does not buy a ticket for a particular rail service. The Parties
      explained that the Lennon database estimates, based on schedules and journey times, the number of
      passengers that would have travelled on particular trains and would allocate booking revenue
      accordingly. For indirect services, a booking would be allocated pro rata based on the journey time.
      See Form CO, paragraph 619. The Commission considers that for the purpose of this decision, the
      Lennon database is appropriate proxy to estimate Virgin Trains‘ market shares on the five air/rail
      overlap routes.
  346 The Transaction does not give raise to an affected market if Lon3 or Lon5 is considered, see From CO
      paragraph 657 and 659. The Commission applies a cautious approach and assesses the effects of the
      Transaction on the LHR/LCY-EDI airport pair.
  347 The combined market shares post-Transaction do not differ materially, irrespective of whether BHX
      and EMA airports are considered substitutable or not; Form CO, paragraphs 670 and 671.
  348 The combined market shares post-Transaction do not differ materially, irrespective of whether BHX
      and EMA airports are considered substitutable or not; Form CO, paragraphs 679 and 680.
                                                          88
 ---pagebreak--- (430) Despite high to very high combined intermodal market shares on four of these
        overlapping routes, the proposed Transaction will not raise serious doubts for the
        following reasons.
(431) As explained in Section 4.10, Virgin Trains only operates train services under the
        current rail franchise until November 2019. A third party train operator will be
        operating these routes under the new West Coast Partnership Franchise as of
        November 2019. As a result, the Transaction gives only rise to air/rail overlaps
        until November 2019.
(432) The Parties explained that Virgin Trains sets its fare prices […]. While certain fares
        on the train routes are price-regulated and […], Virgin Trains also offers fares that
        are not price-regulated. Virgin Trains reviews the prices for its non-regulated fares
        [Details about Virgin Trains price setting strategy].349 [Details about Virgin Trains
        price setting strategy].
(433) With regard to the train schedules, [details about Virgin Trains schedule setting
        strategy].350
(434) As a result, the Commission considers that the no long-lasting changes to the
        current pricing and schedule are to be expected until the end of the current rail
        franchise.
(435) In the light of the above, the Commission considers that the Transaction does not
        raise serious doubts as to its compatibility with the internal market on any of the
        air/rail overlap routes.
  5.1.1.9 Conclusion on passenger air transport services under the O&D approach
(436) The Commission therefore considers that the Transaction raises serious doubts as
        to its compatibility with the internal market with respect to the Birmingham-
        Amsterdam route and the Birmingham-Paris route.
  5.1.2 Passenger air transport services under the airport-by-airport approach
  5.1.2.1    Introduction
(437) According to paragraph 36 of the Horizontal Merger Guidelines, 351 “some
        proposed mergers would, if allowed to proceed, significantly impede effective
        competition by leaving the merged firm in a position where it would have the
        ability and incentive to make the expansion of smaller firms and potential
        competitors more difficult or otherwise restrict the ability of rival firms to compete.
        In such a case, competitors may not, either individually or in the aggregate, be in a
        position to constrain the merged entity to such a degree that it would not increase
        prices or take other actions detrimental to competition. For instance, the merged
        entity may have such a degree of control, or influence over, the supply of inputs or
  349 Form CO, paragraph 641.
  350 Form CO, paragraph 642 et seq.
  351 Guidelines on the assessment of horizontal mergers under the Council Regulation on the control of
      concentrations between undertakings, OJ C 31, 5 February 2017, p. 5.
                                                        89
 ---pagebreak---         distribution possibilities that expansion or entry by rival firms may be more
        costly.”
(438) As explained in Section 4.2 above, the Transaction entails the increase of the
        Parties’ combined slot holding at airports where their slot portfolios overlap. Flybe,
        Stobart and Virgin Atlantic (including its current and future shareholders Delta and
        AFKL) had overlapping slot portfolios at 29 coordinated Level 3 airports in
        Summer 2018 and at 27 coordinated Level 3 airports in Winter 2018/2019 IATA
        Season.352
(439) For the sake of completeness, it must be noted that Flybe does not hold any historic
        rights on the slots operated at London Heathrow airport. These slots are operated
        under the commitments in case M.6447 – IAG/bmi. Flybe also flies between
        London Heathrow airport and Guernsey using slots leased from Virgin Atlantic.353
(440) Accordingly, after setting out the framework of its assessment, the Commission
        will first assess whether the Transaction, by reinforcing the Parties’ slot holding at
        a number of airports and granting it broader access to their infrastructure, gives the
        Parties the ability and incentive to prevent other air carriers from getting access to
        airport infrastructure and therefore to the markets for the provision of passenger air
        transport services from those airports, preventing or reducing competition on those
        markets. The Commission will then analyse the overall effects of the Parties’ slot
        holding position on the ability of the Parties’ rivals to compete at the relevant
        airports.
  5.1.2.2 Framework for the assessment of possible foreclosure of competitors’ access to
            the markets for the provision of passengers air transport services
(441) An air carrier may harm competition on the market for the provision of passenger
        air transport services through a foreclosure strategy only if this air carrier has both
        the ability and the incentive to foreclose access of competitors to the markets for
        the provision of passenger air transport services at a given airport.
  5.1.2.2.1 Ability to foreclose access to the markets for the provision of passenger air
              transport services
  5.1.2.2.1.1 Conditions for the ability to foreclose access to the markets for the provision
                of passenger air transport services
(442) In line with its prior decisional practice, the Commission considers that, for the
        Parties to be able to foreclose their competitors post-Transaction, the following
        cumulative conditions must be fulfilled: (i) the slots that the Parties would hold
        post-Transaction represent a significant share of the airport capacity, in particular at
        peak times; (ii) the Transaction has a material impact on the Parties’ slot holding at
        the airport, in particular at peak times; and (iii) the Parties’ slot holding could
  352 Form CO, paragraph 750 and annexes B.11 and B.12.
  353 Form CO, paragraph 754.
                                                     90
 ---pagebreak---          negatively affect the overall availability of slots as an input for the passenger air
         transport markets to or from the relevant airport.354
(443) In the present case, in line with its prior decisional practice, the Commission
         considers it not necessary to assess whether the third condition (i.e. the negative
         impact on the overall availability of slots) is fulfilled with respect to airports where
         the combined slot holding post-Transaction does not represent a significant share of
         the capacity and where the Transaction has no material impact on any of the
         Parties’ slot holding.355
(444) In assessing whether the merged entity would have the ability to foreclose, the
         Commission considers whether rival firms would be likely to deploy effective and
         timely counter-strategies in case of foreclosure. In this case, the Commission notes
         that there are limited effective and timely counter-strategies that the Parties’
         competitors would be likely to deploy in the case of a foreclosure strategy by any
         of them. There is no possibility for an air carrier to be less reliant on access to
         airport infrastructure and very limited possibility to sponsor the expansion of
         airport capacity or the opening of new airports.356
(445) In light of the above, the Commission will assess the ability of the Parties post-
         Transaction to foreclose access to the markets for the provision of passenger air
         transport at the relevant airports by taking account of the following three factors
         together:357 (i) the share of slots held by the Parties post-Transaction at the airport
         or at substitutable airports being high, in particular at peak times, (ii) the increment
         in the Parties’ slot holding brought about by the Transaction at the airport or at the
         substitutable airports being material, in particular at peak times and (iii) the level of
         congestion at the airport or the substitutable airports being high. Considering that
         the Parties’ slot holdings at the relevant airports vary between the Summer and
         Winter IATA Seasons, the Commission will carry out separate assessments for
         each IATA Season.
(446) Before conducting an airport-by-airport assessment of the Parties’ ability to
         foreclose access to the markets for the provision of passenger air transport, the
         Commission will detail the methodologies for determining the slot holding post-
         Transaction, the increment brought about by the Transaction and the congestion
         rate.
  354 See e.g. Cases M.8964 – Delta/Air France-KLM/Virgin Group/Virgin Atlantic, paragraph 406;
      M.8869 – Ryanair/LaudaMotion, paragraph 508, M.8672 – easyJet/Certain Air Berlin Assets,
      paragraph 105; M.8633 – Lufthansa/Certain Air Berlin Assets, paragraph 182.
  355 See e.g. Cases M.8964 – Delta/Air France-KLM/Virgin Group/Virgin Atlantic, paragraph 407;
      M.8869 – Ryanair/LaudaMotion, paragraph 509.
  356 Without prejudice to the exceptional cases of joint ventures between an airport manager and an airline
      (see e.g. the joint venture between Lufthansa and Flughafen München GmbH, the company managing
      Munich airport).
  357 As explained in paragraph (444) above, given that the three conditions are cumulative, there is no need
      to assess the third condition at airports for which the first two conditions are not fulfilled.
                                                             91
 ---pagebreak---   5.1.2.2.1.2 Methodologies
(447) A slot holding is defined as the ratio between the number of slots held by an air
         carrier (or the air carriers that are part of the same group) at an airport and the total
         available slots at that airport (i.e. the airport runway capacity).
(448) The Parties have estimated their slot holdings at the different airports using the
         information from (i) the UK slot coordinator for data relating to the UK airports
         and (ii) the e-airport slots website and the DIIO for the non-UK airports.358 The
         Commission has checked the overall accuracy of the data submitted by the Parties
         against the information gathered from publicly available sources and slot
         coordinators during the market investigation.359
(449) For each of Summer and Winter IATA Season, the Commission has considered
         two values for the Parties’ slot holding post-Transaction: (i) their average slot
         holding during the opening hours of the airport,360 and (ii) their average slot
         holding during peak times.361
(450) As regards the average slot holding during peak time and adopting a conservative
         approach, the Commission has calculated the Parties’ combined highest slot
         holding at any given hour band throughout the whole week (including any peak
         hour), which exceeds their combined average slot holding during peak times.362
(451) The “gross increment” of the Parties’ slot holding corresponds to the difference
         between the Parties’ slot holding post-Transaction and the Parties’ slot holding pre-
         Transaction. This also reflects the situation absent the Transaction in which Flybe
         would have been acquired by a third party buyer.
(452) The “net increment” is the difference between the number of slots obtained through
         the Transaction and the number of slots that AFKL would have obtained in the
  358 Form CO, paragraph 788. The Commission has cross-checked the data on slot holding provided by the
      Parties against data publicly available on slot coordinators websites.
  359 See e.g. https://slotcoordination nl/slot-allocation/declared-capacity/ and eQ4a – Questionnaire to Slot
      Coordinator ACNL and eQ4b – Questionnaire to Slot Coordinator COHOR.
  360 For airports open 24/7, the opening hours are assumed on the basis of the number of total arrival and
      departure slots allocated by hour band.
  361 The Parties have considered that peak times comprised the hour bands between 6:00-9:59 and 17:00-
      20:59 UTC. For the sake of completeness, the Commission has also considered alternative definitions
      of peak times such as hour bands when the congestion rate was above a certain threshold. However,
      the competition assessment would remain unchanged, under any plausible definition of peak times.
  362 The Parties submitted that peak time comprises the hour bands between 6:00-9:59 and 17:00-20:59
      UTC. Considering that the Transaction is unlikely to raise serious doubts under the airport-by-airport
      approach under any definition of “peak time”, the Commission will adopt the most conservative
      approach and consider the Parties’ highest slot holding at any given hour band.
                                                            92
 ---pagebreak---          situation absent the Transaction where Flybe would have exited the market for
         passenger air transport and where its slots would have returned to the pool.363
(453) To assess the impact of the Transaction, the Commission therefore considers the
         Parties’ combined slot holding post-Transaction, as well as the net and gross
         increments364 in the Parties’ slot holding as a result of the Transaction.
  5.1.2.2.2 Incentive to foreclose access to the markets for the provision of passenger air
               transport services
(454) A dominant carrier at a relevant airport would in principle have a strong incentive
         to pursue a foreclosure strategy, as any new service or expansion by another carrier
         would be likely to introduce or increase competition on one of the dominant
         carrier’s routes. Such dominant carrier would have a greater incentive than any
         other carrier at the airport to keep slots out of reach of other carriers. The incentive
         to foreclose would also grow with the increased size of the slot portfolio it would
         control at the airport.
(455) Therefore, the Commission needs to analyse (i) the market shares of the merged
         entity in the relevant passenger air transport markets; and (ii) the relative capacity
         constraints faced by the merged entity and its competitors.
  5.1.2.2.3 Overall effect on competition for passenger air transport services
(456) Effective competition would be significantly harmed if the foreclosed air carriers
         played a sufficiently important role in the competitive process on the passenger air
         transport markets to and from the overlap airports. The higher the proportion of
         carriers which would be foreclosed on these markets, the more likely it would be
         that the merger would result in a significant price increase in the passenger air
         transport markets and, therefore, to significantly impede effective competition
         therein.
(457) The Commission notes that, when an air carrier holds a significant slot portfolio at
         a given airport while the remaining slot holding is very fragmented and slots are
         held by a large number of small air carriers, the latter are unable to translate these
         slots into a viable alternative to dominant air carriers.365
  363 As explained in Section 4.9 above, absent the Transaction in a scenario where Flybe would have exited
      the market, the Parties would have likely obtained some of Flybe’s slots returned to the pool at the
      airports where they also hold slots, based on their current position at the relevant airport.
  364 Considering that the Commission left open whether Flybe would have exited the market or continued
      flying following its acquisition by another buyer, the Commission will consider both the net and the
      gross increments, as relevant. At the airports where the combined slot holding is moderate, the
      Commission will take account of the gross increment, adopting a conservative approach. In any event,
      the competitive assessment would remain unchanged, should the Commission take account of the net
      increment.
  365 See paragraph 27 of the Explanatory Memorandum to the Commission Proposal for a Regulation of
      the European Parliament and of the Council on common rules for the allocation of slots at European
      Union airports (COM/2011/827 final of 01 December 2011).
                                                            93
 ---pagebreak---  5.1.2.3 Assessment of the effects of the Transaction on passenger air transport services
         under the airport-by-airport approach
 5.1.2.3.1 Assessment for Amsterdam Schiphol airport
(458) In Summer 2018 and Winter 2018/2019 IATA Seasons, AFKL, Delta and Flybe
      held slots (and historic rights thereto) at Amsterdam Schiphol airport. The
      Commission will first assess whether the Parties have the ability to foreclose access
      to the market for the provision of passenger air transport services Amsterdam
      Schiphol airport.
 Ability to foreclose
 Slot holding and increment brought about by the Transaction
 Table 1 – Parties’ slot holding – Summer 2019366
 Summer                         Average slot holding367                                      Highest slot holding
                  Pre-               Post-           Gross        Net          Pre-              Post-
                                                                                                                 Gross        Net
  Airport
                  Transaction        Transaction     increment    increment    Transaction       Transaction     increment    increment
                                                                                                [70-
   AMS            [50-              [50-                                       [70-            80]%
  Arrival                                          [0-5]%        [0-5]%                       Hour band        [0-5]%        [0-5]%
                 60]%              60]%                                       80]%             17:00-
                                                                                                17:59
                                                                                                [70-
  AMS             [40-              [40-                                       [70-            80]%
 Departure                                         [0-5]%        [0-5]%                                        [0-5]%        [0-5]%
                 50]%              50]%                                       80]%            Hour band
                                                                                              7:00-7:59
            Source: Form CO, paragraph 801 and Annex B.12 .
(459) In Summer 2019, the Parties estimate that their combined average slot holding
      post-Transaction at Amsterdam Schiphol airport would be [50-60]% with a gross
      increment of [0-5]% and a net increment of [0-5]% for arrival slots and [40-50]%
      with a gross increment of [0-5]% and a net increment of [0-5]% for departure slots.
(460) For arrival slots, the Parties’ highest slot holding during any specific hour band at
      Amsterdam Schiphol airport would reach [70-80]% with a gross increment below
      [0-5]% and a net increment below [0-5]%. This hour band corresponds to the third
      most congested hour band at Amsterdam Schiphol airport. For departure slots, the
      Parties’ highest slot holding during any specific hour band at Amsterdam Schiphol
      airport would reach [70-80]% with a gross increment of [0-5]% and a net increment
      below [0-5]%. This hour band corresponds to the most congested hour band at
      Amsterdam Schiphol airport.
 366   Considering that “total” slot holding data are not available for Amsterdam Schiphol airport, the Parties
       have distinguished between arrival and departure slots.
 367   The Parties have considered that Amsterdam Schiphol’s assumed opening hours were 04:00-21:00
       UTC.
                                                                        94
 ---pagebreak--- (461) In Summer 2019 IATA Season, the Parties’ average slot holding post-Transaction
      would be more than [50-60]% of the available arrival slot capacity at Amsterdam
      Schiphol airport and more than [40-50]% with respect to available departure slot
      capacity. During some hour bands, the Parties’ combined slot holding would
      represent most of the available capacity (e.g. more than [70-80]% of available
      departure and arrival slots). The net increment brought about by the Transaction is
      not insignificant (on average [0-5]% for arrival slots and [0-5]% for departure
      slots). Therefore, it cannot be excluded that the Transaction will have a material
      impact on the Parties’ slot holding at Amsterdam Schiphol airport in Summer 2019
      IATA Season.
 Table 2 – Parties’ slot holding - Winter368
 Winter                         Average slot holding369                                      Highest slot holding
                  Pre-               Post-           Gross        Net          Pre-              Post-
                                                                                                                 Gross        Net
  Airport
                  Transaction        Transaction     increment    increment    Transaction       Transaction     increment    increment
                                                                                                [70-
   AMS            [40-              [40-                                       [70-            80]%
  Arrival                                          [0-5]%        [0-5]%                                        [0-5]%        [0-5]%
                 50]%              50]%                                       80]%            Hour band
                                                                                              7:00-7:59
                                                                                                [70-
  AMS             [40-              [40-                                       [60-            80]%
 Departure                                         [0-5]%        [0-5]%                                        [0-5]%        [0-5]%
                 50]%              50]%                                       70]%            Hour band
                                                                                              8:00-8:59
            Source: Form CO, paragraph 806 and annex B.12.
(462) In Winter 2019/2020 IATA Season, the Parties estimate that their combined
      average slot holding post-Transaction at Amsterdam Schiphol airport would be
      [40-50]% with a gross increment of [0-5]% for arrival slots and [40-50]% with a
      gross increment of [0-5]% and a net increment of [0-5]% for departure slots.
(463) For arrival slots, the Parties’ highest slot holding during any specific hour band at
      Amsterdam Schiphol airport would reach [70-80]% with a gross increment of [0-
      5]% and a net increment of [0-5]% in Winter 2019/2020 IATA Season. This hour
      band corresponds to the second most congested hour band at Amsterdam Schiphol
      airport. For departure slots, the Parties’ highest slot holding during any specific
      hour band at Amsterdam Schiphol airport would reach [70-80]% with a gross
      increment of [0-5]% and a net increment of [0-5]%. This hour band corresponds to
      the most congested hour band at Amsterdam Schiphol airport.
(464) In Winter 2019/2020 IATA Season, the Parties’ average slot holding post-
      Transaction would be more than [40-50]% of the available arrival and departure
      capacity at Amsterdam Schiphol airport but below [40-50]%. During some hour
      bands, the Parties’ combined slot holding would represent most of the available
 368   Considering that “total” slot holding data are not available for Amsterdam Schiphol airport, the Parties
       have distinguished between arrival and departure slots.
 369   The Parties have considered that Amsterdam Schiphol’s assumed opening hours were 04:00-21:00
       UTC.
                                                                        95
 ---pagebreak---         capacity (e.g. more than [70-80]% of available departure and arrival slots).
        Therefore, it cannot be excluded that the Parties’ share of airport capacity post-
        Transaction would enable them to foreclose access of other carriers to the market
        for the provision of passenger air transport services at Amsterdam Schiphol airport
        in Winter IATA Season.
(465) The net increment brought about by the Transaction is not insignificant (on average
        [0-5]% for arrival slots and [0-5]% for departure slots). Therefore, it cannot be
        excluded that the Transaction will have a material impact on the Parties’ slot
        holding at Amsterdam Schiphol airport in Winter 2019 IATA Season.
Congestion
(466) In Summer 2018, the average congestion rate during the effective opening hours of
        Amsterdam Schiphol airport amounted to 83.1% with respect to arrival slots, and
        75.4% with respect to departure slots.370 The airport reached its highest congestion
        level during the hour band 5:00-5:59 UTC with a congestion rate of 96.8% with
        respect to arrival slots.371 As regards departure slots, the airport reached its highest
        congestion level during the hour band 7:00-7:59 UTC with a congestion rate of
        91.4%.372
(467) In Winter 2018/2019, the average congestion rate during the effective opening
        hours of Amsterdam Schiphol airport amounted to 77.0% with respect to arrival
        slots, and 69.1% with respect to departure slots.373 The airport reached its highest
        congestion level during the hour band 18:00-18:59 UTC with a congestion rate of
        96.0% with respect to arrival slots.374 As regards departure slots, the airport
        reached its highest congestion level during the hour band 8:00-8:59 UTC with a
        congestion rate of 93.2%.375
(468) Therefore, the available capacity at Amsterdam Schiphol airport is limited in both
        relevant IATA Seasons.
Conclusion on the ability to foreclose access to the market for the provision of passenger
air transport services at Amsterdam Schiphol
(469) In Summer IATA Season, considering (i) the Parties’ significant share of the
        airport capacity post-Transaction (approximately [50-60]% for arrival slots and
        [40-50]% for departure slots on average and up to approximately [70-80]% at peak
        times), (ii) the potentially material impact of the Transaction on the Parties’ slot
        holding, and (iii) the limited airport capacity available at Amsterdam Schiphol, it
  370 Form CO, paragraph 810.
  371 Form CO, annex B.12.
  372 Form CO, annex B.12.
  373 Form CO, paragraph 810.
  374 Form CO, annex B.12.
  375 Form CO, annex B.12.
                                                   96
 ---pagebreak---        cannot be excluded that the Transaction might give the Parties the ability to
       foreclose access of other carriers to the markets for the provision of passenger air
       transport services. In any event, it is not necessary to conclude whether the Parties
       would have, post-Transaction, the ability to foreclose access of other air carriers to
       the market for the provision of passenger air transport services at Amsterdam
       Schiphol airport since the Parties would not have the incentive to foreclose access
       of competitors to this market, as explained in paragraph (477) below.
