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Brussels, 13 October 2000

Commission raises concerns regarding partnership between Austrian Airlines and Lufthansa / SAS

The European Commission has informed Austrian Airlines (AuA) and STAR alliance partners Lufthansa and SAS that it has serious concerns about their recently concluded co-operation agreements. As they currently stand, the agreements would eliminate competition on a large number of routes between Austria and Germany and raise similar concerns on the Austrian-Nordic aviation market.

In December 1999, AuA and Lufthansa on the one hand and AuA and SAS on the other notified two co-operation agreements with the Commission requesting an exemption under EC competition rules. From AuA's perspective, the purpose of these co-operation agreements is to join the STAR alliance. The parties envisage to build a lasting alliance by creating an integrated air traffic system based on a close co-operation of their commercial, marketing and operational activities.

The network arrangement embraces passenger transport, maintenance, airport facilities and ground handling. The parties have agreed to co-ordinate fares and schedules for all flights world-wide. The world-wide co-operation agreement also includes reciprocal access to frequent-flyer credits, code sharing, harmonisation of service levels, and integration of data processing. Integration of the bilateral traffic between Austria and Germany goes further by the setting up a joint venture. Similarly in the case of the co-operation between AuA and SAS, a Joint Traffic System has been set up for bilateral traffic. In both cases companies share profits and losses.

On 11 July 2000, the Commission published a summary of the two agreements in the Official Journal, which triggered a large number of comments from competitors, customers and travel agencies.

The Commission has informed the airline companies in "letters of serious doubts", that at this stage it cannot grant an exemption under the EU competition rules. On almost all of the 33 direct routes between Austria