(470) In Winter IATA Season, considering (i) the Parties’ potentially significant share of
       the airport capacity post-Transaction (above [40-50]% for arrival and departure
       slots on average) (ii) the potentially material impact of the Transaction on the
       Parties’ slot holding, and (iii) the limited airport capacity available at Amsterdam
       Schiphol, it cannot be excluded that the Transaction might give the Parties the
       ability to foreclose access of other carriers to the markets for the provision of
       passenger air transport services. In any event, it is not necessary to conclude
       whether the Parties would have, post-Transaction, the ability to foreclose access of
       other air carriers to the market for the provision of passenger air transport services
       at Amsterdam Schiphol airport since the Parties would not have the incentive to
       foreclose access of competitors to this market, as explained in paragraph (477)
       below.
Incentive to foreclose
(471) Considering that it cannot be excluded that the Parties have the ability to foreclose
       access of competitors to the market for the provision of passenger air transport
       services at Amsterdam Schiphol in both Summer and Winter IATA Season, the
       Commission will assess whether the Parties would have, post-Transaction, the
       incentive to foreclose access to the market for the provision of passenger air
       transport services at Amsterdam Schiphol.
(472) The merged entity would have a strong position at Amsterdam Schiphol airport.
       The combined market share of AFKL, Delta and Flybe on the market for the
       provision of passenger air transport (calculated in terms of passenger transported)
       was [50-60]% in Winter 2018/2018 IATA Season, and [50-60]% in Summer 2018
       IATA Season.
  Table 3 – Parties’ shares of passengers at Amsterdam Schiphol and Paris Charles
  de Gaulle airports
                                    Share of passengers transported to/from airport
   Airport          Season          Delta                    AFKL          Flybe
   AMS              W17/18          [0-5]%                   [50-60]%      [0-5]%
   AMS              S18             [5-10]%                  [50-60]%      [0-5]%
           Source: Form CO, paragraph 757. Figures based on DDS data.
(473) However, Flybe’s share in passenger air transport services was not material ([0-
       5]% in both IATA Seasons), contrary to AFKL’s share, which amounted to [50-
       60]% in Winter 2017/2018 IATA Season and [50-60]% in Summer 2018 IATA
                                                         97
 ---pagebreak---          Season (in terms of passengers transported). In addition, as explained in Section 2.1
         above, Flybe operates small turboprop aircraft with 78 or fewer seats and is not a
         home-based carrier at Amsterdam Schiphol airport. 376 In contrast, TUI fly and
         easyJet have a base at Amsterdam Schiphol.377
(474) Therefore, the merged entity’s market position at Amsterdam Schiphol in terms of
         shares of passengers will not materially increase as a result of the Transaction. It
         follows that the merged entity’s strong slot holding position at Amsterdam
         Schiphol airport is unlikely to enable it to materially increase its operations at
         Amsterdam Schiphol airport compared to the situation pre-Transaction.
         Considering that the merged entity is unlikely to be able to capture the demand
         from any potentially foreclosed competitors,378 the merged entity is unlikely to
         have the incentive to foreclose access to the markets for the provision of passenger
         air transport at Amsterdam Schiphol airport.
(475) In addition, the Commission notes that it has not found material evidence during its
         market investigation that the Parties have previously engaged in any foreclosure
         strategy or that the reinforcement of their position at Amsterdam Schiphol airport
         had, as an objective or consequence, to prevent the entry or expansion of
         competitors through exclusionary practices such as slot hoarding or slot
         shuffling.379 Furthermore, competitors having expressed a view gave mixed replies
         as to whether Connect Airways would have the incentive, post-Transaction, to
         prevent competitors from providing passenger air transport to or from Paris Charles
         de Gaulle and Amsterdam airports.380 An air carrier indicated that it does not
         believe “that the combined slot holding was a driving factor for the
         Transaction.”381
(476) The absence of an incentive to foreclose is reinforced by the fact that Connect
         Airways’ shareholders seem not to have an alignment of interest with respect to the
  376 Form CO, paragraph 756.
  377 See     Annual       Report     2018     Royal       Schiphol     Group,     p.53.     Available     online
      https://www.annualreportschiphol.com/pdfondemand/printpdf?docId=192807 .
  378 In 2018, easyJet transported 5 987 542 passengers and TUIfly transported 1 880 752 passengers while
      Flybe transported 809 991 passengers.
  379 For completeness, the Commission notes that the Netherlands Authority for Consumers and Markets
      (ACM) established that KLM and Amsterdam Airport Schiphol discussions related to the airport’s
      strategy (e.g. facilities provided to other airlines, airport charges) might present anticompetitive risks
      (no violation was established). Therefore, KLM and Schiphol committed (i) not to contact each other
      about limiting the growth opportunities of other airlines, (ii) Schiphol will develop its own plans for
      investments, airport charges and marketing strategy, and (iii) KLM and Schiphol will not have any
      contact about requests for bases, lounges, or other specific facilities of other airlines. However, for the
      purpose of the assessment of the Transaction, the Commission considers that these Commitments are
      not related to exclusionary practices linked to AFKL’s slot holding at AMS.
      See ACM’s press release available online https://www.acm nl/en/publications/commitments-klm-and-
      schiphol-acm-level-playing-field-schiphol-airport.
  380 Replies to eQ1 – Questionnaire to Airlines, question 20.
  381 Reply of an air carrier to eQ1 – Questionnaire to Airlines, question 20.
                                                             98
 ---pagebreak---         use of Connect Airways’ slots. The Parties submit that post-Transaction, AFKL
        and Flybe cannot be viewed as a single undertaking with respect to slot holding.
        They consider that Flybe and AFKL will remain two separate airlines, operating
        independently and each making use of its own portfolio of slots. They further
        submit that AFKL will not have any rights to influence the commercial decisions of
        Flybe in respect of its slots, as a result of its minority shareholding in Virgin
        Atlantic, which itself will be a minority shareholder of Flybe through Connect
        Airways post-Transaction.382 While, as noted in Section 4 above, the unbroken
        chain of control does not preclude the Commission to consider that the Parties are
        part of one single undertaking whose slots could be transferred between parents and
        subsidiaries (e.g. between Flybe and AFKL), the Commission notes that two of
        Flybe’s shareholders (namely Stobart Air and Cyrus) do not have any structural
        link with AFKL and they do not hold slots at Amsterdam Schiphol or Paris Charles
        de Gaulle. Therefore, a foreclosure strategy could only be instigated by AFKL (or
        to a lesser extent Delta) using its own portfolio of slots and capacity. The
        Commission considers it unlikely that Stobart Air and Cyrus would approve of any
        foreclosure strategy instigated by AFKL, as they would not benefit from such
        strategy. Should AFKL have the ability and the incentive post-Transaction to
        engage into a foreclosure strategy (quod non), Cyrus and Stobart would only bear
        the potential costs of not pursuing their own commercial strategy for Flybe with
        respect to passenger air transport to and from Amsterdam Schiphol, without
        reaping any benefit. More specifically, internal documents show that […].383 In
        that respect, a discussion document prepared by Nyras for Stobart and Cyrus during
        the due diligence concludes that “[…]”.384 This shows that Stobart and Cyrus
        would rather be inclined to pursue Flybe’s current flight operations rather than
        using the slots to prevent the entry or expansion of competitors and hence
        endangering Flybe’s profitability.
(477) Considering the inability of the merged entity to capture the demand from
        potentially foreclosed competitors, the lack of material evidence of such past
        conduct and the absence of alignment of interest, the Commission concludes that
        the Parties are unlikely to have the incentive to foreclose access of competitors to
        the market for the provision of passenger air transport at Amsterdam airport.
Overall effect on competition for passenger air transport services
(478) The results of the market investigation with respect to the effect on competition of
        the Transaction are mixed. While some competitors having expressed a view
        consider that the impact of the Transaction might be a “More difficult access [to
        airport infrastructure at AMS]”,385 other air carriers consider that the impact of the
        Transaction would be rather neutral.386 More specifically, an air carrier indicated
  382 Form CO, paragraph 758 et seq.
  383 See for example Form CO, annex A.21.G, Virgin Atlantic’s board presentation “Foxtrot Investment
      Opportunity”, 4 December 2018, p.16.
  384 Form CO, annex A.20.B, “Slot securitization to support transaction funding, 20 November 2018”
  385 Reply of an air carrier to eQ1 – Questionnaire to airlines, question 21.
  386 Replies to eQ1 – Questionnaire to airlines, question 21.
                                                           99
 ---pagebreak---          that “Slots and infrastructure [at Amsterdam Schiphol] are constrained but we
         don’t expect a material change as a result of the Transaction.”387
(479) However, the Commission notes that the Parties will continue to face strong
         competition at Amsterdam Schiphol airports. At Amsterdam Schiphol airport, the
         Parties face competition from approximately 100 airlines, which accounted for
         more than [60-70]% of the total number of passengers transported and which
         include easyJet, TUIfly, IAG Group and Lufthansa Group. 388 These competitors
         will likely have the ability to react to any anti-competitive foreclosure strategy by
         the merged entity as a result of the Transaction, considering their respective slot
         portfolio. In particular, in Summer 2018 IATA Season, the portfolio of slots of a
         number of competitors was larger than Flybe’s own portfolio. While Flybe held [0-
         5]% of the allocated slots, its competitors easyJet, IAG, Lufthansa Group and
         Scandinavian Airlines (SAS) held respectively [5-10]%, [5-10]%, [0-5]% and [0-
         5]% of the allocated slots.389
(480) The Commission therefore considers that it is unlikely that the Transaction will
         harm effective competitive on the provision of passenger air transport services at
         Amsterdam Schiphol airport.
Conclusion
(481) In light of the above, and in particular the lack of incentive to foreclose access of
         competitors to the markets for the provision of passenger air transport at
         Amsterdam Schiphol and the lack of effective competitive harm caused by any
         potential foreclosure strategy, the Commission concludes that the Transaction is
         unlikely to raise serious doubts as to its compatibility with the internal market with
         respect to passenger air transport at Amsterdam under the airport-by-airport
         approach in both IATA Season.
  5.1.2.3.2 Assessment for Paris Charles de Gaulle airport
(482) In Summer 2018 and Winter 2018/2019 IATA Seasons, AFKL, Delta and Flybe
         held slots (and historic rights thereto) at Charles de Gaulle airport. The
         Commission will first assess whether the Parties have the ability to foreclose access
         to the market for the provision of passenger air transport services at Paris Charles
         de Gaulle airport.
Ability to foreclose access to the market for the provision of passenger air transport
services
Slot holding and increment brought about by the Transaction
  387 Reply of an air carrier to eQ1 – Questionnaire to airlines, question 19.
  388 See Annual Report 2018 Royal Schiphol Group, pp 51-54. Available online
      https://www.annualreportschiphol.com/pdfondemand/printpdf?docId=192807 .
  389 Form CO, paragraph 808.
                                                          100
 ---pagebreak---  Table 4 - Slot holding of the Parties - Summer
 Summer                         Average slot holding390                                     Highest slot holding
                  Pre-                Post-          Gross       Net          Pre-              Post-
                                                                                                               Gross       Net
  Airport
                  Transaction         Transaction    increment   increment    Transaction       Transaction    increment   increment
                                                                                                [50-
                 [30-                [30-                                     [50-             60]%
   CDG                                              [0-5]% [0-5]%                                             [0-5]% [0-5]%
                40]%                40]%                                     60]%             Hour band
                                                                                              5:00-5:59
 Source: Form CO, paragraph 830 and annex B.12.
(483) In Summer 2019 IATA Season, the Parties estimate that their combined average
      slot holding post-Transaction at Paris Charles de Gaulle airport would be [30-40]%
      with a gross increment of [0-5]% and a net increment of [0-5]%.
(484) The Parties’ highest slot holding at Paris Charles de Gaulle airport in Summer 2019
      IATA Season would be [50-60]% with a gross increment of [0-5]% and a net
      increment below [0-5]%.
(485) However, this share of airport capacity is insufficient for the Parties to be able to
      foreclose other airlines as (i) it is possible for them to build up a substantial slot
      portfolio using the remaining [60-70]% of average airport capacity (and [40-50]%
      of airport capacity when the Parties’ slot holding is the highest), and (ii) as further
      explained below, there is available capacity at Paris Charles de Gaulle airport ([30-
      40]% on average during Summer 2018 IATA Season).
 Table 5 - Slot holding of the Parties - Winter
 Winter                         Average slot holding391                                     Highest slot holding
                  Pre-                Post-          Gross       Net          Pre-              Post-
                                                                                                               Gross       Net
  Airport
                  Transaction         Transaction    increment   increment    Transaction       Transaction    increment   increment
                                                                                                [50-
                 [30-                [30-                                     [50-             60]%
   CDG                                              [0-5]% [0-5]%                                             [0-5]% [0-5]%
                40]%                40]%                                     60]%             Hour band
                                                                                              5:00-5:59
 Source: Form CO, paragraph 836 and annex B.12.
(486) In Winter 2019/2020 IATA Season, the Parties estimate that their combined
      average slot holding post-Transaction at Paris Charles de Gaulle airport would be
      [30-40]% with a gross increment of [0-5]% and a net increment of [0-5]%.
(487) The Parties’ highest slot holding at Paris Charles de Gaulle airport in Winter
      2019/2020 IATA Season would be [50-60]% with a gross increment of [0-5]% and
      a net increment below [0-5]%.
 390   The Parties have considered that the CDG assumed opening hours were 05:00-22:00 UTC.
 391   The Parties have considered that the CDG assumed opening hours were 05:00-22:00 UTC.
                                                                      101
 ---pagebreak--- (488) However, this share of airport capacity is insufficient for the Parties to be able to
         foreclose other airlines as (i) it is possible for them to build up a substantial slot
         portfolio using the remaining [60-70]% of average airport capacity (and [40-50]%
         of airport capacity when the Parties’ slot holding is the highest), and (ii) as further
         explained below, there is available capacity at Paris Charles de Gaulle airport ([30-
         40]% on average during Winter 2018/2019 IATA Season).
(489) Therefore, the level of the Parties’ combined slot holding post-Transaction is
         unlikely to give rise to competition concerns in both Summer and Winter IATA
         Seasons.
         Congestion
(490) In Summer 2018 IATA Season, the average congestion rate during the assumed
         opening hours amounted to 70%.392 The airport reached its highest congestion level
         during the hour band 10:00-10:59 UTC, with a congestion rate of 86%.393
(491) In Winter 2018/2019 IATA Season, the average congestion rate during the
         assumed opening hours amounted to 67%.394 The airport reached its highest
         congestion level during the hour band 11:00-11:59 UTC, with a congestion rate of
         82.8%.395
(492) In both relevant IATA Season, although Paris Charles de Gaulle airport is
         coordinated, the actual level of congestion indicates that there are still slots
         available for entry or expansion at the airports, corresponding to, on average,
         approximately 30% of the airport capacity.
         Conclusion on the ability to foreclose
(493) Given (i) the Parties’ limited slot holding position at Paris Charles de Gaulle airport
         post-Transaction (no more than [30-40]% on average) and (ii) the available slot
         capacity at Paris Charles de Gaulle airport in both IATA Seasons ([30-40]% on
         average), the Parties are unlikely to have post-Transaction a sufficient degree of
         market power to foreclose access of other carriers to the markets for the provision
         of passenger air transport services.
Conclusion
(494) Considering that the Parties will not have, post-Transaction, the ability to foreclose
         access to the market for the provision of passenger air transport services at Paris
         Charles de Gaulle airport, and that, as explained in section 5.1.2.2 above, the
         conditions for foreclosing access to the market for the provision of passenger air
         services (ability and incentive) are cumulative, it is not necessary to assess whether
  392 Form CO, paragraph 839.
  393 Form CO, annex B.12.
  394 Form CO, paragraph 839.
  395 Form CO, annex B.12.
                                                    102
 ---pagebreak---         the Parties would have the incentive to foreclose access to the markets for the
        provision of passenger air transport services.
(495) In light of the above, the Commission concludes that the Transaction would not
        raise serious doubts as to its compatibility with the internal market with respect to
        passenger air transport services under the airport-by-airport approach at Paris
        Charles de Gaulle airport in both IATA Seasons.
  5.1.2.3.3 Assessment for the other overlap airports
(496) In Summer 2018, (i) AFKL and/or Delta and/or Virgin Atlantic and (ii) Flybe
        and/or Stobart Air held slots (and historic rights thereto) at 27 airports. 396 In Winter
        2018/2019 IATA Seasons, (i) AFKL and/or Delta and/or Virgin Atlantic and (ii)
        Flybe and/or Stobart Air held slots (and historic rights thereto) at 25 airports.397
  396 Those are: Alicante (ALC), Arlanda (ARN), Birmingham (BHX), Bristol (BRS), Dublin (DUB),
      Duesseldorf (DUS), Göteborg Landvetter (GOT), Geneva (GVA), Hannover (HAJ), Hamburg (HAM),
      Innsbruck (INN), London City (LCY), London Gatwick (LGW), Lyon-Saint-Exupery (LYS),
      Manchester (MAN), Munich (MUC), Milano Malpensa (MXP), Nice Côte d’Azur (NCE), Palma de
      Mallorca (PMI), Prague (PRG), London Stansted (STN), Stuttgart (STR), Trondheim (TRD), Berlin-
      Tegel (TXL), Venice (VCE), Vienna (VIE) and Zürich (ZRH).
  397 Those are: Alicante (ALC), Arlanda (ARN), Birmingham (BHX), Bristol (BRS), Dublin (DUB),
      Duesseldorf (DUS), Göteborg Landvetter (GOT), Geneva (GVA), Hannover (HAJ), Hamburg (HAM),
      Innsbruck (INN), London City (LCY), London Gatwick (LGW), Lyon-Saint-Exupery (LYS),
      Manchester (MAN), Munich (MUC), Milano Malpensa (MXP), Nice Côte d’Azur (NCE), Palma de
      Mallorca (PMI), Prague (PRG), London Stansted (STN), Stuttgart (STR), Trondheim (TRD), Berlin-
      Tegel (TXL) and Venice (VCE).
                                                     103
 ---pagebreak--- Table 6 - Slot holding at the other overlap airports - Summer398
    Summer                      Average slot holding399                             Highest slot holding
                                       Flybe                                            Flybe
                     Virgin            (and           Post-              Virgin         (and        Post-
   Airport400
                     Atlantic401       Stobart        Transaction        Atlantic       Stobart     Transaction
                                       Air)                                             Air)
                                                                                                        [5-10]%
       ALC               [0-5]%          [0-5]%           [0-5]%          [5-10]%          [0-5]%     Hour band
                                                                                                       8:00-8:59
                                                                                                        [5-10]%
      ARN –
                         [0-5]%          [0-5]%           [0-5]%          [0-5]%           [0-5]%     Hour band
    arrival402
                                                                                                     09:00-09:59
                                                                                                        [5-10]%
      ARN -
                         [0-5]%          [0-5]%           [0-5]%          [0-5]%          [5-10]%     Hour band
    departure
                                                                                                     12:00-12:59
                                                                                                       [20-30]%
       BHX               [0-5]%         [10-20]%        [10-20]%          [0-5]%         [20-30]%     Hour band
                                                                                                     17:00-17:59
                                                                                                        [5-10]%
       BRS               [0-5]%          [0-5]%           [0-5]%          [5-10]%         [0-5]%      Hour band
                                                                                                     12:00-12:59
                                                                                                       [20-30]%
       DUB               [0-5]%          [0-5]%          [5-10]%          [5-10]%       [10-20]%      Hour band
                                                                                                     07:00-07:59
                                                                                                       [10-20]%
       DUS               [0-5]%          [0-5]%          [5-10]%           [0-5]%       [10-20]%      Hour band
                                                                                                     15:00-15:59
                                                                                                        [5-10]%
       GOT               [0-5]%          [0-5]%           [0-5]%          [5-10]%         [0-5]%      Hour band
                                                                                                     20:00-20:59
                                                                                                        [5-10]%
       GVA               [0-5]%          [0-5]%           [0-5]%          [5-10]%         [0-5]%      Hour band
                                                                                                     09:00-09:59
398  Considering that Flybe has at some airport a larger slot holding than Virgin Atlantic (and its
     shareholders), Virgin Atlantic might account for the gross increment. The gross increment is in bold
     characters.
399  In Summer IATA Season, Stobart Air holds has an immaterial average slot holding (<[0-5]%) at
     Dublin, London Gatwick, Milan Malpensa, Prague and Vienna airports. Stobart Air’s slot holding is
     not included in the Pre-Transaction slot holding but in the Post-Transacation slot holding.
400  Alicante (ALC), Arlanda (ARN), Birmingham (BHX), Bristol (BRS), Dublin (DUB), Duesseldorf
     (DUS), Göteborg Landvetter (GOT), Geneva (GVA), Hannover (HAJ), Hamburg (HAM), Innsbruck
     (INN), London City (LCY), London Gatwick (LGW), Lyon-Saint-Exupery (LYS), Manchester
     (MAN), Munich (MUC), Milano Malpensa (MXP), Nice Côte d’Azur (NCE), Palma de Mallorca
     (PMI), Prague (PRG), London Stansted (STN), Stuttgart (STR), Trondheim (TRD), Berlin-Tegel
     (TXL), Venice (VCE), Vienna (VIE) and Zürich (ZRH).
401  i.e. combined slot holding of Virgin Atlantic Airways, Delta and AFKL.
402  Considering that “total” slot holding data are not available for Arlanda airport, the Parties have
     distinguished between arrival and departure slots.
                                                         104
 ---pagebreak---     Summer                      Average slot holding399                             Highest slot holding
                                                                                                          [5-10]%
      HAJ                [0-5]%          [0-5]%             [0-5]%          [0-5]%        [5-10]%        Hour band
                                                                                                        19:00-19:59
                                                                                                           [0-5]%
     HAM                 [0-5]%          [0-5]%             [0-5]%          [0-5]%         [0-5]%        Hour band
                                                                                                        19:00-19:59
                                                                                                           [0-5]%
      INN                [0-5]%          [0-5]%             [0-5]%          [0-5]%         [0-5]%        Hour band
                                                                                                        07:00-07:59
                                                                                                         [20-30]%
      LCY                [0-5]%          [5-10]%           [5-10]%        [5-10]%        [10-20]%        Hour band
                                                                                                        07:00-07:59
                                                                                                          [5-10]%
     LGW                 [0-5]%          [0-5]%             [0-5]%         [5-10]%         [0-5]%        Hour band
                                                                                                        08:00-08:59
                                                                                                         [30-40]%
      LYS              [10-20]%          [0-5]%           [10-20]%        [30-40]%         [0-5]%        Hour band
                                                                                                        17:00-17:59
                                                                                                         [10-20]%
     MAN                 [0-5]%         [10-20]%          [10-20]%        [5-10]%        [10-20]%        Hour band
                                                                                                        07:00-07:59
                                                                                                           [0-5]%
     MUC                 [0-5]%          [0-5]%             [0-5]%          [0-5]%         [0-5]%        Hour band
                                                                                                        06:00-06:59
                                                                                                         [10-20]%
    MXP403               [0-5]%          [0-5]%            [5-10]%         [5-10]%        [5-10]%        Hour band
                                                                                                        12:00-12:59
                                                                                                         [10-20]%
      NCE               [5-10]%          [0-5]%            [5-10]%        [10-20]%         [0-5]%        Hour band
                                                                                                        10:00-10:59
                                                                                                           [0-5]%
      PMI                [0-5]%          [0-5]%             [0-5]%          [0-5]%         [0-5]%        Hour band
                                                                                                        13:00-13:59
                                                                                                          [5-10]%
      PRG                [0-5]%          [0-5]%             [0-5]%         [5-10]%         [0-5]%        Hour band
                                                                                                        11:00-11:59
                                                                                                           [0-5]%
      STN                [0-5]%           [0-5]%            [0-5]%         [0-5]%          [0-5]%        Hour band
                                                                                                        15:00-15:59
                                                                                                          [5-10]%
      STR                [0-5]%          [0-5]%             [0-5]%         [5-10]%         [0-5]%        Hour band
                                                                                                        08:00-08:59
                                                                                                         [10-20]%
    TRD404               [0-5]%          [0-5]%             [0-5]%        [10-20]%         [0-5]%        Hour band
                                                                                                        20:00-20:59
403 Capacity data is not available for this airport. Slot holding has been calculated in terms of share of slot
    allocated, in order to adopt a conservative approach.
404 Capacity data is not available for this airport. Slot holding has been calculated in terms of share of slot
    allocated, in order to adopt a conservative approach.
                                                          105
 ---pagebreak---       Summer                      Average slot holding399                             Highest slot holding
                                                                                                            [5-10]%
        TXL                [0-5]%          [0-5]%             [0-5]%         [5-10]%        [0-5]%         Hour band
                                                                                                          07:00-07:59
                                                                                                           [10-20]%
      VCE405              [5-10]%          [0-5]%            [5-10]%        [10-20]%        [0-5]%         Hour band
                                                                                                          04:00-04:59
                                                                                                             [0-5]%
        VIE                [0-5]%          [0-5]%             [0-5]%          [0-5]%        [0-5]%         Hour band
                                                                                                          17:00-17:59
                                                                                                            [5-10]%
        ZRH                [0-5]%          [0-5]%             [0-5]%         [5-10]%        [0-5]%         Hour band
                                                                                                          20:00-20:59
  Source: Form CO, annex B.12
(497) In Summer 2019 IATA Season, the Parties estimate that their slot holding post-
         Transaction at each of the other airports would be below [10-20]% on average
         during the relevant airport’s opening hours with a gross increment below [0-5]%.
         Their highest share during any specific hour band at each of these airports would
         reach no more than [30-40]% with a gross increment of [0-5]%.
(498) Therefore, the level of the Parties’ slot holding post-Transaction is unlikely to give
         rise to competition concerns at each of these 27 overlap airports in Summer 2019
         IATA Season.
  405 Capacity data is not available for this airport. Slot holding has been calculated in terms of share of slot
      allocated, in order to adopt a conservative approach.
                                                            106
 ---pagebreak--- Table 7 – Parties’ slot holding at the other airports - Winter
    Winter                Average slot holding406                         Highest slot holding
                  Virgin          Flybe (and      Post-          Virgin       Flybe (and      Post-
  Airport407      Atlantic408     Stobart Air)    Transaction    Atlantic     Stobart Air)    Transaction
                                                                                                 [5-10]%
    ALC              [0-5]%         [0-5]%          [0-5]%        [5-10]%        [0-5]%           Hour band
                                                                                                 09:00-09:59
    ARN -                                                                                        [5-10]%
                    [0-5]%          [0-5]%          [0-5]%        [0-5]%        [5-10]%           Hour band
  arrival409                                                                                     16:00-16:59
    ARN -                                                                                        [5-10]%
                    [0-5]%          [0-5]%          [0-5]%        [0-5]%        [5-10]%           Hour band
  departure                                                                                      17:00-17:59
                                                                                                [20-30]%
    BHX             [0-5]%         [10-20]%       [10-20]%        [0-5]%       [20-30]%           Hour band
                                                                                                 17:00-17:59
                                                                                                 [5-10]%
     BRS             [0-5]%         [0-5]%          [0-5]%        [5-10]%        [0-5]%           Hour band
                                                                                                 13:00-13:59
                                                                                                [10-20]%
    DUB              [0-5]%         [0-5]%          [0-5]%        [5-10]%      [10-20]%           Hour band
                                                                                                 08:00-08:59
                                                                                                [10-20]%
    DUS              [0-5]%         [0-5]%         [5-10]%         [0-5]%       [5-10]%           Hour band
                                                                                                 16:00-16:59
406 In Summer IATA Season, Stobart Air holds has an immaterial average slot holding (<[0-5]%) at
    Dublin, London Gatwick, Milan Malpensa, Prague and Vienna airports. Stobart Air’s slot holding is
    not included in the Pre-Transaction slot holding but in the Post-Transacation slot holding.
407 Alicante (ALC), Arlanda (ARN), Birmingham (BHX), Bristol (BRS), Dublin (DUB), Duesseldorf
    (DUS), Göteborg Landvetter (GOT), Geneva (GVA), Hannover (HAJ), Hamburg (HAM), Innsbruck
    (INN), London City (LCY), London Gatwick (LGW), Lyon-Saint-Exupery (LYS), Manchester
    (MAN), Munich (MUC), Milano Malpensa (MXP), Nice Côte d’Azur (NCE), Palma de Mallorca
    (PMI), Prague (PRG), London Stansted (STN), Stuttgart (STR), Trondheim (TRD), Berlin-Tegel
    (TXL), Venice (VCE).
408 i.e. combined slot holding of Virgin Atlantic Airways, Delta and AFKL.
409 Considering that “total” slot holding data are not available for Arlanda airport, the Parties have
    distinguished between arrival and departure slots.
                                                        107
 ---pagebreak---     Winter                 Average slot holding406                          Highest slot holding
                                                                                                  [5-10]%
    GOT               [0-5]%         [0-5]%           [0-5]%       [5-10]%        [0-5]%            Hour band
                                                                                                   22:00-22:59
                                                                      [10-                       [10-20]%
    GVA              [5-10]%         [0-5]%          [5-10]%                      [0-5]%            Hour band
                                                                     20]%                          10:00-10:59
                                                                                                  [5-10]%
    HAJ               [0-5]%         [0-5]%           [0-5]%       [5-10]%        [0-5]%            Hour band
                                                                                                   13:00-13:59
                                                                                                  [5-10]%
    HAM               [0-5]%         [0-5]%           [0-5]%       [5-10]%        [0-5]%            Hour band
                                                                                                   16:00-16:59
                                                                      [20-                       [20-30]%
     INN             [5-10]%         [0-5]%          [5-10]%                      [0-5]%            Hour band
                                                                     30]%                          08:00-08:59
                                                                       [5-                       [20-30]%
    LCY              [0-5]%          [5-10]%         [5-10]%                     [10-20]%           Hour band
                                                                     10]%                          08:00-08:59
                                                                                                  [5-10]%
    LGW               [0-5]%         [0-5]%           [0-5]%        [0-5]%        [0-5]%            Hour band
                                                                                                   09:00-09:59
                                                                      [30-                       [30-40]%
    LYS             [10-20]%         [0-5]%         [10-20]%                      [0-5]%            Hour band
                                                                     40]%                          18:00-18:59
                                                                                                 [10-20]%
    MAN              [0-5]%         [10-20]%        [10-20]%        [0-5]%       [10-20]%           Hour band
                                                                                                   11:00-11:59
                                                                                                    [0-5]%
    MUC               [0-5]%         [0-5]%           [0-5]%        [0-5]%        [0-5]%            Hour band
                                                                                                   08:00-08:59
                                                                                                 [10-20]%
   MXP410             [0-5]%         [0-5]%          [5-10]%       [5-10]%        [0-5]%            Hour band
                                                                                                   13:00-13:59
410 Capacity data is not available for this airport. Slot holding has been calculated in terms of share of slot
    allocated, in order to adopt a conservative approach.
                                                          108
 ---pagebreak---       Winter                 Average slot holding406                          Highest slot holding
                                                                        [10-                       [10-20]%
      NCE             [5-10]%          [0-5]%          [5-10]%                      [0-5]%            Hour band
                                                                       20]%                          11:00-11:59
                                                                                                      [0-5]%
       PMI             [0-5]%          [0-5]%           [0-5]%        [0-5]%        [0-5]%            Hour band
                                                                                                     13:00-13:59
                                                                                                    [5-10]%
      PRG              [0-5]%          [0-5]%           [0-5]%       [5-10]%        [0-5]%            Hour band
                                                                                                     13:00-13:59
                                                                                                      [0-5]%
      STN              [0-5]%          [0-5]%           [0-5]%        [0-5]%        [0-5]%            Hour band
                                                                                                     10:00-10:59
                                                                                                    [5-10]%
      STR              [0-5]%          [0-5]%           [0-5]%       [5-10]%        [0-5]%            Hour band
                                                                                                     13:00-13:59
                                                                        [90-                      [90-100]%
     TRD411            [0-5]%          [0-5]%           [0-5]%                      [0-5]%            Hour band
                                                                      100]%                          04:00-04:59
                                                                                                    [5-10]%
      TXL              [0-5]%          [0-5]%           [0-5]%       [5-10]%        [0-5]%            Hour band
                                                                                                     10:00-10:59
                                                                        [40-                       [40-50]%
     VCE412           [5-10]%          [0-5]%          [5-10]%                      [0-5]%            Hour band
                                                                       50]%                          16:00-16:59
  Source: Form CO, annex B.12
(499) In Winter 2019/2020 IATA Season, the Parties estimate that their slot holding post-
         Transaction at each of the other airports would be below [10-20]% on average
         during the relevant airport’s opening hours with a gross increment of [0-5]%. Their
         highest share during any specific hour band at each of these airports would reach
         no more than [40-50]% with a negligible increment.
  411 Capacity data is not available for this airport. Slot holding has been calculated in terms of share of slot
      allocated, in order to adopt a conservative approach.
  412 Capacity data is not available for this airport. Slot holding has been calculated in terms of share of slot
      allocated, in order to adopt a conservative approach.
                                                            109
 ---pagebreak--- (500) Therefore, the level of the Parties’ slot holding post-Transaction is unlikely to give
         rise to competition concerns at each of these 25 overlap airports in Winter
         2019/2020 IATA Season.413
  Congestion
(501) As explained in section 5.1.2.2.1 above, considering that the conditions to establish
         an ability to foreclose are cumulative and that the level of the Parties’ slot holding
         post-Transaction is unlikely to give rise to competition concerns at these overlap
         airports, the Commission does not consider it necessary to assess the congestion
         rate at these airports.
Conclusion on the ability to foreclose
(502) In light of the above, given the Parties’ combined slot holding at the relevant 27
         airports post-Transaction during the relevant IATA Seasons, the Commission
         considers that the Parties will not be likely to have the ability to foreclose
         competitors’ access to the markets for the provision of passenger air transport
         services.
  Conclusion
(503) Considering that the Parties will not have, post-Transaction, the ability to foreclose
         access to the markets for the provision of passenger air transport services at these
         airports and that, as explained in section 5.1.2.2 above, the conditions for
         foreclosing access to the market for the provision of passenger air services (ability
         and incentive) are cumulative, it is not necessary to assess whether the Parties
         would have the incentive to foreclose access to the markets for the provision of
         passenger air transport services.
(504) In light of the above, the Commission concludes that the Transaction would not
         raise serious doubts as to its compatibility with the internal market with respect to
         passenger air transport services under the airport-by-airport approach at the
         relevant other overlap airports in both IATA Seasons.
  5.1.2.4 Conclusion on passenger air transport under the airport-by-airport approach
(505) In light of the above, the Commission concludes that the Transaction does not raise
         serious doubts as to its compatibility with the internal market with respect to
         passenger air transport services under the airport-by-airport approach at any of the
         relevant overlap airports in both IATA Seasons.
  5.1.3 Feeder traffic
  5.1.3.1 Introduction
(506) As explained in Section 4.3 above, in the air transport sector, there is a variety of
         agreements whereby tickets may be sold for indirect route including two legs
         operated respectively by each party to the agreement. Interlining and codesharing
  413 In Winter IATA Season, Vienna and Zurich airport are not overlap airports since neither Flybe nor
      Stobart holds slots at these airports.
                                                    110
 ---pagebreak---          arrangements are in principle mutually beneficial as they give each party the
         opportunity to increase its load factors. In principle, they also benefit passengers as
         they increase connection opportunities, allow passengers to be compensated in case
         of missed connections and spare them from taking back luggage at the connection
         airport. In particular for long-haul flights, traffic made up by passengers connecting
         at either or both ends of the route is commonly referred to as “feeder traffic”.
(507) The theory of harm examined in relation to feeder traffic relates to a risk of
         foreclosure whereby the merged entity would deny competing air carriers access or
         hamper their access (e.g. by raising the price charged for such access) to capacity
         on routes operated pre-Transaction by one of the merging parties, which could be
         used by that competing air carrier to attract feeder traffic. In particular, as regards
         the Transaction, Connect Airways could foreclose access by competing air carriers
         to routes previously flown by Flybe in relation to passengers wishing to connect at
         Amsterdam, Paris Charles de Gaulle, London Heathrow, Glasgow or Manchester
         onto flights operated by such competing carriers to a destination where one or more
         of Connect Airways’ shareholders (i.e. Virgin Atlantic or its parents AFKL or
         Delta) also offers services from these (connecting) airports. For example, according
         to this theory of harm, Connect Airways could deny or hamper access to its flights
         to Manchester for passengers connecting onto a flight operated by another carrier
         from Manchester to Abu Dhabi (a destination where AFKL also operates). As a
         result, prices may increase on the Manchester-Abu Dhabi air transport market and
         any competitive constraint on Connect Airways may be reduced on that market.
(508) Such a risk does not depend on how the tickets for such indirect routes are
         distributed. Therefore, the assessment is the same no matter whether the two
         carriers are engaged in a vertical relationship or are active in closely related
         markets414, providing the “inputs” necessary to a sale of tickets for indirect route
         by a third party.415 For the sake of simplification, the terminology of the input
         foreclosure theory will be used to conduct this assessment.
(509) In order for foreclosure to occur and harm competition as a result of the
         Transaction, the latter must confer on Connect Airways the ability and incentives to
         engage in such foreclosure, or increase such ability and incentives, and foreclosure
         must be likely to significantly impede effective competition.
  5.1.3.2     Overview of feeder traffic provided by the Parties
(510) The assessment concerns Flybe’s and AFKL’s feeder traffic activities. Virgin
         Atlantic does not operate any short-haul flight which feeds its long-haul or third
         parties’ long-haul flights. Delta does not operate any short-haul flights in
         Europe.416
  414 See Non Horizontal Merger Guidelines, paragraph 91.
  415 When a ticket for an indirect route is sold by a third party rather by one of the two carriers, the theory
      of harm would take the form of foreclosure through tying. It refers to a situation where Virgin Atlantic
      (or either of its parents) would avoid selling one leg of the indirect route in isolation from the second
      one, thereby preventing the sale of indirect routes combining a leg operated by Virgin Atlantic (or one
      of its parents) and one of its competitors on a given route.
  416 Form CO, paragraph 882.
                                                           111
 ---pagebreak---   5.1.3.2.1 Flybe’s feeder traffic activities
(511) Flybe has entered into a number of interlining and codeshare agreements with third
         party carriers:417
       a) Flybe has codeshare agreements with […] long-haul and/ or short-haul carriers
           which allow these carriers to sell tickets on Flybe’s flights: […],418 […].
       b) Flybe has interline agreements with […] long-haul and/ or short-haul carriers
           which allow these carriers to issue tickets including one leg of the journey on
           Flybe's flights: […],419 […].
       c) Flybe also has interline agreements with other airlines within the scope of the
           IATA Multilateral Interline Traffic Agreement (“MITA”), including with […].
       d) Flybe has a […] codeshare with Air France on three routes (BHX-CDG, CDG-
           EDI and CDG-MAN). [confidential information about Flybe’s codeshare
           agreements with Air France].420
       e) Flybe notably provides feed to/from several airports including AMS, GLA, LHR,
           MAN and CDG.
(512) The vast majority of Flybe’s codeshares are [confidential information about Flybe's
         codeshare agreements].
(513) Most of these codesharing and interlining agreements enable the codeshare partner
         to sell the entire indirect route combining Flybe’s short-haul flight with their short-
         haul or long-haul flight. [Confidential information on Flybe’s codeshare
         agreements].
(514) The vast majority of Flybe’s flights are flown point-to-point by passengers (and
         thus do not feed into the long-haul flight of another carrier).421 This, however, does
         not mean that no other carrier relies to some extent on Flybe for feeder traffic, as
         Flybe still provides a significant share of third party carriers’ feeder traffic for
         certain long-haul flights, as will be demonstrated in Table 9 below.
  5.1.3.2.2 AFKL’s feeder activities
(515) By contrast with Flybe, many of AFKL’s short-haul flights are used not only to
         meet local or point-to-point passengers, but to provide feeder traffic to other short-
         haul or long-haul flights operated by AFKL or third party carriers. However, in
  417  Form CO, paragraph 883.
  418 [Confidential information about Flybe’s commercial agreements]. See Form CO, footnote 448.
  419 [Confidential information about Flybe’s commercial agreements].
  420 [Confidential information about Flybe’s commercial strategy].
  421 Form CO, paragraph 884.
                                                       112
 ---pagebreak---  ---pagebreak--- (518) Table 9 below provides an overview of feeder traffic provided by Flybe and the
        Parties to other carriers on the relevant long-haul routes where the shareholders of
        Connect Airways (namely Virgin Atlantic or its parents AFKL or Delta) operate.
        These routes and carriers have been selected on the basis of thresholds reflecting
        the importance of the feeder traffic provided by the Parties relative to the total
        number of passengers travelling on the services provided by the carrier in question
        on the route.
(519) Consistent with the Commission’s practice in the case IAG/bmi,424 the criterion
        applied to select the routes is that feeder traffic provided by the Parties and Flybe
        combined to the third party carrier service in question accounts for 3% or more of
        the total number of passengers on the third party carrier service, or the feeder
        traffic provided by Flybe accounts for 1% or more of the total number of
        passengers of the third party carrier on a relevant route for Winter 2017/18 and
        Summer 2018. In addition, only long-haul routes where either alone or together
        Virgin Atlantic, Delta or AFKL carried at least 10,000 passengers on an operating
        carrier basis in the last two completed IATA seasons combined, are considered. On
        that basis, and on the basis of DDS data, 21 relevant routes at 4 airports (AMS,
        CDG, GLA, and MAN) were identified, as set out in Table 9 below.
(520) These thresholds focus the Commission’s analysis on the routes where (i) feed
        from Flybe or from the Parties combined is higher than a de minimis proportion of
        total passengers on the route, and therefore where a hypothetical foreclosure may
        potentially impact the operations of the third party carriers; and (ii) Connect
        Airways’ shareholders’ operations to/from the same long-haul destination/origin,
        from/to the same connecting hub or from/to its own hubs, are non-negligible and
        therefore they compete with the third party carrier.
(521) The applied thresholds are therefore adequate in the present case to focus the
        Commission’s analyses of routes where feeder traffic could be a material aspect of
        operations for a third party carrier.
  424 Case No M.6447 – IAG/bmi, footnote 227; Case M.7541 – IAG/Aer Lingus, paragraph 462.
                                                     114
 ---pagebreak---  ---pagebreak---  ---pagebreak---  ---pagebreak---   5.1.3.3.2 No incentive to foreclose
(528) Even if the merged entity was found to have the ability to foreclose access to its
         feeder traffic in Manchester (as this is where Flybe’s feed on the relevant feeder
         routes represents the highest share of the passengers on the relevant third party
         carrier's flights) (quod non), the Notifying Parties argue that it would not have any
         incentive to foreclose access to its feeder traffic, since it would not be profitable for
         it (or it shareholders) to do so.436 For the purpose of proving this, the Parties have
         considered the gains Virgin Atlantic would make from carrying Thomas Cook’s
         long-haul passengers themselves either through Manchester or other hubs on their
         own connecting flights against the losses it would incur (namely the lost margin on
         the short-haul Flybe flight to MAN).437
(529) The abovementioned analysis by the Notifying Parties438 indeed demonstrates that
         this foreclosure strategy would not be profitable to Virgin Atlantic, since on MAN-
         MCO, Virgin Atlantic would gain on average GBP […]439 per passenger but would
         lose GBP […] per passenger, resulting in a net loss of GBP […]. On MAN-LAX,
         Virgin Atlantic would gain GBP […] per passenger but would lose GBP […] per
         passenger, resulting in a net loss of GBP […] per passenger. On MAN-LAS, Virgin
         Atlantic would gain on average GBP […] per passenger but would lose GBP […]
         per passenger, resulting in a net loss of GBP […].440
(530) In addition, the Notifying Parties claim that, post-Transaction, the merged entity
         will remain subject to competition from other short-haul carriers which provide
         access to their flights for connecting services at Manchester, including IAG and
         Lufthansa. According to the Notifying Parties, a foreclosure strategy leading to
         price increases or less attractive connecting flights for indirect routes at Manchester
         for their competitors would thus likely trigger a switch of customers to indirect
         services via other hub airports, rather than a switch to services offered by the
         merged entity. The Parties explain that, for example, IAG airlines provide
         significant feed to Virgin Atlantic on MAN-Orlando ([5,000-10,000] passengers)
         and MAN-SFO ([0-5,000] passengers). According to them, these actual (and
         potential) competitors will continue to constrain the merged entity post-Transaction
         and any foreclosure strategy would therefore likely result in (i) third party airlines
         switching provider of feed (e.g. switching to IAG airlines or Lufthansa), and (ii)
         consumers switching airlines (including switching to fly over a different hub).441
  435 Form CO, paragraphs 905-907 and 962.
  436 Form CO, paragraph 964.
  437 Form CO, paragraphs 964-965. For the purpose of this analysis, (i) Flybe provided [confidential
      pricing and cost information used to undertake the economic analysis on the profitability of a
      foreclosure strategy].
  438 See Annex B.14B to the Form CO for the analysis.
  439 Converted at 1 EUR = 0.882 GBP; all EUR figures rounded to nearest EUR 1.
  440 See Annex B.22 to the Form CO for the underling analysis in respect of MAN-LAS.
  441 Form CO, paragraph 961.
                                                       118
 ---pagebreak--- (531) In this respect, the Parties believe that London Heathrow – where IAG has a hub
         and offers connecting flights to/ from the UK and the Parties are also present – as
         well as Munich, Madrid, Dublin and Frankfurt will remain a very competitive
         alternative to connecting flights at Manchester post-Transaction. In the Parties’
         views, Loganair and EasyJet, with their growing worldwide proposition, are also
         alternatives for a long-haul carrier to obtain feed.442
  5.1.3.3.3 No anti-competitive impact
(532) The Notifying Parties claim that the Transaction does not result in less effective
         competition for access to feeder traffic, since (i) Flybe's share of feeder traffic
         provided to third party carriers is very small such that the Transaction cannot result
         in a significant impediment to effective competition; (ii) the merged entity would
         have no incentive to foreclose access to its feeder traffic to third party carriers at
         MAN, AMS, CDG and GLA and (iii) a foreclosure strategy leading to price
         increases or less attractive connecting flights for indirect routes connecting at AMS
         may trigger a switch of customers to indirect services via other hub airports, rather
         than switching to AFKL’s (or Virgin Atlantic’s/Delta’s) services.443
  5.1.3.4 Commission’s assessment
  5.1.3.4.1 Ability to foreclose
(533) Access to flights feeding traffic to a route operated by an air carrier from/to its hub
         may constitute an essential input. Therefore, restriction of access to that input can
         potentially raise competition problems.444
(534) Multilateral Interline Traffic Agreements (“MITA”) and Bilateral Interline Traffic
         Agreements (“BITA”) are typically open-ended and have a 30 day
         notice/termination whereas SPAs are generally valid for one year and are
         renegotiated thereafter. It is also customary for SPAs to have a 30 day prior written
         notice termination clause that can be exercised by either carrier at any time, without
         cause. Codeshare agreements are typically open-ended and have various
         termination clauses. Most termination clauses for codeshare agreements include 3
         months, 6 months or 180 days prior written notice by either party.445
(535) [Confidential information about Flybe’s inventory management system], Connect
         Airways would, in theory, be able to terminate Flybe’s current feeder traffic
         agreements with third parties in the short term and, given this possibility, to impose
         on them a revision of such agreements on terms less favourable than pre-
         Transaction.
(536) Table 10 above shows that feeder traffic provided by Flybe generally represents a
         relatively small share of the total of passengers on third party carriers' long-haul
  442 Form CO, paragraph 967.
  443 Form CO, paragraphs 923, 943 and 952.
  444 See Non-horizontal Merger Guidelines, paragraph 34.
  445 See Case M.7541 – IAG/Aer Lingus, footnote 383.
                                                       119
 ---pagebreak---          flight on each relevant route. Out of the 21 relevant long-haul routes identified,
         Flybe’s share was below [0-5]% on 5 routes, below [0-5]% on 7 routes and below
         [5-10]% on 5 routes.
(537) As demonstrated in Table 9 above, the share of feeder traffic provided by Flybe is
         highest (and constitutes an important input) on 5 long-haul routes connecting at
         Manchester airport, namely MAN-Boston (“BOS”) (amounting to [30-40]% of
         Thomas Cook’s total passengers on this route); MAN-Orlando (“MCO”)
         (amounting to [10-20]% of Thomas Cook’s total passengers on this route); MAN-
         San Francisco (“SFO”) (amounting to [20-30]% of Thomas Cook's total passengers
         on this route); MAN-Los Angeles (“LAX”) (amounting to [20-30]% of Thomas
         Cook’s total passengers on this route)446; and MAN-Las Vegas (“LAS”)
         (amounting to [5-10]% of Thomas Cook’s total passengers on this route). However,
         Virgin Atlantic and Thomas Cook no longer compete on the MAN-BOS route as
         Thomas Cook exited this route at the end of Summer 2018, and on the MAN-SFO
         route as Virgin Atlantic exited this route at the end of Summer 2018.447
(538) Therefore, the relevant long-haul routes concerned by this Transaction to which
         Flybe currently provides a significant number of feeder passengers (as important
         input) to Thomas Cook are the routes from/via Manchester to Orlando, Las Vegas
         and Los Angeles.
(539)     In light of the foregoing, the Commission considers it unlikely that Connect
         Airways would have the ability to foreclose access to flights on the routes to/from
         Manchester currently operated by Flybe, except for passengers connecting at
         Manchester flying to/from Los Angeles, where it cannot be excluded that Connect
         Airways may have this ability, post-Transaction, In any event, the Commission
         considers that it will not have the incentive to do so, as assessed in Section
         5.1.3.4.2 below.
  5.1.3.4.2 Incentive to foreclose
(540) The incentives for an airline to foreclose a competitor in the context of feeder
         traffic were described by the Commission in the IAG/bmi decision.448
(541) In the present case, it cannot be excluded that Connect Airways could post-
         Transaction deny or hamper access to its flights – or raise the costs449 of such
         access – for passengers connecting (in particular at Manchester airport) onto long-
  446 This MAN-LAX route does not fall within the thresholds set out above, but Virgin Atlantic has started
      operating this route as of Summer 2019 (i.e. from 26 May 2019), and Thomas Cook is also active on
      this route.
  447 See Annex QP7-Q15 to the Form CO, which provides an article dated 30 May 2018 saying that the
      launch of the MAN-LAX service in Summer 2019 is "at the expense of the three times weekly San
      Francisco service". Virgin Atlantic exiting Manchester-San Francisco was part of the "changes to the
      flying programme" which started in Summer 2019.
  448 M.6447 – IAG/bmi, paragraphs 535 and following.
  449 The costs of such access depend on fares and financial settlement rules set in the relevant interlining
      and special prorate agreements.
                                                        120
 ---pagebreak---         haul flights to/from Los Angeles operated by another carrier on a route where this
        carrier would compete with any of Connect Airways’ shareholders (Virgin Atlantic
        or its parents AFKL or Delta). Thus, for example, Connect Airways could raise the
        prices for access to its feeder traffic connecting at Manchester, which may allow it
        to raise prices for such indirect routes where its shareholders operate (e.g.
        Amsterdam-Los Angeles via Manchester). Connect Airways could also, for
        example, divert away passengers from that competitor to the long-haul flights
        operated by its shareholders, with a view to increasing load factors but also to
        weaken that competitor and pave the way for price increases. For example, by
        applying such a foreclosure strategy on various “feeder routes” to passengers
        connecting onto services offered by a competitor on the Manchester-Los Angeles
        route (where for, instance, AFKL also operates), Connect Airways may reduce the
        number of passengers carried on this competitor’s services between Manchester
        and Los Angeles. This competitor would then be weakened on this route and exert
        less competitive pressure on AFKL, thereby allowing it to raise prices, both for
        direct routes out of Manchester to Los Angeles and for indirect routes via
        Manchester to Los Angeles.
(542) The incentive to foreclose depends on the degree to which foreclosure would be
        profitable. The merged entity is expected to take into account how the provision of
        access to its flights for connecting passengers would affect its profits on that
        upstream market, but also its profits on the downstream air passenger transport
        market. The merged entity would face a trade-off between the profit lost in the
        upstream market due to a reduction of input sales to (actual or potential) rivals and
        the profit gained, in the short or longer term, from expanding sales downstream or,
        as the case may be, being able to raise prices to consumers. The trade-off is likely
        to depend on the level of profits the merged entity obtains upstream and
        downstream. Other things being equal, the lower the margins upstream, the lower
        the loss from restricting input sales. Similarly, the higher the downstream margins,
        the higher the profit gain from increasing market share downstream at the expense
        of foreclosed rivals.450
(543) As argued by the Notifying Parties, and supported by the economic analysis
        provided by them (see paragraphs (528)-(529) above), the Commission agrees that
        such a foreclosure strategy would not be profitable to the merged entity (Connect
        Airways or its shareholders). In addition, the Commission understands and agrees
        with the Notifying Parties’ argument (see paragraphs (530)-(531) above) that a
        foreclosure strategy may lead the connecting passengers to switch services to a
        competing airline (other than Connect Airways or its shareholders) or to a different
        connecting airport.
(544) Indeed, in this respect, respondents to the market investigation have indicated that
        passengers may, depending on the prices, overall travel duration, connecting time,
        schedules and frequencies, consider alternative connecting flights to Orlando, Los
  450 Non Horizontal Merger Guidelines, paragraphs 40–41.
                                                      121
 ---pagebreak---          Angeles or Las Vegas via Dublin451 or via London (Gatwick or Heathrow) or even
         Frankfurt or Paris (or, to a lesser extent, Munich or Zurich).452
(545) In light of the foregoing, the Commission considers that post-Transaction, Connect
         Airways is not likely to have the incentives to restrict access to its flights on the
         routes on which Flybe currently operates for passengers connecting onto flights
         competing with its shareholders’ services.
(546) During the market investigation, Thomas Cook argued that the Parties would have
         the ability and incentive to stop or reduce feeder traffic provided to it on the routes
         from/via Manchester to Bridgetown, Las Vegas, New York, Orlando, San
         Francisco and Los Angeles.453
(547) With regard to a possible reduction or termination by Connect Airways of its
         provision of feeder traffic to Thomas Cook on the relevant routes from/via
         Manchester, the Commission understands that Flybe Limited and Condor
         Flugdienst Gmbh, Thomas Cook’s subsidiary, have entered into a Special Prorate
         Agreement dated 1 June 2019 which applies to all the Thomas Cook airlines (the
         “SPA”). Pursuant to this SPA, Thomas Cook is allowed to interline with Flybe
         pursuant to rates set out in the SPA. The SPA is valid for tickets issued between 1
         June 2019 and 31 May 2020,454 but either party has termination rights on 30 days'
         written notice.455 The Notifying Parties have expressed (and are prepared to issue a
         statement to this effect) that they are prepared to commit that, post EUMR
         clearance, and in so far as it relates to routes involving Manchester Airport,
         Connect Airways will not withdraw from the SPA pursuant to Clause 2.2. For the
         avoidance of doubt, the Notifying Parties clarified that Connect Airways would
         also have no intention to terminate the MITA between Flybe and Condor/Thomas
         Cook in this respect. 456
(548) The fact that the Commission has not found any evidence of such a (past or future)
         incentive in the internal documents, and, in fact, even found an internal document
         which sets out the “revenue risk” for Flybe resulting from a situation where Virgin
         Atlantic’s (and Delta’s) long-haul competitors which currently receive feed from
         Flybe (including Thomas Cook) no longer would accept or carry such feed,457
         strengthens the credibility of this statement and the Commission’s finding that
  451 In particular for Manchester-Orlando (also, to a lesser extent, via London Gatwick). See Replies to
      Questionnaire Q1 to Airlines, questions 24-26; Questionnaire Q2 to Corporate Customers, questions
      10-12; Questionnaire Q3 to Travel Agents, questions 11-13.
  452  See Replies to Questionnaire Q1 to Airlines, questions 24-26; Questionnaire Q2 to Corporate
      Customers, questions 10-12; Questionnaire Q3 to Travel Agents, questions 11-13.
  453 See non-confidential reply by TCGA to Questionnaire Q1 to competitors, question 30.
  454 See Clause 2.1 of the SPA.
  455 Pursuant to Clause 2.2 of the SPA.
  456 See e-mail from the Parties of 7 June 2019.
  457 See documents submitted in response to Section 5.4 of the Form CO, in particular Annex A.21E, p.39
      and the Notifying Parties’ Reply to QP5 of 2 May 2019.
                                                        122
 ---pagebreak---          Connect Airways would have no incentive to foreclose access to its feeder flights
         post-Transaction.
(549) In light of the foregoing, the Commission concludes that Connect Airways is not
         likely to have the incentive post-Transaction to foreclose access to its feeder
         flights.
  5.1.3.4.3 Overall likely impact on effective competition
(550) Anticompetitive foreclosure may occur when a vertical merger allows the parties to
         increase the costs of downstream rivals on the market thereby leading to an upward
         pressure on their sales prices. Significant harm to effective competition normally
         requires that the foreclosed firms play a sufficiently important role in the
         competitive process on the downstream market.458
(551) During the market investigation, Thomas Cook argued that the loss of feeder traffic
         by Flybe would have a slight impact on load factors resulting in it having to reduce
         prices to maintain load factors, impacting revenue and profitability. According to
         Thomas Cook, this would ultimately have a negative impact on its long-haul flights
         (i.e. higher prices, lower services, etc.).459
(552) In light of the fact that, as established above, Connect Airways is not likely to have
         an incentive post-Transaction to foreclose access to Flybe's feeder traffic to third
         party carriers at MAN, AMS, CDG and GLA, and such a foreclosure strategy may
         lead customers to switch to competing airlines and/or alternative hub airports, the
         Commission considers the Transaction would not likely have detrimental effects on
         the long-haul routes out of the aforementioned connecting airports and thus not
         give rise to a significant impediment to effective competition on the markets for the
         provision of access to flights of other carriers for connecting passengers.
  5.1.3.5 Conclusion on feeder traffic
(553) In light of the above, the Commission considers that the Transaction does not raise
         serious doubts as to its compatibility with the internal market as regards the
         provision of feeder traffic to (long-haul) services operated by other carriers.
  5.2    Dry leasing services to airlines
(554) Propius is currently dry-leasing […] intra-group to Stobart Air. From 2017 to 2018,
         Propius was dry-leasing three aircraft to Flybe.460 These relationships remain or
         become intra-group and are not relevant for the purposes of the Commission’s
         competitive assessment.
  458 Non Horizontal Merger Guidelines, paragraph 48.
  459 See non-confidential reply by TCGA to Questionnaire Q1 to competitors, questions 30 and 31.
  460 Form CO, paragraph 1345.
                                                      123
 ---pagebreak--- (555) [confidential information about AFKL’s, Delta’s and Virgin Atlantic’s dry leasing
         activities].461
(556) Flybe dry leases aircraft from third parties. […].462
(557) The Transaction does not give rise to a horizontally or vertically affected market.
(558) The Commission therefore considers that the Transaction does not raise serious
         doubts as to its compatibility with the internal market in the market for the
         provision of dry-leasing services of large regional aircraft to other airlines.
  5.3    Wet-leasing services to airlines
(559) Stobart Air (as a lessor) currently has wet-lease agreements with British Airways
         and AFKL (as lessees).463 [confidential information about the aircraft leasing
         arrangements of Stobart Air and Flybe].
(560) The Parties explained that Flybe was previously active as wet-lessor but has
         reduced its activities as a provider of wet-leasing services. [confidential
         information about Flybe’s commercial (wet-leasing) strategy].464 [further
         confidential information about Flybe’s commercial (wet-leasing) strategy].
         Therefore, the Commission considers that Flybe is not active as a provider of wet-
         leasing services.
(561) [confidential information about Virgin Atlantic’s, Delta’s and AFKL’s wet-leasing
         activities].465
(562) The Transaction does not give rise to a horizontally affected market in this respect,
         because the combined market shares post-Transaction on the market for the supply
         of wet-leasing services regarding large regional aircraft in the EEA would below
         [5-10]%.466 However, based on the above, the Transaction gives rise to a vertical
         link between Stobart Air as a lessor and Flybe, AFKL, Virgin Atlantic and Delta as
         (potential) wet-lessees, as regards the supply of wet-leasing services for large
         regional aircraft, which is the narrowest possible segment relevant for the
         Transaction.
(563) Since the market share in the upstream market for the supply of wet-leasing
         services of regional aircraft would be low ([5-10]%), the Commission considers
         that the merged entity could not restrict access to regional aircraft (input
  461 Form CO, paragraph 1359.
  462 Form CO, paragraphs 1351 et seq.
  463 Form CO, paragraph 1361 et seq.
  464 Form CO, paragraph 1363 and 1387.
  465 Form CO, paragraphs 1368 et seq.
  466 Form CO, paragraphs 1371, 1383 et seq. and Annex E3. To apply a cautious approach, this is taking
      into account […]. If Flybe were considered as being active as a wet-lessor (quod non), the combined
      market share post-Transaction would be below [10-20]% […].
                                                       124
 ---pagebreak---          foreclosure), as there are a large number of operators, for example CityJet or Adria
         Airways that supply wet-leasing services of regional aircraft in the EEA.467
         Considering that numerous airlines, including major carriers, are wet-leasing
         regional aircraft to provide air passenger transport services in the EEA, post-
         Transaction, the merged entity also does not represent a significant customer base
         for wet-leasing of regional aircraft. As a result, there is no risk that the merged
         entity will restrict access to downstream markets post-Transaction (customer
         foreclosure).
(564) This was confirmed by the market investigation. The majority of respondents to the
         market investigation having expressed an opinion stated that the Transaction would
         have no impact on the upstream market for the supply of wet-leasing services and
         no impact on the downstream demand for such services. One respondent explained
         in this regard that “there are a significant number of airlines in the market both
         nationally and throughout the EEA competing in the same market, and so the
         market will be unaffected.”468
(565) The Commission therefore considers that the Transaction does not raise serious
         doubts as to its compatibility with the internal market due to vertical effects in the
         market for the provision of wet-leasing services of large regional aircraft to other
         airlines.
  5.4    Franchise services to airlines
(566) The Transaction gives rise to a vertical link between Stobart Air, as a franchisee, in
         the upstream market for franchise services, and Flybe, as a franchisor active in the
         downstream market for passenger air transport services.469 As explained in Section
         4.6, franchising services are the operation of flight with the aircraft, crew and slots
         of the franchisee, who is also bearing the commercial risk, under the brand of the
         franchisor who is also selling and distributing the tickets. Stobart Air has, as a
         franchisee, as already explained above, franchise agreements with Flybe and with
         Aer Lingus. Flybe has, as a franchisor, in addition to the franchise agreement with
         Stobart Air, franchise agreements with Blue Islands for routes within the UK
         connecting the Channel Islands and Southern England and with Eastern Airways
         focussing on routes linked to the oil and gas industries out of Aberdeen. According
         to those franchising agreements, Blue Islands and Eastern Airways are franchisees,
         Flybe is a franchisor.470
(567) Stobart Air’s market share in the upstream market for franchising services to other
         airlines in the EEA would be below 20%.471 The merged entity could not restrict
  467 Form CO, Annex E3.
  468 Replies to eQ1 - Questionnaire to Airlines, question 46 and 47.
  469 Form CO, paragraph 1372 et seq. The Parties submitted that neither Virgin Atlantic nor AFKL or
      Delta are active in the market for the provision of franchise services to other airlines and do not act as
      franchisors in the EEA; Form CO, paragraph 1377.
  470 Form CO, paragraph 1375 and 1407.
  471 Form CO, paragraph 1392 and Annex E4.
                                                          125
 ---pagebreak---         access to regional aircraft under franchising agreements (input foreclosure) as there
        are a large number of operators that supply franchising services of regional aircraft,
        for example Air Nostrum who has a market share of [40-50]% in the upstream
        market,472 but also Blue Islands and Eastern Airways. Considering that other
        airlines than Flybe are purchasing franchise services, for example Aer Lingus, post-
        Transaction, the merged entity does not represent a significant customer base for
        franchising services of regional aircraft. As a result, there is no risk that the merged
        entity will restrict access to downstream markets post-Transaction (customer
        foreclosure).
(568) The market investigation has been inconclusive as to whether other airlines
        consider that post-Transaction, Flybe would have the ability and the incentive to
        stop purchasing franchise services from third-party airlines and as to whether post-
        Transaction, Stobart Air would have the ability and the incentive to stop supplying
        franchise services to third-party airlines.473 However, the majority of airlines
        responding to the market investigation and having expressed a view stated that the
        Transaction would have no impact on the competitive situation on the markets for
        the provision of franchise services to airlines.474
(569) The Commission therefore considers that the Transaction does not raise serious
        doubts as to its compatibility with the internal market due to vertical effects in the
        market for the provision of franchise services to other airlines.
  5.5   Cargo air transport services
(570) The Transaction gives rise to a horizontal overlap because Flybe and AFKL are
        both providing intra-European air cargo transport.475
(571) The Commission has previously accepted to take into account in its assessment
        estimated market shares based on World Air Cargo Data (“WACD”) and the Cargo
        Accounts Settlement System (“CASS”). The Commission has also noted that
        CASS and/or WACD data do not reflect the entire air cargo markets, and therefore
        underestimated the total market size and overestimates the Parties’ market
        shares.476 The Parties have provided market shares based on WACD and CASS.
        Since Flybe would not subscribe to either WACD or CASS, the Parties have
        submitted Flybe’s market shares based on Flybe’s internal data.
(572) AFKL and Flybe’s combined market shares on the intra-European air cargo
        transport market are well below 10% in the last three years. The Transaction
        therefore does not give rise to a horizontally affected market and does not raise
  472 Form CO, Annex E4.
  473 Replies to eQ1 – Questionnaire to Airlines, question 52 and 53.
  474 Replies to eQ1 – Questionnaire to Airlines, question 54.
  475 Form CO, paragraph 1096.
  476 See e.g. Cases M.5440 – Lufthansa/Austrian Airlines, paragraph 283 and M.6447 – IAG/bmi,
      paragraph 555.
                                                         126
 ---pagebreak---          serious doubts as to its compatibility with the internal market with respect to air
         cargo transport services under any plausible market definition.
  5.6    MRO services
(573) Whilst the treatment of captive sales in market definition depends on the facts of
         the case, the Commission has previously accepted to exclude self-supply from the
         relevant market, and to assess the impact of a concentration on the “merchant
         market” (“third-party” or “free” procurement market).477 For the purpose of this
         decision, the Commission will assess the impact of the Transaction on the merchant
         markets for MRO services below.
  5.6.1 Horizontal overlaps
(574) The Transaction gives rise to horizontal overlaps because Flybe and AFKL are both
         active with respect to the supply of heavy maintenance services in the EEA, while
         Flybe, AFKL and Delta overlap in relation to the supply of heavy maintenance
         services on a worldwide basis.
(575) The Parties have provided estimated market shares for the supply of heavy
         maintenance services at EEA-wide and global level. In particular, in the last three
         years, the Parties’ combined market share in the market for the supply of heavy
         maintenance services did not exceed [0-5]% in the EEA478 or [0-5]% in the
         worldwide market.479 In addition, the Parties confirm that their combined market
         shares would not exceed 20% under any plausible market definition for the supply
         of MRO services to third parties.480
(576) Moreover, the majority of respondents to the market investigation having expressed
         a view considered that the Transaction would not have a negative impact on the
         markets for MRO services in terms of prices or quality of services.481
(577) The Transaction therefore does not give rise to a horizontally affected market and
         does not raise serious doubts as to its compatibility with the internal market due to
         horizontal effects with respect to MRO services under any plausible market
         definition.
  5.6.2 Vertically affected markets
(578) The Transaction also gives rise to potential vertical relationships between the
         relevant carriers, since Flybe, AFKL, Delta and, to a more limited extent, Virgin
         Atlantic are all active in the upstream market for the provision of MRO services in
  477 See for instance M.2002 – Preussag/Thompson, 26 July 2000, paragraph 11.
  478 Assuming that all of Flybe’s revenue and AFKL’s revenue was derived in the EEA.
  479 Form CO, table 71.
  480 Reply to RFI 6.
  481 Replies to Questionnaire Q1 to Competitors, question 56.
                                                         127
 ---pagebreak---          the EEA or worldwide. Delta, Virgin Atlantic482, AFKL, Flybe and Stobart Air are
         present in the downstream market (for demand of MRO services) in the EEA (or
         worldwide).
(579) The Parties have provided estimated market shares for the upstream markets for the
         supply and downstream markets for the acquisition of (i) line maintenance services
         for each relevant airport; (ii) heavy maintenance services at EEA-wide and
         worldwide levels; (iii) engine maintenance services (also as segmented by
         application; by engine type and by engine family) at EEA-wide and worldwide
         levels; and (iv) components maintenance services (also as segmented by aircraft
         type) at EEA-wide and worldwide levels. Their combined market shares did not
         exceed 30% on any of these segments in the last three years.483 In addition, the
         Parties confirm that their combined market shares would not exceed 30% under any
         plausible market definition for the supply (upstream) or acquisition (downstream)
         of any type of MRO services.484
(580) Moreover, the majority of respondents to the market investigation having expressed
         a view considered that the Transaction would not have a negative impact on the
         markets for MRO services in terms of prices or quality of services.485
(581) The Transaction therefore does not give rise to a vertically affected market and
         does not raise serious doubts as to its compatibility with the internal market due to
         vertical effects in the market for MRO services under any plausible market
         definition.
  5.6.3 Conclusion
(582) In light of the above considerations and all evidence available to it, the
         Commission concludes that the Transaction does not raise serious doubts as to its
         compatibility with the internal market with respect to the markets for MRO
         services, under any plausible market definition.
  5.7    Ground-handling services
(583) Stobart Aviation Services is the specialised ground-handling business of Stobart
         Aviation. It provides ground-handling services at Stansted (“STN”) and Southend
         (“SEN”) airports. It must be noted that Stobart Aviation Services falls outside the
         scope of the Transaction.
  No horizontal overlap
  482 Form CO, paragraph 102: Virgin Atlantic is active in the MRO services market, but its business in the
      merchant market is very small. Virgin Atlantic offers line maintenance to third parties at just three
      locations around the world (JFK, JNB and LHR) and self-supplies at […] airports worldwide.
  483 Form CO, tables 68-101.
  484 Reply to RFI 6.
  485 Replies to Questionnaire Q1 to Competitors, question 56.
                                                         128
 ---pagebreak--- (584) The Transaction does not give rise to any horizontal overlap because Flybe and
         Virgin Atlantic’s current and future shareholders do not provide ground-handling
         services in the UK.
  No vertically affected market
(585) The Transaction does not give rise to any vertically affected market between
         Stobart’s activities in the upstream market for ground-handling services and
         Flybe’s activities in the downstream market for passenger air transport services.
(586) If the geographic market is defined as limited to the airport alone (i.e. STN “only”
         and SEN “only”), the Transaction would not give rise to vertical links because
         neither Flybe nor Virgin Atlantic (nor Virgin Atlantic’s current and future
         shareholders) operate from STN or SEN.486
(587) If the geographic market is defined more broadly in order to include airports where
         Flybe operates (i.e. London(five) airports and London(six) airports),487 the
         Transaction would not give rise to affected markets. First, Stobart’s market share
         on the upstream market for ground-handling services is below 30% under any
         plausible market definition.488 Second, Flybe’s and Virgin Atlantic’s (and its
         current and future shareholders’) market shares in the downstream market for
         passenger air transport from the London(five) and London(six) airports are below
         30%.489
  Conclusion
(588) Therefore, the Transaction would not give rise to any vertically affected market and
         is unlikely to raise serious doubts as to its compatibility with the internal market
         with respect to ground-handling services, under any plausible market definition.
  5.8    Airport infrastructure services
(589) The Transaction does not give rise to any horizontal overlap in relation to the
         provision of airport infrastructure services. However, the Transaction would give
         rise to vertical links between the upstream market for the provision of airport
         infrastructure services and the downstream market for the provision of passenger
         air transport services.
  486 Form CO, paragraphs 1422 and 1423. For the sake of completeness, Stobart Air operates from SEN
      under a franchise agreement with Flybe. As discussed in Section 4.2.6 above, Sobart Air […].
      Therefore, the link between Stobart Air and Stobart Aviation Services is pre-existing and the
      Transaction does not give rise to a vertical link.
  487 London(five) airports are London Heathrow, London Gatwick, London City, Stansted and Luton
      airports. London(six) airports are London Heathrow, London Gatwick, London City, Stansted, Luton
      and Southend airports.
  488 Form CO, paragraphs 1422, 1425 et seq.
  489 Form Co, paragraph 1430.
                                                         129
 ---pagebreak--- (590) With respect to Stobart’s activities in the provision of airport infrastructure services
         at Carlisle airport, the Commission notes that the airport is not yet operational and
         that neither Flybe nor any of the Parties (other than Stobart Air) has plans to
         provide passenger air transport services to or from that airport. 490 None of the
         respondents to the market investigation expressed concerns with respect to the
         effect of the Transaction on the provision of airport infrastructure services at
         Carlisle airport.491 The Transaction is therefore unlikely to raise serious doubts as
         to its compatibility with the internal market with respect to airport infrastructure
         services at Carlisle airport.
(591) With respect to Stobart’s activities in the provision of airport infrastructure services
         at SEN airport, the Transaction would not give rise to any vertically affected
         market. On the basis of a geographic market defined as “London six” market
         comprising London Heathrow, London Gatwick, London City, London Luton,
         London Stansted and SEN airports, Stobart’s market share in the upstream market
         for airport infrastructure services would be below 30% and the merged entity’s
         combined market share in the provision of passenger air transport services to or
         from London six would be below 30%.492 If the geographic market is defined as
         SEN alone, the Transaction would not give rise to any vertical link, considering
         that none of the Parties or Flybe fly to or from SEN.493 None of the respondents to
         the market investigation expressed concerns with respect to the effect of the
         Transaction on the provision of airport infrastructure services at SEN airport.494
         The Transaction is therefore unlikely to raise serious doubts as to its compatibility
         with the internal market with respect to airport infrastructure services at SEN.
(592) With respect to Stobart’s activities in the provision of airport infrastructure services
         at Durham Tees Valley (“DTVA”) airport, the Transaction seems unlikely to raise
         serious doubts as to its compatibility with the internal market under any plausible
         geographic market delineation for the following reasons.
(593) If DTVA, Leeds and Newcastle airports are considered as belonging to the same
         geographic market with respect to the provision of airport infrastructure services in
         the Tees Valley, the Transaction would not give rise to any affected market.
         Stobart’s market share in the upstream market would be [0-5]% while the merged
         entity’s combined market share in the downstream market would be [5-10]%.
         Therefore, the Transaction would be unlikely to raise serious doubts.
  490 Form CO, paragraph 1457.
  491 Replies to eQ1 – Questionnaire to Airlines, question 64.3.
  492 Form CO, paragraph 1454. The market shares for the acquisition of airport infrastructure services have
      been calculated by reference to passenger capacity, in terms of the number of seats available on an
      aircraft operating at each aircraft because passenger capacity provides a reasonable proxy for
      estimating market shares for airport infrastructure services, given that supply and demand of such
      services largely depends on the number of passengers expected to be catered for at an airport.
  493 Form CO, paragraph 1455.
  494 Replies to eQ1 – Questionnaire to Airlines, question 64.2.
                                                         130
 ---pagebreak--- (594) If the geographic market is defined as comprising DTVA only, the Transaction
         would give rise to an affected market where Stobart would have a [90-100]%
         market share in the provision of airport infrastructure services at DTVA, while
         Flybe and AFKL would have a combined market share of [90-100]% in the
         provision of passenger air transport services to and from this airport […].495
(595) However, it is unlikely that any of the Parties would engage into an input or
         customer foreclosure in the predictable future. A customer foreclosure is unlikely,
         given that DTVA would be the only possible upstream provider. An input
         foreclosure also seems unlikely. First, there is currently no other airlines at DTVA
         at risk of input foreclosure496 and none of the respondents to the market
         investigation has plan to enter the market for the provision of passenger air
         transport to or from DTVA.497 Furthermore, the Parties will have no incentive to
         engage in a foreclosure strategy. […].498 It is unlikely that any profit generated by
         the Parties as a result of a foreclosure strategy would outweigh the loss of profits
         from DTVA not serving other airlines or worsening its terms of service. In
         addition, Stobart […] DTVA with Tees Valley Combined Authority (“TVCA”), the
         majority shareholder which is moreover a public entity. It is unlikely that TVCA
         will have an incentive allowing the implementation of an input foreclosure strategy,
         which would only benefit Stobart. Finally, none of the respondents to the market
         investigation expressed concerns with respect to the effect of the Transaction on the
         provision of airport infrastructure services at DTVA airport.499
(596) Therefore, the Transaction is unlikely to raise serious doubts as to its compatibility
         with the internal market with respect to vertical effects at DTVA airport.
        Conclusion
(597) In light of the above considerations and all evidence available to it, the
         Commission concludes that the Transaction does not raise serious doubts as to its
         compatibility with the internal market due to vertical effects in the market for the
         provision of airport infrastructure services, under any plausible market definition.
  5.9    Conclusion
(598) For the reasons mentioned above, the Transaction raises serious doubts as to its
         compatibility with the internal market with respect to passenger air transport
         services on the two following routes: Birmingham-Amsterdam and Birmingham-
         Paris. The Transaction does not raise serious doubts in respect of any other
         plausible relevant markets.
  495 Form CO, paragraphs 1471 and 1473.
  496 Form CO, paragraph 1473.
  497 Replies to eQ1 – Questionnaire to Airlines, question 62.
  498 Form CO, paragraph 1473.
  499 Replies to eQ1 – Questionnaire to Airlines, question 64.1.
                                                         131
 ---pagebreak---   6.   THE PROPOSED COMMITMENTS
  6.1    Description
(599) In order to address the serious doubts raised by the Transaction on the
         Birmingham-Amsterdam and Birmingham-Paris routes, the Parties submitted
         commitments on 14 June 2019.500 On the same date, the Commission – whilst it
         expressed some doubts as to whether the commitments would foster sufficient,
         timely, and likely entries on the these routes – launched a market test in order to
         gather the opinion of market participants. Following the feedback from the market
         participants, the Parties submitted an improved version of the commitments on 3
         July 2019 (the “Commitments”).501 As will be shown below, these Commitments
         are suitable to entirely remove the serious doubts identified by the Commission.
(600) The Commitments aim at reducing the barriers to entry and facilitating entry for
         prospective entrant(s)502 on the Birmingham-Amsterdam and Birmingham-Paris
         routes. Specifically, they provide for the release and transfer of a number of
         Connect Airways slots at Amsterdam Schiphol and Paris Charles de Gaulle
         airports.
(601) The main aspects of the Commitments are summarised below.
  6.1.1 Slot release on city pairs with competition concerns
(602) At the outset, it is worth mentioning that Amsterdam Schiphol and Paris CDG are
         (heavily) congested airports where slots are a scarce resource. Under the
         Commitments, Connect Airways would procure that slots are made available at
         Amsterdam Schiphol and Paris CDG in order to allow one or more prospective
         entrant(s) to operate or increase their services on the following city pairs: (i)
         Birmingham-Amsterdam (“BHX-AMS”) and (ii) Birmingham-Paris (“BHX-PAR”)
         (together the “Relevant Routes”).
(603) The number of slots to be made available would enable prospective entrant(s) to
         operate up to a total of five slot pairs per day on the BHX-AMS route and up to a
         total of three slot pairs per day on the BHX-PAR route.503
  500 A draft set of commitments was submitted on 11 June 2019 and discussed with the Commission on 12
      June 2019. The version formally lodged on 14 June 2019 incorporates some comments made by the
      Commission relating to the number of slots offered and certain conditions.
  501 A draft set of commitments was submitted on 27 June 2019 and discussed with the Commission on 27
      June 2019. The version formally lodged on 3 July 2019 incorporates some comments made by the
      Commission.
  502 Defined in the Commitments as “Any Applicant that is not a Controlling entity of Connect Airways or
      affiliated with Connect Airways, able to offer a Competitive Air Service individually or collectively by
      codeshare and needing a Slot or Slots to be made available by Connect Airways in accordance with
      the Commitments in order to operate a Competitive Air Service.”
  503 As opposed to the initial version, the final version of the Commitments does not provide for a capacity
      limitation mechanism, which allowed for the daily frequencies to be reduced in case the prospective
      entrant intended to operate with any aircraft of 100 seats or more.
                                                            132
 ---pagebreak---   6.1.2 Conditions pertaining to the slots
(604) A prospective entrant shall be eligible to obtain slots from Connect Airways
        pursuant to these Commitments only if it can demonstrate that it has exhausted all
        reasonable efforts to obtain the necessary slots to operate on the Relevant Routes
        through the normal workings of the general slot allocation procedure. The
        prospective entrant shall be deemed not to have exhausted all reasonable efforts to
        obtain necessary slots if: (a) slots at the relevant airport (i.e. AMS or CDG) were
        available through the general slot allocation procedure within +/- 20 minutes of the
        times requested but such slots have not been accepted by the prospective entrant; or
        (b) slots at the relevant airport (i.e. AMS or CDG, for use to operate a competitive
        air service on the Relevant Routes) were obtained through the general slot
        allocation procedure more than 20 minutes from the times requested and the
        prospective entrant did not give Connect Airways the opportunity to exchange
        those slots for slots within +/- 20 minutes of the times requested; or (c) it has not
        exhausted its own slot portfolio at the AMS or CDG.
(605) Slots shall be released within +/- 20 minutes of the time requested if Connect
        Airways has such slots available. In the event that Connect Airways does not have
        such slots available, it shall offer to release the slots closest in time to the request.
(606) Connect Airways does not have to offer slots if the slots which the prospective
        entrant could have obtained through the general slot allocation procedure are closer
        in time to the request than the slots which Connect Airways has available.
(607) In addition, the slots released by Connect Airways should be spread evenly
        throughout the day, i.e. with respect to AMS no more than two (2) arrival/departure
        slots in the morning (the period up until 12:00 local time), no more than two (2)
        arrival/departure slots in the afternoon (the period after 12:00 and up until 16:00
        local time), and no more than two (2) arrival/departure slots in the evening (the
        period after 16:00 local time), and with respect to CDG no more than one (1)
        arrival/departure slot in the morning (the period up until 12:00 local time), no more
        than one (1) arrival/departure slot in the afternoon (the period after 12:00 and up
        until 16:00 local time), and no more than one (1) arrival/departure slot in the
        evening (the period after 16:00 local time).504
  6.1.3 Grandfathering rights
(608) As a general rule, the slots obtained by a prospective entrant must be operated on
        the city pair(s) for which they have been requested from Connect Airways and
        cannot be used on another city pair unless the prospective entrant has operated
        them during at least six full consecutive IATA seasons (the “Utilisation Period”).
        The prospective entrant would be deemed to have grandfathering rights for the slots
        once appropriate use of the slots has been made on the city pairs at issue for the
        Utilisation Period. Once the Utilisation Period has elapsed, the prospective entrant
  504 As opposed to the initial version, the final version of the Commitments does not provide for the time
      band restrictions.
                                                           133
 ---pagebreak---          will be entitled to use the slots obtained on the basis of the Commitments to operate
         services on any route connecting Paris or Amsterdam.505
(609) During the Utilisation Period the prospective entrant shall not be entitled to
         transfer, assign, sell, swap or charge in breach of the Commitments any slots
         obtained from Connect Airways under the Commitments (except for (i) changes to
         any such slots which are within the 20 minutes time window and which have been
         agreed with the slot coordinator and (ii) any slots between 12:00 and 16:00 (local
         time) which can be swapped provided this has been agreed with the slot
         coordinator). Provisions on misuse of slots also apply. In the event of a misuse, the
         prospective entrant shall have fifteen days after such notice to cure the misuse,
         failure to which gives Connect Airways the right to terminate the agreement and
         obtain restitution of the slots.
  6.1.4 Consideration
(610) To the extent that the slots released under the Commitments are at an airport where
         secondary trading takes place,506 the agreement with the prospective entrant may,
         as an option, provide for monetary and/or other consideration, so long as such
         contractual provisions are voluntarily agreed, clearly disclosed to the Monitoring
         Trustee and comply with the Commitments and all other administrative
         requirements set out in the applicable legislation.507
  6.1.5 Other provisions
  6.1.5.1 Fare combinability
(611) Connect Airways also committed to enter, at the request of an airline which started
         to operate new or increased services on any of the Relevant Routes concerned by
         the slot commitments (whether or not such service uses slots released to that airline
         pursuant to the Commitments), an agreement that arranges for fare combinability
         on that Relevant Route. This agreement provides for the possibility for the airline
         concerned, or travel agents, to offer a return trip on the Relevant Route comprising
         a non-stop service provided one way by Connect Airways and a non-stop service
         provided the other way by the airline at issue.
  6.1.5.2 Frequent flyer programmes
(612) Should Connect Airways become part of a frequent flyer program (“FFP”), at the
         request of an airline wishing to operate new or increased services on any of the
         routes concerned by the slot commitments that does not have a comparable FFP of
  505 As opposed to the initial version, the final version of the Commitments does not provide for a
      restriction of the grandfathering rights to use of slots on European short-haul routes only.
  506 The Commission understands that secondary trading is not allowed at AMS and CDG at the time of the
      decision. Therefore, this provision would become relevant only if the relevant airports would become
      airports where secondary trading is allowed.
  507 For the sake of clarity, the consideration referred to in this paragraph does not preclude Connect
      Airways from requesting reasonable compensation as provided in the Slot Release Agreement in case
      of Misuse.
                                                             134
 ---pagebreak---         its own, Connect Airways shall request for the relevant airline to be hosted in the
        same FFP as Connect Airways for the Relevant Route(s) on which the relevant
        airline has commenced or increased service. Where the FFP provider agrees to host
        the relevant airline, Connect Airways shall use its reasonable endeavors for the FFP
        agreement with the relevant airline to be on terms such that the relevant airline
        shall have equal treatment vis-à-vis the accrual and redemption of Miles on the
        Relevant Route as compared with Connect Airways for as long as the relevant
        airline operates a non-stop service on the Relevant Route.
  6.1.5.3 Monitoring Trustee
(613) A Monitoring Trustee will be appointed by Connect Airways to monitor the correct
        execution of the Commitments, subject to previous approval by the Commission.
        The Monitoring Trustee will be independent of Connect Airways (including its
        controlling entities and affiliated undertakings) and must be familiar with the
        airline industry and the slot allocation and exchange procedures. Connect Airways
        shall provide the Monitoring Trustee with such assistance and information,
        including copies of all relevant documents, as the Monitoring Trustee may
        reasonably require in carrying out its mandate. In particular, the Monitoring
        Trustee would have access to Connect Airways’ books, records, documents,
        management or other personnel facilities, sites and technical information necessary
        to fulfil its duties under the Commitments.
  6.1.5.4 Fast track dispute resolution
(614) The Commitments also contain provisions on fast-track dispute resolution
        according to which the new entrant can decide to settle any dispute with Connect
        Airways through arbitration. In the event of disagreement between the parties to the
        arbitration regarding the interpretation of the Commitments the arbitral tribunal
        may seek the Commission’s interpretation and shall be bound by that
        interpretation. Both the parties to the arbitration will then be bound by the decision
        of the arbitral tribunal.
  6.1.6 Sunset clause
(615) The Commitments provide for a “sunset clause”, which states that the obligation on
        Connect Airways to procure that slots are made available at the relevant airports
        (i.e. AMS and CDG) is limited in time and shall apply for 20 full consecutive
        IATA Seasons (starting from and including Summer 2020). If there are no slot
        release agreements in force at the end of this period, then the Commitments will
        expire. This provision, however, does not affect the validity of the slot release
        agreements, fare combinability agreements and FFP agreements already concluded
        and in operation, or the grandfathering rights already obtained (or in the process of
        being obtained) at the time the sunset clause would apply.
  6.2   Assessment of the proposed Commitments
(616) As set out in the Commission Notice on Remedies508, the Commission assesses the
        compatibility of a notified concentration with the internal market on the basis of its
  508 Commission notice on remedies acceptable under Council Regulation (EC) No 139/2004 and under
      Commission regulation (EC) No 802/2004, OJ C 267, 22.10.2008, p. 1.
                                                    135
 ---pagebreak---        effect on the structure of competition in the European Union. Where a
       concentration raises serious doubts which could lead to a significant impediment to
       effective competition, the Parties may seek to modify the concentration so as to
       resolve the serious doubts identified by the Commission with a view to having the
       concentration cleared.
(617) According to the European Union Courts’ case law, commitments must be likely to
       eliminate all competition concerns identified and ensure competitive market
       structures. The Commission enjoys a broad discretion in assessing whether
       commitments offered before the initiation of proceedings constitute a direct and
       sufficient response capable of dispelling any serious doubts about the proposed
       merger.
(618) In assessing whether or not the commitments will maintain effective competition,
       the Commission considers inter alia the type, scale and scope of the remedies
       offered by reference to the structure and the particular characteristics of the market
       in which the Commission’s serious doubts as to the compatibility of the
       Transaction with the internal market arise. It should be emphasised, however, that
       commitments offered prior to the initiation of proceedings can only be accepted
       when the competition problem that the concentration gives rise to is readily
       identifiable and can easily be remedied.
(619) For the reasons set out below and on the basis of the available evidence, the
       Commission’s assessment concludes that the Commitments address the serious
       doubts identified in this Decision. As such, the Commission concludes that the
       Commitments offered by the Parties are sufficient to eliminate any serious doubts
       as to the compatibility of the Transaction with the internal market.
  6.2.1 Structure and design of the Commitments
(620) In airline cases, slot release commitments are acceptable to the Commission where
       it is sufficiently clear that actual entry by new competitors that would eliminate any
       significant impediment to effective competition will occur. For such commitments
       to be acceptable, the notifying party need not identify a precise new entrant if
       competitors express an interest during the administrative procedure in entering the
       markets concerned in view of the proposed commitments.
(621) The Commitments relating to slots are based on the fact that the severely limited
       slot availability at Amsterdam and Paris CDG is an important entry barrier on the
       routes where competition concerns have been identified. Therefore, the
       Commitments are designed to remove (or at least reduce significantly) this barrier
       and foster sufficient, timely, and likely entries on the Relevant Routes.
(622) It is important to note that, given the significant level of congestion at AMS and
       CDG, slots are intrinsically attractive. In addition, the Commitments make entry
       more interesting due to the prospect of acquiring grandfathering rights after six
       IATA seasons.
  6.2.2 Outcome of the market test
(623) Following the feedback from the market test with respect to the initial
       commitments provided by the Parties on 14 June 2019, the revised Commitments
       provided on 3 July 2019 address the shortcomings of the initial commitments as
                                                    136
 ---pagebreak---          identified in particular in the market test. Namely, the Commitments, as opposed to
         the initial version, are no longer restricted with respect to (i) the timing of the slots
         offered ( i.e. hour bands no longer imposed), (ii) the frequencies of the slots offered
         (i.e. no capacity limitation mechanism anymore) or (iii) the grandfathering rights
         (i.e. six (6) IATA Seasons required to obtain grandfathering instead of eight (8)
         IATA Seasons, and no longer limited to intra-European flights only).
(624) The total number of five daily frequencies offered for the BHX-AMS route and
         three daily frequencies for the BHX-PAR route was considered sufficient by a
         majority of all respondents to the market test expressing an opinion.509
(625) During the market test, potential interest was expressed in the initial commitments
         subject to the abovementioned restrictions with regard to timing, frequencies and
         grandfathering rights being removed. Following the feedback from the market test
         and discussions with the Commission, the Parties submitted the revised
         Commitments, which no longer feature these restrictions.510
(626) A majority of all respondents expressing an opinion also thought that, in addition to
         grandfathering, each of the fare combinability commitment and frequent flyer
         programme commitment on the Relevant Routes increases the likelihood that entry
         will take place on both the BHX-AMS and BHX-PAR routes.511
(627) In addition, a majority of all respondents expressing an opinion also considered that
         each of the monitoring system and the fast-track dispute resolution system
         proposed in the Commitments is appropriate to ensure the effective implementation
         of the Commitments.512 With regard to the duration of the slot commitments,
         considering its purpose, the market test indicated that 10 years (i.e. 20 IATA
         Seasons) would be a reasonable maximum duration.513
  6.2.3 Conclusion on the Commitments
(628) According to the European Union Courts’ case law, commitments must be likely to
         eliminate competition concerns identified and ensure competitive market
         structures. In particular, contrary to those entered into during the Phase II
         procedure, commitments offered in Phase I (i.e. before the initiation of
         proceedings) are intended not to prevent a significant impediment to effective
         competition but rather to clearly dispel all serious doubts in that regard. The
  509 See Replies to Questionnaire Q2 to other market participants, question 1. Replies to Questionnaire Q1
      to competitors were inconclusive.
  510 See Replies to Questionnaire Q1 to competitors, question 8.
  511 See Replies to Questionnaire Q1 to competitors, questions 11-12; and Replies to Questionnaire Q2 to
      other market participants, questions 10-11.
  512 See Replies to Questionnaire Q1 to competitors, questions 13-13.2; and Replies to Questionnaire Q2 to
      other market participants, questions 12-12.2.
  513 See Reply to Questionnaire Q1 to competitors, question 8.
                                                        137
 ---pagebreak---          Commission enjoys a broad discretion in assessing whether these remedies
         constitute a direct and sufficient response capable of dispelling any such doubts.514
(629) Concerning the suitability of commitments aiming at facilitating entry of a new
         competitor, the Commission Notice on Remedies states that “[o]ften, a sufficient
         reduction of entry barriers is not achieved by individual measures, but by […] a
         commitments package aimed at overall facilitating entry of competitors by a whole
         range of different measures”.
(630) In airline cases, commitments are acceptable to the Commission where it is
         sufficiently likely that actual entry by new competitors will occur and where such
         entry would eliminate any serious doubts as to the compatibility of the
         concentration with the internal market. In this respect, account must be taken of the
         facts existing at the time when the decision is adopted and not in the light of
         subsequent events.515
(631) The Commission considers that the Commitments constitute a comprehensive
         package which takes into consideration past experience with commitments in
         merger cases in the aviation sector.
(632) Amsterdam Schiphol is one of the most congested airports in Europe. Paris CDG is
         also a very congested airport. Consequently, slots at AMS and CDG are highly
         valuable, therefore rendering the slot Commitments very appealing for prospective
         new entrants.
(633) Indeed, it is extremely unlikely that, absent the Commitments, any prospective new
         entrant could obtain all the slots necessary to operate the above-mentioned routes
         to/from Amsterdam Schiphol or Paris CDG with a sufficient number of frequencies
         from the first IATA season. In addition, the slot allocation mechanism in the
         Commitments ensures that the prospective new entrant will in all probability
         receive the requested slots in a window of +/-20 minutes of the requested times.
(634) The limitation concerning the need to spread released slots throughout the day does
         not change the picture materially. In addition, to the extent that the slots released
         under the Commitments would be at an airport where secondary trading takes
         place,516 the possibility for airlines to pay a consideration for the slots offered by
         Connect Airways does not reduce the attractiveness of the slots or preclude their
         award to the best applicants. Indeed, the above is not an obligation, but rather an
         option that airlines may use in order to have a chance to obtain the slots in the
  514 Case T-177/04 easyJet v Commission [2006] ECR II-1931, para 128 ff.
  515 Cf. point 63 of the Commission Notice on Remedies, and Case T-177/04 easyJet v Commission [2006]
      ECR II-1931, para 197 ff. Point 63, footnote (4), of the Commission Notice on Remedies state that, in
      air transport mergers, a mere reduction of barriers to entry by a commitment of the parties to offer slots
      on specific airports may not always be sufficient to ensure the entry of new competitors on those
      routes where competition problems arise and to render the remedy equivalent in its effects to a
      divestiture.
  516 The Commission understands that secondary trading is not allowed at AMS and CDG at the time of the
      decision. Therefore, this provision would become relevant only if the relevant airports would become
      airports where secondary trading is allowed.
                                                           138
 ---pagebreak---       event that, following the Commission’s evaluation, several applicants are deemed
      to provide similarly effective competitive constraints on services from/to AMS or
      CDG.
(635) In light of the above, and on the basis of the information available to the
      Commission, in particular considering the potential interest demonstrated during
      the market test, it is concluded that the Commitments will likely lead to entry by
      one or more airlines on AMS-BHX and AMS-CDG in a timely manner, and that
      this entry is of a sufficient magnitude to dispel the serious doubts identified on
      these markets.
(636) For the reasons outlined above, the Commitments entered into by the Parties are
      considered sufficient to eliminate the serious doubts as to the compatibility of the
      transaction with the internal market.
(637) Under the first sentence of the second subparagraph of Article 6(2) of the Merger
      Regulation, the Commission may attach to its decision conditions and obligations
      intended to ensure that the undertakings concerned comply with the commitments
      they have entered into vis-à-vis the Commission with a view to rendering the
      concentration compatible with the internal market.
(638) The achievement of the measure that gives rise to the structural change of the
      market is a condition, whereas the implementing steps which are necessary to
      achieve this result are generally obligations on the Parties. Where a condition is not
      fulfilled, the Commission’s decision declaring the concentration compatible with
      the internal market no longer stands. Where the undertakings concerned commit a
      breach of an obligation, the Commission may revoke the clearance decision in
      accordance with Article 8(6) of the Merger Regulation. The undertakings
      concerned may also be subject to fines and periodic penalty payments under
      Articles 14(2) and 15(1) of the Merger Regulation.
(639) The commitments in sections 1, 2 and 3 of the Commitments submitted by the
      Parties on 3 July 2019 constitute conditions attached to this Decision, as only
      through full compliance therewith can the structural changes in the relevant
      markets be achieved. The other sections in the Commitments constitute obligations,
      as they concern the implementing steps which are necessary to achieve the
      modifications sought in a manner compatible with the internal market.
                                                139
 ---pagebreak---   7.  CONCLUSION
(640) For the above reasons, the Commission has decided not to oppose the notified
        operation as modified by the commitments and to declare it compatible with the
        internal market and with the functioning of the EEA Agreement, subject to full
        compliance with the conditions and obligations laid down in the Commitments
        annexed to the present decision. This decision is adopted in application of Article
        6(1)(b) in conjunction with Article 6(2) of the Merger Regulation and Article 57 of
        the EEA Agreement.
                                                        For the Commission
                                                        (Signed)
                                                        Margrethe VESTAGER
                                                        Member of the Commission
  ________________
                                                 140
 ---pagebreak---                CASE COMP/M.9287 – CONNECT AIRWAYS/ FLYBE
              COMMITMENTS TO THE EUROPEAN COMMISSION
Pursuant to Article 6(2) of Council Regulation (EC) No. 139/2004 as amended (the
“Merger Regulation”), the shareholders of Connect Airways Ltd (“Connect Airways”)
hereby provide the following commitments (the “Commitments”) in order to enable the
European Commission (the “Commission”) to declare the proposed acquisition by
Connect Airways of Flybe Group plc and its subsidiaries (“Flybe”) (the “Notified
Concentration”) compatible with the internal market and the EEA Agreement by its
decision pursuant to Article 6(1)(b) of the Merger Regulation (the “Decision”).
The Commitments shall take effect upon the date of adoption of the Decision.
This text shall be interpreted in the light of the Decision to the extent that the
Commitments are attached as conditions and obligations, in the general framework of EU
law, in particular in the light of the Merger Regulation, and by reference to the
Commission Notice on remedies acceptable under Council Regulation (EC) No. 139/2004
and under Commission Regulation (EC) No. 802/2004.
                                                1
 ---pagebreak--- A. Definitions
For the purpose of the Commitments, the following terms shall have the following meanings:
 Affiliated                Undertakings controlled by Connect Airways or by the ultimate
 Undertakings              parents of Connect Airways, whereby the notion of control
                           shall be interpreted pursuant to Article 3 of the Merger
                           Regulation and in the light of the Commission’s Consolidated
                           Jurisdictional Notice under Council Regulation (EC) No.
                           802/2004.
 Airport Catchment         In respect of AMS, this area includes Lelystad Airport.
 Area                      In respect of CDG, this area includes ORY and BVA.
                           In respect of BHX, this area includes EMA.
 AMS                       Amsterdam Schiphol Airport.
 AMS Remedy                This term has the meaning given in Clause 1.1.1(a).
 Frequencies
 Applicant                 Any airline interested in obtaining Slots from Connect Airways
                           in accordance with these Commitments.
 BHX                       Birmingham Airport.
 BHX-AMS City Pair         Flights between BHX and either AMS or Lelystad.
 BHX-PAR City Pair         Flights between BHX and either CDG, ORY or BVA.
 BVA                       Paris Beauvais Tillé Airport.
 CDG                       Paris Charles de Gaulle Airport.
 Commitment(s)             The Slot commitment for each Relevant City Pair and/or, as
                           relevant, the commitment relating to Frequent Flyer
                           Programmes and/or, as relevant, the commitment relating to
                           fare combinability.
 Competitive Air           A non-stop scheduled passenger air transport service operated
 Service                   on the BHX-AMS City Pair and/or the BHX-PAR City Pair.
 Connect Airways           Connect Airways Ltd.
 Controlling Entity(ies)   The entities which, together, own the entire share capital of
                           Connect Airways which are DLP, Stobart, and Virgin Atlantic
                           (through its wholly owned subsidiary Virgin Travel Group
                           Limited).
 Cyrus                     Cyrus Capital Partners L.P.
 DLP                       DLP Holdings S.à.r.l. a company wholly owned and managed
                           by Cyrus Capital Partners L.P.
 Effective Date            The date of adoption of the Decision.
 Eligible Air Services     An airline that is not an associated carrier belonging to the
                                                 2
 ---pagebreak--- Provider                same corporate group as Connect Airways or affiliated with
                        Connect Airways and which operates a new or increased
                        Competitive Air Service on a Relevant City Pair.
European Short-haul Any route connecting a Relevant Airport with any other part of
City Pair(s)            Europe, which, for the avoidance of doubt, shall include the UK
                        and thus the Relevant City Pairs.
EU Slot Regulation      Council Regulation (EEC) No 95/93 of 18 January 1993 on
                        common rules for the allocation of slots at EU airports (OJ L 14
                        of 22.01.1993), as amended.
Fast-Track Dispute      This term has the meaning given in Clause 5.
Resolution Procedure
Frequency(ies)          A round-trip on a Relevant City Pair.
Frequent Flyer          A programme offered by an airline to reward customer loyalty
Programme (or FFP)      under which members of the programme accrue points for
                        travel onthat airline which can be redeemed for free air travel
                        and otherproducts or services, as well as allowing other benefits
                        such as airport lounge access or priority bookings.
General Slot Allocation The Slot allocation procedure as set out in the EU Slot
Procedure               Regulation and IATA Worldwide Scheduling Guidelines
                        (including participation at the IATA Scheduling Conference to
                        try to improve slots and allocation by the slot coordinator from
                        the waitlist following the Slot Handback Deadline).
Grandfathering          This term has the meaning given in Clause 1.3.2.
IATA                    The International Air Transport Association.
IATA Scheduling         The industry conference of airlines and airport coordinators
Conference              worldwide to solve scheduling issues where there are
                        discrepancies between the slots requested by the airlines and
                        allocated by the airport coordinators. The IATA scheduling
                        conference for the Winter Season takes place in June, and the
                        one for the Summer Season in November.
IATA Season             The IATA Summer Season begins on the last Sunday of March
                        and ends on the Saturday before the last Sunday of October.
                        The IATA Winter Season begins on the last Sunday of October
                        and ends on the Saturday before the last Sunday of March.
ICC                     International Chamber of Commerce.
Identified Time Period  The period prior to 12:00 (local time) and the period after 16:00
                        (local time).
Key Terms               The following terms that shall be included in the Applicant’s
                        formal bid for Slots: timing of the requested Slot(s), number of
                        frequencies and IATA Seasons to be operated (year-round
                                              3
 ---pagebreak---                      service or seasonal).
Material Increase in Permitted capacity (including permitted movements) increase
Capacity             of 5% or more per year.
Misuse               This term has the meaning given in Clause 1.4.2.
MITA                 Multilateral Interline Traffic Agreements Manual published by
                     IATA.
Monitoring Trustee   An individual or institution, independent of Connect Airways,
                     who is approved by the Commission and appointed by Connect
                     Airways and who has the duty to monitor Connect Airways’
                     compliance with the conditions and obligations attached to the
                     Commitment Decision.
New Air Services     An airline that is not an associated carrier belonging to the
Provider             same corporate group as Connect Airways or affiliated with any
                     member of Connect Airways and which commences a new non-
                     stop service on a Relevant City Pair or which increases the
                     number of non-stop Frequencies it operates on a Relevant City
                     Pair in accordance with these Commitments.
ORY                  Paris Orly Airport.
PAR Remedy           This term has the meaning given in Clause 1.1.1(b).
Frequencies
Published Fares      Fares published by Connect in ATPCo in reservation booking
                     designator (or selling classes):
                     Y and J for European Short-haul City Pairs
Prospective Entrant  Any air carrier interested in obtaining Slots from Connect
                     Airways in accordance with these Commitments and which
                     complies with the following requirements:
                          it must be independent of and unconnected with
                             Connect Airways. For the purpose of these
                             Commitments, an airline shall not be deemed to be
                             independent of and unconnected to Connect Airways
                             when, in particular:
                             o      it is an associated carrier belonging to the same
                                    corporate group as Connect Airways; or
                             o      it co-operates with Connect Airways on the
                                    Relevant City Pair concerned in the provision of
                                    passenger air transport services, except if this co-
                                    operation is limited to agreements concerning
                                    servicing, deliveries, lounge usage or other
                                    secondary activities entered into on an arm’s
                                    length basis;
                          it must have the intention and be able to start or increase
                             a Competitive Air Service on one or more of the
                             Relevant City Pairs individually or collectively by
                                            4
 ---pagebreak---                                codeshare;
                              to that effect, it needs a Slot or several Slots for the
                               operation of a Competitive Air Service.
Q/YQ/YR                Charges paid in addition to the base fare amount of a ticket
Surcharge              which are allocated to the Q, YQ or YR IATA ticket coding
                       and which are used in particular to recover fuel, insurance
                       and/or security charges.
Relevant Airport(s)    AMS and/or CDG.
Relevant City Pair(s)  This term has the meaning given in Clause 1.2.2.
Requesting Party       This term has the meaning given in Clause 5.1.2.
SAL                    Slot Allocation List.
Slot Handback          15 January for the IATA Summer Season and 15 August for the
Deadline               IATA Winter Season.
Slot Release           An agreement between Connect Airways and a Prospective
Agreement              Entrant that provides for the exchange of Slot(s) with the
                       Prospective Entrant according to the principles laid down in
                       Clause 1 of these Commitments. For the avoidance of doubt, (i)
                       the Slot Release Agreement shall abide by the EU Slot
                       Regulation and any exchange pursuant to this agreement shall
                       be confirmed by the slot coordinator and (ii) the duration of the
                       Slot Release Agreement shall be unlimited in time, subject to
                       its termination provisions.
Slot Release Procedure This term has the meaning given in Clause 1.2.1.
Slot Request           The final date for the request for Slots to the slot coordinator as
Submission Deadline    set out in the IATA Worldwide Scheduling Guidelines.
Slot(s)                The permission to land and take-off in order to operate an air
                       service at the airport on a specific date and time given in
                       accordance with the EU Slot Regulation.
Stobart                Stobart Aviation Limited, being a wholly owned subsidiary of
                       Stobart Group Limited.
Sunset Date            The last day of IATA Winter Season 2029/2030.
TFEU                   The Treaty on the Functioning of the European Union.
Time Window            The period of time either side of the Slot time requested by the
                       Prospective Entrant and shall be +/- twenty (20) minutes for
                       Relevant City Pairs.
Utilisation Period     This term has the meaning given in Clause 1.3.1 and shall
                       be       six       (6)       consecutive        IATA          Seasons
                       (e.g. Summer/Winter/Summer/Winter/Summer/Winter for
                       routes operated on a year-round basis or a continuous series of
                       six (6) Summer or Winter Seasons for the routes which are
                                               5
 ---pagebreak---                 operated on a seasonal basis).
Virgin Atlantic Virgin Atlantic Limited.
                                     6
 ---pagebreak---   1.  SLOTS
  1.1   SLOTS AT RELEVANT AIRPORTS
      1.1.1    Subject to Clause 7, Connect Airways undertakes to procure that Slots
               are made available at Relevant Airports to allow one or more Prospective
               Entrant(s) to operate or increase the following number of new or
               additional Frequencies on the following city pairs:
        (a)    up to (5) five Frequencies per day in total on the BHX-AMS City Pair
               (the “AMS Remedy Frequencies”); and
        (b)    up to (3) three Frequencies per day in total on the BHX-PAR City Pair
               (the “PAR Remedy Frequencies”).
  1.2   CONDITIONS PERTAINING TO SLOTS
1.2.1 Each Prospective Entrant shall comply with the following procedure to obtain
      Slots from Connect Airways (“Slot Release Procedure”).
1.2.2 The Prospective Entrant wishing to commence/increase a Competitive Air
      Service on one or more of the city pairs covered by Clause 1.1.1 (“Relevant City
      Pair(s)”) shall:
        (a)    apply to the slot coordinator for the necessary Slots through the General
               Slot Allocation Procedure; and
        (b)    notify its request for Slots to the Monitoring Trustee, within the period
               foreseen in Clause 1.5.1.
1.2.3 The Prospective Entrant shall be eligible to obtain Slots from Connect Airways
      pursuant to these Commitments only if it can demonstrate that it has exhausted all
      reasonable efforts to obtain the necessary Slots to operate on the Relevant City
      Pairs through the normal workings of the General Slot Allocation Procedure.
1.2.4 For the avoidance of doubt, the Prospective entrant remains solely responsible to
      negotiate and enter into any agreement with the Relevant Airports for the
      provision of airport and terminal related services.
1.2.5 For the purposes of this Clause 1.2, the Prospective Entrant shall be deemed not
      to have exhausted all reasonable efforts to obtain necessary Slots if:
        (a)    Slots at the Relevant Airport were available through the General Slot
               Allocation Procedure within the Time Window but such Slots have not
               been accepted by the Prospective Entrant; or
        (b)    Slots at the Relevant Airport (for use to operate a Competitive Air
               Service on the Relevant City Pair) were obtained through the General
               Slot Allocation Procedure outside the Time Window and the Prospective
               Entrant did not give Connect Airways the opportunity to exchange those
               Slots for Slots within the Time Window; or
        (c)    it has not exhausted its own Slot portfolio at the Relevant Airport. For
               these purposes, the Prospective Entrant will be deemed not to have
               exhausted its own Slot portfolio:
                                                1
 ---pagebreak---                (i)     if the Prospective Entrant has Slots at the Relevant Airport within
                       the Time Window which are being leased-out to or exchanged
                       with other carriers (unless that lease or exchange was concluded
                       before the Effective Date or the carrier can provide reasonable
                       evidence satisfying the Commission (following consultation with
                       the Monitoring Trustee) that there are bona fide reasons for this
                       being done rather than it being a pretext to enable the Prospective
                       Entrant to present itself as needing Slots to operate a Competitive
                       Air Service on a Relevant City Pair); or
               (ii)    if the Prospective Entrant has Slots at the Relevant Airport which
                       are outside the Time Window and which are leased-out to other
                       carriers, in which case the Prospective Entrant shall be entitled to
                       apply for Slots from Connect Airways, but only if:
                              that lease was concluded before the Effective Date; or
                               it can provide reasonable evidence satisfying the
                                Commission (following consultation with the Monitoring
                                Trustee) that there are bona fide reasons for leasing the
                                Slot out in this way rather than using it itself; or
                               it gives Connect Airways an option to become the lessee
                                of the leased-out Slot at the earliest possible time
                                allowed under the applicable lease (on terms
                                substantially the same as that lease and for a duration that
                                runs in parallel with the Slot Release Agreement). If the
                                Slot Release Agreement with the Prospective Entrant
                                does not provide for monetary compensation, then the
                                lease to Connect Airways will likewise not provide for
                                monetary compensation.
               For the purposes of Clause 1.2.5(c) (i) and (ii), the bona fide reasons
               for leasing out (or, as relevant, exchanging) Slots by the Prospective
               Entrant shall include, but shall not be limited to, a situation where the
               Prospective Entrant can provide clear evidence of an intention to
               operate those Slots on a specific route and clear and substantiated
               evidence of the reasons that currently prevent it from doing so.
1.2.6 If the Prospective Entrant obtains Slots through the General Slot Allocation
      Procedure but after the IATA Scheduling Conference:
        (a)    which are within the Time Window; or
        (b)    which (in the case of Slots obtained at both ends of the route) are not
               compatible with the planned flight duration of the Prospective Entrant’s
               operation on the route,
       the Prospective Entrant shall remain eligible to obtain Slots from Connect
       Airways through the Slot Release Procedure provided that it gives an option to
       Connect Airways to use the Slots obtained through the General Slot Allocation
       Procedure on terms substantially the same as the terms of the Slot Release
       Agreement, and for a duration that runs in parallel with the Slot Release
       Agreement (provided that such use by Connect Airways is compatible with
       Article 8a(3) of the EU Slot Regulation).
                                                  2
 ---pagebreak--- 1.2.7 Without prejudice to these Commitments (and, particularly, of this Clause 1),
      Connect Airways shall not be obliged to honour any agreement to make available
      the Slots to the Prospective Entrant if:
        (a)     the Prospective Entrant has not exhausted all reasonable efforts in the
                General Slot Allocation Procedure to obtain the necessary Slots to
                operate a new or increased service on the Relevant City Pair; or
        (b)     the Prospective Entrant has been found to be in a situation of Misuse (as
                described in Clause 1.4.2 below).
1.2.8 Subject to Clause 1.5.11, Connect Airways undertakes to make available Slots
      within the Time Window (if it has such Slots). In the event that Connect Airways
      does not have Slots within the Time Window, Connect Airways shall offer to
      release the Slots closest in time to the Prospective Entrant’s request. Connect
      Airways does not have to offer Slots if the Slots which the Prospective Entrant
      could have obtained through the General Slot Allocation Procedure are closer in
      time to the Prospective Entrant’s request than the Slots that Connect Airways has.
      The arrival and departure Slot times shall be such as to allow for reasonable
      aircraft rotation to the extent possible, taking into account the Prospective
      Entrant’s business model and aircraft utilisation constraints.
  1.3   GRANDFATHERING OF SLOTS
1.3.1 As a general rule, the Slots obtained by the Prospective Entrant from Connect
      Airways as a result of the Slot Release Procedure shall be used only to provide a
      Competitive Air Service on the Relevant City Pair for which the Slots were
      requested. These Slots cannot be used on another city pair unless the Prospective
      Entrant has operated a Competitive Air Service on the Relevant City Pair for
      which these Slots have been made available for a number of full consecutive
      IATA Seasons (“Utilisation Period”). For the avoidance of doubt, a Utilisation
      Period may extend beyond the Sunset Date.
1.3.2 The Prospective Entrant will be deemed to have grandfathering rights for the
      Slots once appropriate use of the Slots has been made on the Relevant City Pair
      for the Utilisation Period. In this regard, once the Utilisation Period has elapsed,
      the Prospective Entrant will be entitled to use the Slots obtained on the basis of
      these Commitments on any city pair to/from the Relevant Airport
      (“Grandfathering”).
1.3.3 Grandfathering is subject to approval of the Commission, advised by the
      Monitoring Trustee, in accordance with Clause 1.5.
  1.4   LIMITATIONS ON USE OF SLOTS
1.4.1 During the Utilisation Period, the Prospective Entrant shall not be entitled to
      transfer, assign, sell, swap or charge in breach of these Commitments any Slots
      obtained from Connect Airways under the Slot Release Procedure, except for (i)
      changes to any such Slots which are within the Time Window and which have
      been agreed with the slot coordinator, and (ii) any Slots which are outside the
      Identified Time Period which can be swapped provided this has been agreed with
      the slot coordinator.
                                                3
 ---pagebreak--- 1.4.2 During the Utilisation Period, Misuse shall be deemed to arise where a
      Prospective Entrant which has obtained Slots released by Connect Airways
      decides:
        (a)    not to commence services on the Relevant City Pair(s);
        (b)    to cease operating on a Relevant City Pair(s) or to operate the
               Frequencies on a Relevant City Pair(s) at a utilisation rate lower than
               proposed in the bid, submitted in accordance with Clause 1.5.7, unless
               such a decision is consistent with the “use it or lose it” principle in
               Article 10(2) of the EU Slot Regulation (or any suspension thereof);
        (c)    to transfer, assign, sell, swap, sublease or charge any Slot released by
               Connect Airways on the basis of the Slot Release Procedure, except for
               (i) changes to the Slot which are within the Time Window and which
               have been agreed with the slot coordinator, and (ii) any Slots which are
               outside the Identified Time Period which can be swapped provided this
               has been agreed with the slot coordinator;
        (d)    not to use the Slots on a Relevant City Pair(s), as proposed in the bid,
               submitted in accordance with Clause 1.5.7;
        (e)    not to use the Slots properly: this situation shall be deemed to exist where
               the Prospective Entrant (i) loses the series of Slots at a Relevant Airport
               as a consequence of the principle of “use it or lose it” in Article 10(2) of
               the EU Slot Regulation; or (ii) misuses the Slots at a Relevant Airport as
               described and interpreted in Article 14(4) of the EU Slot Regulation.
1.4.3 If Connect Airways or the Prospective Entrant which has obtained Slots under the
      Slot Release Procedure becomes aware of or reasonably foresees any Misuse by
      the Prospective Entrant during the Utilisation Period, it shall immediately inform
      the other and the Monitoring Trustee. The Prospective Entrant shall have (15)
      fifteen calendar days after such notice to cure the actual or potential Misuse.
        (a)    If the Misuse is not cured, Connect Airways shall have the right to
               terminate the Slot Release Agreement and the Slots shall be returned to
               Connect Airways. In cases (a) and (b) of Clause 1.4.2, Connect Airways
               shall then use its reasonable best efforts to redeploy the Slots in order to
               safeguard the historic precedence. If despite its reasonable best efforts,
               Connect Airways is not able to retain the historic precedence for these
               Slots, or in case of a Misuse as defined in cases (c), (d) or (e) of Clause
               1.4.2, the Prospective Entrant shall provide reasonable compensation to
               Connect Airways as provided for in the Slot Release Agreement.
        (b)    If the Misuse is cured within the (15) fifteen calendar day period,
               Connect Airways shall not have the right to terminate the Slot Release
               Agreement and the Prospective Entrant can continue to use the Remedy
               Slots.
        (c)    For the avoidance of doubt, the occurrence of Misuse during the
               Utilisation Period resets the count of the Utilisation Period to zero in
               cases (a) and (b) of Clause 1.4.2.
1.4.4 For the avoidance of doubt, the Slot Release Agreement may:
                                                4
 ---pagebreak---         (a)    contain prohibitions on the Prospective Entrant transferring its rights to
               the Slots (except for swaps pursuant to Clause 1.4.2(c)(ii)) to a third
               party, making the Slots available in any way to a third party for the use of
               that third party, or releasing, surrendering, giving up or otherwise
               disposing of any rights to the Slots; and/or
        (b)    provide for reasonable compensation to Connect Airways in case of
               Misuse during the Utilisation Period; and/or
               If for any reason (including, but without limitation, the insolvency of the
               Prospective Entrant) Connect Airways is unable to receive reasonable
               compensation for the Slots being either lost or not returned within
               sufficient time for Connect Airways to preserve its grandfathering rights,
               such Slots shall be counted against the maximum number of Slots to be
               released in accordance with the Commitments.
        (c)    may contain a re-application procedure in case a change of control of the
               Prospective Entrant occurs.
1.4.5 In view of the Commission’s Communication of 30 April 2008 on the EU Slot
      Regulation, which stated that: “The text of the current [EU Slot] Regulation is
      silent on the question of exchanges with monetary and other consideration” and
      that the Commission would therefore “not intend to pursue infringement
      proceedings against Member States where such exchanges take place in a
      transparent manner, respecting all the other administrative requirements for the
      allocation of slots set out in the applicable legislation”, and to the extent that the
      Slots released under the Slot Release Procedure are at an airport where secondary
      trading takes place, the Slot Release Agreement with the Prospective Entrant may
      provide for monetary and/or other consideration, so long as such Slot Release
      Agreement provisions are clearly disclosed to the Monitoring Trustee and comply
      with these Commitments and all other administrative requirements set out in the
      applicable legislation.
1.4.6 The Slot Release Agreement shall provide that the Prospective Entrant will be
      able to terminate the agreement at the end of each IATA Season without penalty,
      provided the Prospective Entrant notifies the termination of the agreement to
      Connect Airways in writing no later than two (2) weeks after the IATA
      Scheduling Conference.
  1.5   SELECTION PROCEDURE,        ROLE OF   MONITORING TRUSTEE        AND APPROVAL BY
        COMMISSION
1.5.1 At least seven (7) weeks before the Slot Request Submission Deadline, any airline
      wishing to obtain Slots from Connect Airways pursuant to the Slot Release
      Procedure shall:
        (a)    inform the Monitoring Trustee of its proposed Slot request (indicating the
               arrival and departure times);
        (b)    submit to the Monitoring Trustee the list of its leased out or exchanged
               Slots at the Relevant Airport for which it is applying for Slots, along with
               the date at which the leases or exchanges were concluded. The
               Monitoring Trustee or the Commission may also request additional
                                                5
 ---pagebreak---                information from the Applicant to enable assessment of its eligibility
               pursuant to Clause 1.2.5 and Clause 1.5.4; and
        (c)    indicate to the Monitoring Trustee if it has any confidentiality concerns
               which would justify keeping its identity anonymous vis-à-vis Connect
               Airways, in which case it must provide a reasoned explanation of those
               concerns together with its request for anonymity. In the event that such a
               request is made, the Monitoring Trustee shall:
               (i)     immediately inform the Commission of that request,
               (ii)    within one (1) week of that request advise the Commission
                       whether or not that request should be granted, and
               (iii)   within three (3) weeks of the request, in consultation with the
                       Commission, determine whether or not the Applicant’s Slot
                       request may be treated anonymously (and, if so, to what extent,
                       subject to what conditions and for what period).
1.5.2 At least six (6) weeks before the Slot Request Submission Deadline, the
      Monitoring Trustee shall forward the Slot request to Connect Airways and the
      Commission. Until the beginning of the IATA Scheduling Conference, the
      Monitoring Trustee shall not disclose to Connect Airways the Relevant City Pair
      for which the Slot is requested. Once informed of the Slot request, Connect
      Airways may discuss with the Applicant the timing of the Slots to be released and
      the types of compensation which could be offered. Connect Airways shall copy
      the Monitoring Trustee on all correspondence between it and the Applicant which
      relates to the Slot Release Procedure. Connect Airways shall not share any
      information about such discussions with other Applicants and may require the
      Applicant not to share any such information with other Applicants. At least six (6)
      weeks before the Slot Request Submission Deadline, the Monitoring Trustee shall
      also inform the manager of the Relevant Airport for which the slot request is
      made and the slot coordinator of the Slot request and, subject to the Applicant’s
      consent, disclose to them any relevant information regarding the Slot request. The
      Monitoring Trustee shall ask the manager of the Relevant Airport for which the
      slot request is made and the slot coordinator to inform it of any likely
      impediments to the satisfaction of the request, in particular due to the availability
      of terminal facilities and infrastructure.
1.5.3 If the Applicant has made a request for anonymity in accordance with Clause
      1.5.1(c), the Monitoring Trustee shall not disclose to Connect Airways the
      identity of the Applicant for so long as that request is pending or has been
      granted. In such a case, the procedure set down in this Clause 1.5.3 shall apply,
      save that, until the beginning of the IATA Scheduling Conference, any
      communication or correspondence between Connect Airways and the Applicant
      shall go through the Monitoring Trustee, who shall ensure the protection of the
      anonymity of the Applicant.
1.5.4 After being informed of the Slot request in accordance with Clause 1.5.2, the
      Commission (advised by the Monitoring Trustee) shall assess whether the
      Applicant meets the following criteria:
        (a)    the Applicant is independent of and unconnected to Connect Airways and
               its Controlling Entity(ies); and
                                                 6
 ---pagebreak---         (b)    the Applicant has exhausted its own Slot portfolio at the Relevant Airport
               for which the slot request is made.
       If the Commission decides that the Applicant does not fulfil the above criteria,
       the Commission shall inform the Applicant and Connect Airways of that
       decision at least two (2) weeks before the Slot Request Submission Deadline.
1.5.5 At least one (1) week before the Slot Request Submission Deadline, Connect
      Airways shall indicate to the Monitoring Trustee and each Applicant which Slots
      at each Relevant Airport they would release, if necessary, during the Time
      Window.
1.5.6 By the Slot Request Submission Deadline, each Applicant shall send its request
      for Slots (at the same time(s) as those requested through the Slot Release
      Procedure) to the slot coordinator in accordance with the General Slot Allocation
      Procedure.
1.5.7 By the Slot Request Submission Deadline, each Applicant shall also submit its
      formal bid for the Slots to the Monitoring Trustee. The formal bid shall include at
      least:
        (a)    the Key Terms (i.e. timing of the Slots, number of frequencies to be
               operated on a year-round service or on a seasonal basis, number of IATA
               Seasons to be operated); and
        (b)    a detailed business plan. This plan shall contain a general presentation of
               the company including its history, its legal status, the list and a
               description of its shareholders and the two most recent yearly audited
               financial reports. The detailed business plan shall provide information on
               the plans that the company has in terms of access to capital, development
               of its network, fleet etc. and detailed information on its plans for the
               Relevant City Pair(s) on which it wants to operate. The latter should
               specify in detail planned operations on the Relevant City Pair(s) over a
               period of at least two (2) consecutive lATA Seasons (size of aircrafts, seat
               configuration, total capacity and capacity by each class, number of
               frequencies operated, pricing structure, service offerings, planned time-
               schedule of the flights) and expected financial results (expected traffic,
               revenues, profits, average fare by cabin class). The Monitoring Trustee
               and/or the Commission may also request any additional information and
               documents from the Applicant required for their assessment, including a
               copy of all cooperation agreements the Applicant may have with other
               airlines. Business secrets and confidential information will be kept
               confidential by the Commission and the Monitoring Trustee and will not
               become accessible Connect Airways, other undertakings or the public; and
        (c)    a corporate statement (e.g. a Board approval) confirming that the
               Prospective Entrant has the intention and is able to start or offer a
               Competitive Air Service on one or more of the Relevant City Pairs.
1.5.8 In parallel, if an Applicant is offering compensation for the Slot(s) it has
      requested pursuant to these Commitments, it will send Connect Airways, copying
      the Monitoring Trustee, a detailed description of the compensation which it is
      willing to offer in exchange for the release of the Slots for which it has submitted
                                                7
 ---pagebreak---        bids. Within three (3) weeks, Connect Airways shall provide the Monitoring
       Trustee with a ranking of these offers.
1.5.9  Having received the formal bid(s), the Commission (advised by the Monitoring
       Trustee) shall:
         (a)     assess whether each Applicant, is a viable existing or potential
                 competitor, with the ability, resources and commitment to operate
                 services on the Relevant City Pair(s) in the long term as a viable and
                 active competitive force;
         (b)     evaluate the formal bids of each Applicant, that meets (a) above, and
                 rank these Applicants in order of preference.
1.5.10 In conducting its evaluation in accordance with Clause 1.5.9, the Commission
       shall give preference to the Applicant (or combination of Applicants) which will
       provide the most effective overall competitive constraint on each of the Relevant
       City Pairs, without regard to the country in which the Applicant(s) is licensed or
       has its principal place of business. For these purposes, the Commission shall take
       into account the strength of the Applicant’s business plan and in particular give
       preference to Applicants meeting one or more of the following criteria:
         (a)     the largest capacity (as measured in seats offered on services for two (2)
                 relevant consecutive IATA Seasons (e.g. Summer/Winter or a continuous
                 series of two (2) Summer or Winter IATA Seasons for a seasonal
                 Competitive Air Service)) from/to the Relevant Airport on Relevant City
                 Pairs;
         (b)     a pricing structure and service offerings that would provide the most
                 effective competitive constraint on the Relevant City Pair(s); and
         (c)     plans to offer feed to third party carriers operating services from the
                 Relevant Airport.
1.5.11 The Commission (advised by the Monitoring Trustee) shall also ensure that the up
       to (5) five arrival and departure Slots at AMS and the up to (3) three arrival and
       departure Slots at CDG to be made available under Clause 1.1.1 are spread evenly
       throughout the day i.e. with respect to AMS no more than two (2)
       arrival/departure Slots in the morning (the period up until 12:00 local time), no
       more than two (2) arrival/departure Slots in the afternoon (the period after 12:00
       and up until 16:00 local time), and no more than two (2) arrival/departure Slots in
       the evening (the period after 16:00 local time), and with respect to CDG no more
       than one (1) arrival/departure Slot in the morning (the period up until 12:00 local
       time), no more than one (1) arrival/departure Slot in the afternoon (the period
       after 12:00 and up until 16:00 local time), and no more than one (1)
       arrival/departure Slot in the evening (the period after 16:00 local time).
1.5.12 In advance of the beginning of the lATA Scheduling Conference, the Monitoring
       Trustee shall inform each Applicant (if the latter did not receive slots within the
       Time Window as indicated through the SAL) and the slot coordinator:
         (a)     whether the Applicant qualifies for the Slots Commitment; and
         (b)     the Applicant’s ranking.
                                                 8
 ---pagebreak--- 1.5.13 In any case, the Applicant shall attend the lATA Scheduling Conference and try to
       improve its Slots. Following confirmation of the Commission’s approval pursuant
       to Clause 1.5.9, the Applicants and Connect Airways shall be deemed to have
       agreed the Key Terms of the Slot Release Agreement, as well as any
       compensation which was offered by the Applicant to Connect Airways under
       Clause 1.5.8. The Key Terms may only be changed after such date by mutual
       agreement between the Applicant and Connect Airways if the Monitoring Trustee
       confirms that the changes are not material or if the Commission (advised by the
       Monitoring Trustee) approves the changes.
1.5.14 Within two (2) weeks of the end of the lATA Scheduling Conference, each
       Applicant shall inform the Monitoring Trustee and Connect Airways whether it
       will commit to operate the Slots offered eventually by Connect Airways in case it
       has not obtained them through the General Slot Allocation Procedure.
1.5.15 Within three (3) weeks of the end of the lATA Scheduling Conference, the
       Monitoring Trustee shall confirm to the highest ranked Applicant(s) that has
       provided the confirmation in accordance with Clause 1.5.12 that it is entitled to
       receive Slots from Connect Airways. Connect Airways shall offer the dedicated
       Slots for release to such Applicant. The Slot Release Agreement shall be subject
       to review by the Monitoring Trustee and approval of the Commission. Unless
       both Connect Airways and the relevant Applicant agree to an extension and
       subject to Clause 1.2.6, the Slot Release Agreement shall be signed and the Slot
       release completed within six (6) weeks after the lATA Scheduling Conference,
       and the slot coordinator shall be informed of the Slot exchange in order to obtain
       the required confirmation.
  2.   FARE COMBINABILITY
2.1    At the request of an Eligible Air Services Provider which, after the Effective Date
       and before the Sunset Date, has started to operate new or increased Competitive
       Air Service on a Relevant City Pair (whether or not such service uses Slots
       released to that carrier pursuant to these Commitments), Connect Airways shall
       enter into an agreement that arranges for fare combinability on that Relevant City
       Pair. This agreement will provide for the possibility for the Eligible Air Services
       Provider, or travel agents, to offer a return trip on the Relevant City Pair
       comprising a non-stop service provided one way by Connect Airways and a non-
       stop service provided the other way by the Eligible Air Services Provider. At the
       request of the Eligible Air Services Provider, the agreement shall apply in relation
       to all of the Eligible Air Services Provider’s services on the Relevant City Pair.
       For the avoidance of doubt, Connect Airways shall not be obliged to enter into an
       agreement with an Eligible Air Services Provider that arranges for fare
       combinability on that Relevant City Pair, if Connect Airways/Flybe has ceased
       operating services on that Relevant City Pair and any such agreement shall
       automatically lapse in the event that Connect Airways/Flybe ceases to operate all
       services on that Relevant City Pair.
2.2    Any such agreement shall be subject to the following restrictions:
        (a)     it shall provide for fare combinability on the basis of Connect
                Airways/Flybe’s Published Fares. Where this provides for a published
                round-trip fare, the fare can be comprised of half the round-trip fare of
                Connect Airways/Flybe and half the round-trip fare of the Eligible Air
                                                9
 ---pagebreak---              Services Provider;
      (b)    it shall provide for the appropriate division or recovery of any
             applicable Q/YQ/YR Surcharges;
      (c)    it shall be limited to true origin and destination traffic on the Relevant
             City Pair operated by the Eligible Air Services Provider; and
      (d)    it shall be subject to the MITA rules.
2.3 Subject to Clause 2.7, any term included in the agreement (for example interline
    service charge, number of booking classes included) can never be less favourable
    than the corresponding term in any fare combinability agreement which Connect
    Airways/Flybe and the Eligible Air Services Provider have in place as at the
    Effective Date.
2.4 Subject to seat availability in the relevant fare category, Connect Airways shall
    carry a passenger holding a coupon issued by an Eligible Air Services Provider
    for travel on a Relevant City Pair. Connect Airways may require that the Eligible
    Air Services Provider or the passenger, where appropriate, pay the (positive)
    difference between the fare charged by Connect Airways and the fare charged by
    the Eligible Air Services Provider if Connect Airways was not the original
    ticketed carrier on the Relevant City Pair. In cases where the Eligible Air Services
    Provider’s fare is lower than the value of the coupon issued by it, Connect
    Airways may endorse its coupon only up to the value of the fare charged by the
    Eligible Air Services Provider. An Eligible Air Services Provider shall enjoy the
    same protection in cases where Connect Airways’ fare is lower than the value of
    the coupon issued by it.
2.5 A fare combinability agreement entered into pursuant to this Clause 2 for a
    particular Relevant City Pair shall have an effective duration of up to five (5)
    years at the choice of the Eligible Air Services Provider, or if it elects to have a
    shorter initial duration than that to which it is entitled pursuant to this Clause 2.5,
    the Eligible Air Services Provider shall have a right to renew the agreement on an
    evergreen basis for further periods of one (1) year (i.e. rolled over on the same
    terms) as long as these Commitments are in force, provided it exercises its right
    of extension by informing Connect Airways/Flybe in writing no later than thirty
    (30) days before the expiry of the agreement. The Eligible Air Services Provider
    also has a right to terminate the agreement, at any time during the initial term or
    the extensions, upon thirty (30) days written notice.
2.6 All agreements entered into pursuant to this Clause 2 for a particular Relevant
    City Pair shall lapse automatically in the event that the Eligible Air Services
    Provider ceases to operate the new or increased service on that Relevant City Pair.
2.7 The conclusion of the fare combinability agreement shall be subject to the
    approval of the Commission, as advised by the Monitoring Trustee, in particular
    as to whether its terms are reasonable.
                                              10
 ---pagebreak---   3.   FREQUENT FLYER PROGRAMMES
3.1   Subject to Clause 7, should Connect Airways become part of a FFP, at the request
      of a New Air Services Provider that does not have a comparable FFP of its own,
      Connect Airways shall request for the New Air Services Provider to be hosted in
      the same FFP as Connect Airways for the Relevant City Pair(s) on which the New
      Air Services Provider has commenced or increased service.
3.2   Where the FFP provider agrees to host the New Air Services Provider, Connect
      Airways shall use its reasonable endeavors for the FFP agreement with the New
      Air Services Provider to be on terms such that the New Air Services Provider
      shall have equal treatment vis-à-vis the accrual and redemption of Miles on the
      particular Relevant City Pair as compared with Connect Airways for as long as
      the New Air Services Provider operates a non-stop service on that Relevant City
      Pair.
3.3   The conclusion of the FFP agreement with the New Air Services Provider shall be
      subject to the approval of the Commission, as advised by the Monitoring Trustee,
      in particular as to whether its terms are reasonable.
  4.  MONITORING TRUSTEE
  4.1  APPOINTMENT OF MONITORING TRUSTEE
4.1.1 A Monitoring Trustee shall be appointed by Connect Airways on the terms and in
      accordance with the procedure described below and, once approved by the
      Commission, shall perform the functions of monitoring Connect Airways’
      fulfilment of the Commitments and further obligations that may be contained in
      the Commitment Decision.
4.1.2 The Monitoring Trustee shall be independent of Connect Airways, its Controlling
      Entities, and its Affiliated Undertakings and must be familiar with the airline
      industry and the slot allocation and exchange procedures, and have the experience
      and competence necessary for this appointment (e.g. investment bank, consultant
      specialised in the air transport sector, or auditor). In addition, it shall not be
      exposed to any conflict of interest and shall not have had any direct or indirect
      work, consulting or other relationship with the shareholders of Connect Airways
      in the last three (3) years and shall not have a similar relationship with Connect
      Airways for three (3) years after completing its mandate. For the avoidance of
      doubt, the performance of the role of monitoring trustee in other Commission
      proceedings, including the performance of the role of monitoring trustee for
      Connect Airways, shall not be an obstacle to the appointment as Monitoring
      Trustee.
4.1.3 Connect Airways shall ensure that the Monitoring Trustee’s remuneration shall be
      sufficient to guarantee the effective and independent compliance of its mandate.
      Connect Airways will only be required to remunerate the Monitoring Trustee for
      costs and expenses reasonably incurred in the performance of its mandate.
4.1.4 Connect Airways shall use reasonable endeavours to, within two (2) weeks of the
      Effective Date, submit to the Commission for approval a list of one or more
                                                11
 ---pagebreak---       persons whom Connect Airways considers adequate to fulfil the duties of the
      Monitoring Trustee. The proposal shall contain sufficient information for the
      Commission to verify that the proposed Monitoring Trustee fulfils the
      requirements set out above and shall include:
        (a)     the full terms of the proposed mandate, which shall include all provisions
                necessary to enable the Monitoring Trustee to fulfil its duties under these
                Commitments; and
        (b)     the outline of a work plan which describes how the Monitoring Trustee
                intends to carry out the tasks assigned to it.
4.1.5 The Commission shall have the discretion to approve or reject the proposed
      Monitoring Trustee and to approve the proposed mandate subject to any
      modifications it deems necessary for the Monitoring Trustee to fulfil its
      obligations. If only one name is approved, Connect Airways shall appoint the
      individual or institution concerned as Monitoring Trustee. If more than one name
      is approved by the Commission, Connect Airways shall be free to choose the
      Trustee to be appointed from among the names approved. The Monitoring Trustee
      should be appointed within one (1) week of the Commission’s approval, in
      accordance with the mandate approved by the Commission.
4.1.6 If all the proposed Monitoring Trustees are rejected by the Commission, Connect
      Airways shall submit the names of at least two more individuals or institutions
      within one (1) week of being formally informed of the rejection by the
      Commission.
4.1.7 If all further proposed Monitoring Trustees are rejected by the Commission, the
      Commission shall nominate at least two candidates for the position of Monitoring
      Trustee and Connect Airways shall appoint one of these candidates in accordance
      with the mandate approved by the Commission.
  4.2   MONITORING TRUSTEE’S MANDATE
4.2.1 The Monitoring Trustee’s mandate shall include, in particular, the following
      obligations and responsibilities:
        (a)     to monitor the satisfactory discharge by Connect Airways of the
                obligations entered into in these Commitments in so far as they fall
                within the scope of these Commitments;
        (b)     to propose to Connect Airways such measures as the Monitoring Trustee
                considers necessary to ensure Connect Airways’ compliance with the
                conditions and obligations attached to the Decision;
        (c)     to advise and make a written recommendation to the Commission as to
                the suitability of any Slot Release Agreement or Prospective Entrant
                submitted for approval to the Commission under Clause 1;
        (d)     to provide written reports to the Commission on Connect Airways’
                compliance with these Commitments and the progress of the discharge of
                its mandate, identifying any respects in which Connect Airways has
                failed to comply with these Commitments or the Monitoring Trustee has
                been unable to discharge its mandate;
                                                 12
 ---pagebreak---         (e)    to mediate in any disagreements relating to any Slot Release Agreement,
               if mediation is agreed to by the other party or parties to the agreement in
               question, and submit a report upon the outcome of the mediation to the
               Commission; and
        (f)    at any time, to provide to the Commission, at its request, a written or oral
               report on matters falling within the scope of these Commitments.
4.2.2 For the avoidance of doubt, subject to Clause 4.2.1, there is no requirement for
      the Monitoring Trustee to be involved in the commercial negotiations between
      Connect Airways and a third party carrier entering into any of the agreements
      under the Commitments. Any such agreements however remain subject to the
      Commission’s approval.
4.2.3 Any request made by a third party carrier for the Monitoring Trustee to verify
      Connect Airways’ compliance with these Commitments must be reasonable. In
      particular, the Monitoring Trustee must refuse to conduct such a verification
      where the third party carrier fails to produce any evidence of a suspected breach
      of the Commitments and/or appears to be making a vexatious request.
4.2.4 Connect Airways shall receive simultaneously a non-confidential version of any
      recommendation made by the Monitoring Trustee to the Commission (as provided
      for in Clause 4.2.1(c)).
4.2.5 The reports provided for in Clauses 4.2.1(c) to 4.2.1(f) shall be prepared in
      English. The reports provided for in Clause 4.2.1(d) shall be sent by the
      Monitoring Trustee to the Commission within ten (10) working days from the end
      of every IATA Season following the Monitoring Trustee’s appointment or at such
      other time(s) as the Commission may specify and shall cover developments in the
      immediately preceding lATA Season. Connect Airways shall receive
      simultaneously a non-confidential copy of each Monitoring Trustee report.
4.2.6 Connect Airways shall provide the Monitoring Trustee with such assistance and
      information, including copies of all relevant documents, as the Monitoring
      Trustee may reasonably require in carrying out its mandate. Connect Airways
      shall pay reasonable remuneration for the services of the Monitoring Trustee as
      agreed in the mandate.
4.2.7 The Monitoring Trustee shall have access to Connect Airways’ books, records,
      documents, management or other personnel facilities, sites and technical
      information necessary to fulfil its duties under these Commitments.
4.2.8 At Connect Airways’ expense, the Monitoring Trustee may appoint advisors,
      subject to the Commission’s prior approval, if the Monitoring Trustee reasonably
      considers the appointment of such advisors necessary for the performance of its
      duties under the mandate, provided that any fees incurred are reasonable and
      Connect Airways has been consulted on the appointment and has approved the
      amount of the fees.
  4.3   TERMINATION OF MANDATE
4.3.1 If the Monitoring Trustee ceases to perform its functions under the Commitments
      or for any other good cause, including but not limited to the exposure of the
      Monitoring Trustee to a conflict of interest:
                                                13
 ---pagebreak---         (a)     the Commission may, after hearing the Monitoring Trustee, require
                Connect Airways to replace the Monitoring Trustee; or
        (b)     Connect Airways may replace the Monitoring Trustee.
4.3.2 If the Monitoring Trustee is removed, it may be required to continue its functions
      until a new Monitoring Trustee is in place to whom the Monitoring Trustee has
      effected a full hand-over of all relevant information. The new Monitoring Trustee
      shall be appointed in accordance with the procedure referred to in Clause 4.1.1.
4.3.3 Aside from being removed in accordance with Clause 4.3.1 the Monitoring
      Trustee shall cease to act as Monitoring Trustee only after the Commission has
      discharged it from its duties. However, the Commission may at any time require
      the reappointment of the Monitoring Trustee if it subsequently appears that the
      Commitments have not been fully and properly implemented.
4.3.4 The Monitoring Trustee will be discharged from its duties if the entire
      Commitments expire in accordance with Clause 7.1.4.
  5.  FAST-TRACK DISPUTE RESOLUTION PROCEDURE
5.1.1 The agreements concluded to implement the Commitments in accordance with
      Clause 1 shall provide for the Fast-Track Dispute Resolution procedure (the
      “Fast- Track Dispute Resolution Procedure”) described in this Clause 5 in the
      event that a Prospective Entrant has reason to believe that Connect Airways is
      failing to comply with the requirements of the Commitments vis-à-vis that party,
      this Fast-Track Dispute Resolution Procedure will apply.
5.1.2 Any Prospective Entrant which wishes to avail itself of the Fast-Track Dispute
      Resolution Procedure (the “Requesting Party”) shall send a written request to
      Connect Airways (with a copy to the Monitoring Trustee) setting out in detail the
      reasons leading that party to believe that Connect Airways is failing to comply
      with the requirements of the Commitments (the “Request”). The Requesting
      Party and Connect Airways will use their best efforts to resolve all differences of
      opinion and settle all disputes that may arise through cooperation and consultation
      within a reasonable period of time not to exceed fifteen (15) working days after
      receipt of the Request.
5.1.3 The Monitoring Trustee shall present its own proposal (the “Trustee Proposal”)
      for resolving the dispute within eight (8) working days, specifying in writing the
      action, if any, to be taken by Connect Airways in order to ensure compliance with
      the Commitments vis-à-vis the Requesting Party, and be prepared, if requested, to
      facilitate the settlement of the dispute.
5.1.4 Should the Requesting Party and Connect Airways fail to resolve their differences
      of opinion through cooperation and consultation as provided for in Clause 5.1.2
      the Requesting Party may serve a notice (the “Notice”), in the sense of a request
      for arbitration, to the International Chamber of Commerce (the “ICC”) (the
      “Arbitral Institution”), with a copy of such a Notice and request for arbitration
      to Connect Airways.
                                                14
 ---pagebreak--- 5.1.5 The Notice shall set out in detail the dispute, difference or claim (the “Dispute”)
      and shall contain, inter alia, all issues of both fact and law, including any
      suggestions as to the procedure, and all documents relied upon shall be attached,
      e.g. documents, agreements, expert reports, and witness statements. The Notice
      shall also contain a detailed description of the action to be undertaken by Connect
      Airways (including, if appropriate, a draft contract comprising all relevant terms
      and conditions) and the Trustee Proposal, including a comment as to its
      appropriateness.
5.1.6 Connect Airways shall, within ten (10) working days from receipt of the Notice,
      use best endeavours to submit its answer (the “Answer”), which shall provide
      detailed reasons for its conduct and set out, inter alia, all issues of both fact and
      law, including any suggestions as to the procedure, and all documents relied
      upon, e.g. documents, agreements, expert reports, and witness statements. The
      Answer shall, if appropriate, contain a detailed description of the action which
      Connect Airways proposes to undertake vis-à-vis the Requesting Party (including,
      if appropriate, a draft contract comprising all relevant terms and conditions) and
      the Trustee Proposal (if not already submitted), including a comment as to its
      appropriateness.
  5.2   APPOINTMENT OF THE ARBITRATORS
5.2.1 The Arbitral Tribunal shall consist of three persons. The Requesting Party shall
      nominate its arbitrator in the Notice; Connect Airways shall nominate its
      arbitrator in the Answer.
5.2.2 The arbitrators nominated by the Requesting Party and Connect Airways shall,
      within five (5) working days of the nomination of the latter, nominate the
      chairman, making such nomination known to the parties and the Arbitral
      Institution which shall forthwith confirm the appointment of all three arbitrators.
      Should the Requesting Party wish to have the Dispute decided by a sole arbitrator
      it shall indicate this in the Notice. In this case, the Requesting Party and Connect
      Airways shall agree on the nomination of a sole arbitrator within five (5) working
      days from the communication of the Answer, communicating this to the Arbitral
      Institution. Should Connect Airways fail to nominate an arbitrator, or if the two
      arbitrators fail to agree on the chairman, or should the parties to the Arbitration
      fail to agree on a sole arbitrator, the default appointment(s) shall be made by the
      Arbitral Institution. The three-person arbitral tribunal or, as the case may be, the
      sole arbitrator, are herein referred to as the “Arbitral Tribunal”.
  5.3   ARBITRATION PROCEDURE
5.3.1 The Dispute shall be finally resolved by arbitration under the ICC rules, with such
      modifications or adaptations as foreseen herein or necessary under the
      circumstances (the “Rules”). Subject to Clause 5.3.2, the seat, or legal place, of
      the arbitration shall be London, England in the English language.
5.3.2 In the event that European Union law ceases to apply to the United Kingdom
      pursuant to Article 50(3) of the Treaty on European Union, the seat, or legal
      place, of the arbitration shall be Paris, France in the English language.
5.3.3 The procedure shall be a fast-track procedure. For this purpose, the Arbitral
      Tribunal shall shorten all applicable procedural time-limits under the Rules as far
                                                 15
 ---pagebreak---       as admissible and appropriate in the circumstances. The parties to the Arbitration
      shall consent to the use of e-mail for the exchange of documents.
5.3.4 The Arbitral Tribunal shall, as soon as practical after the confirmation of the
      Arbitral Tribunal, hold an organisational conference to discuss any procedural
      issues with the parties to the Arbitration. Terms of reference shall be drawn up
      and signed by the parties to the Arbitration and the Arbitration Tribunal at the
      organisational meeting or thereafter and a procedural time-table shall be
      established by the Arbitral Tribunal. An oral hearing shall, as a rule, be
      established within two (2) months of the confirmation of the Arbitral Tribunal.
5.3.5 In order to enable the Arbitral Tribunal to reach a decision, it shall be entitled to
      request any relevant information from the parties to the Arbitration, to appoint
      experts and to examine them at the hearing, and to establish the facts by all
      appropriate means. The Arbitral Tribunal is also entitled to ask for assistance by
      the Monitoring Trustee in all stages of the procedure if the parties to the
      Arbitration agree.
5.3.6 The Arbitral Tribunal shall not disclose confidential information and apply the
      standards attributable to confidential information under the Merger Regulation.
      The Arbitral Tribunal may take the measures necessary for protecting confidential
      information in particular by restricting access to confidential information to the
      Arbitral Tribunal, the Monitoring Trustee, the Commission and outside counsel
      and experts of the opposing party.
5.3.7 The burden of proof in any dispute under these Rules shall be borne as follows:
      (i) the Requesting Party must produce evidence of a prima facie case and (ii) if
      the Requesting Party produces evidence of a prima facie case, the Arbitral
      Tribunal must find in favour of the Requesting Party unless Connect Airways can
      produce evidence to the contrary.
  5.4   INVOLVEMENT OF THE COMMISSION
5.4.1 The Commission shall be allowed and enabled to participate in all stages of the
      procedure by:
        (a)    receiving all written submissions (including documents and reports, etc.)
               made by the parties to the Arbitration;
        (b)    receiving all orders, interim and final awards and other documents
               exchanged by the Arbitral Tribunal with the parties to the Arbitration
               (including Terms of reference and procedural time-table);
        (c)    giving the Commission the opportunity to file amicus curiae briefs; and
        (d)    being present at the hearing(s) and being allowed to ask questions to
               parties, witnesses and experts.
5.4.2 The Arbitral Tribunal shall forward, or shall order the parties to the Arbitration to
      forward, the documents mentioned to the Commission without delay via the use
      of e-mail. In the event of disagreement between the parties to the Arbitration
      regarding the interpretation of the Commitments, the Arbitral Tribunal may seek
      the Commission’s interpretation of the Commitments before finding in favour of
      any party to the Arbitration and shall be bound by the interpretation.
                                               16
 ---pagebreak---   5.5  DECISIONS OF THE ARBITRAL TRIBUNAL
5.5.1 The Arbitral Tribunal shall decide the dispute on the basis of the Commitments
      and the Decision. Issues not covered by the Commitments and the Decision shall
      be decided (in the order as stated) by reference to the Merger Regulation, EU law
      and general principles of law common to the legal orders of the Member States
      without a requirement to apply a particular national system. The Arbitral Tribunal
      shall take all decisions by majority vote.
5.5.2 Upon request of the Requesting Party, the Arbitral Tribunal may make a
      preliminary ruling on the Dispute. The preliminary ruling shall be rendered within
      one (1) month of the confirmation of the Arbitral Tribunal. The preliminary ruling
      shall be applicable immediately and, as a rule, remain in force until the final
      decision is issued.
5.5.3 The final award shall, as a rule, be rendered by the arbitrators within six (6)
      months after the confirmation of the Arbitral Tribunal. The time-frame shall, in
      any case, be extended by the time the Commission takes to submit an
      interpretation of the Commitment if asked by the Arbitral Tribunal.
5.5.4 The Arbitral Tribunal shall, in their preliminary ruling as well as the final award,
      specify the action, if any, to be taken by Connect Airways in order to comply with
      the Commitments vis-à-vis the Requesting Party (e.g. specify a contract including
      all relevant terms and conditions). The final award shall be final and binding on
      the parties to the Arbitration and shall resolve the Dispute and determine any and
      all claims, motions or requests submitted to the Arbitral Tribunal.
5.5.5 The arbitral award shall also determine the reimbursement of the costs of the
      successful party and the allocation of the arbitration costs. In case of granting a
      preliminary ruling or if otherwise appropriate, the Arbitral Tribunal shall specify
      that terms and conditions determined in the final award apply retroactively.
5.5.6 The parties to the Arbitration shall prepare a non-confidential version of the final
      award, without business secrets. The Commission may publish the non-
      confidential version of the award.
5.5.7 Nothing in the arbitration procedure shall affect the powers of the Commission to
      take decisions in relation to the Commitments in accordance with its powers
      under the Merger Regulation and the TFEU.
6.    REVIEW CLAUSE
6.1.1 The Commission may, in response to a request by Connect Airways:
        (a)    grant Connect Airways an extension of the deadlines foreseen in the
               Commitments; or
        (b)    waive, modify or substitute any one or more undertakings in these
               Commitments, justified by exceptional circumstances.
6.1.2 At the request of Connect Airways, any or all of the Commitments submitted
      herein may be reviewed, waived or modified by the Commission based on long-
      term market evolution. In particular:
                                                17
 ---pagebreak---         (a)     the Commission will consider waiving any or all of the obligations in the
                Commitments to the extent that it finds that Commitments are no longer
                required to maintain effective competition in any relevant market
                because, for instance:
                (i)     there has been a material change to the ownership structure of
                        Connect Airways; or
                (ii)    general market conditions have changed to a material extent in the
                        context of the Commission’s assessment. Such changed market
                        conditions may include the situation where the total number of
                        daily Competitive Air Services or the capacity operated by third
                        party airlines, without Slots from the Commitments, on the
                        Relevant City Pairs significantly increases.
        (b)     the Commission may consider waiving any or all of the obligations in the
                Commitments to the extent that it finds that Commitments are no longer
                required to maintain effective competition in any relevant market
                because, for instance there has been a Material Increase in Capacity at
                either of the Relevant Airports or any airport in their Airport Catchment
                Area.
7.    SUNSET CLAUSE
7.1.1 The obligation on Connect Airways to procure that Slots are made available at
      Relevant Airports pursuant to Clause 1.1.1 shall apply in respect of 20 full
      consecutive IATA Seasons starting from and including Summer Season 2020. A
      Prospective Entrant can thus apply for Slots through the Slot Release Procedure to
      commence a Competitive Air Service in IATA Summer Season 2020 as the
      earliest season and IATA Winter Season 2029/2030 as the last season.
7.1.2 After the Sunset Date:
        (a)     a Prospective Entrant will no longer be able to commence a Competitive
                Air Service pursuant to Clause 1;
        (b)     the obligation for Connect Airways to enter into a fare combinability
                agreement with an Eligible Air Services Provider pursuant to Clause 2.1
                shall cease to have effect; and
        (c)     Clause 3 shall cease to have effect.
7.1.3 For the avoidance of doubt Clauses 7.1.1 and 7.1.2 shall not affect the validity of
      the Slot Release Agreements, fare combinability agreements and FFP agreements
      already entered into operation prior to the Sunset Date. As long as such
      agreements continue to apply, the provisions in these Commitments that concern
      these agreements also continue to apply.
7.1.4 If there are no Slot Release Agreements in operation on the Sunset Date, then the
      entire Commitments will expire on the Sunset Date.
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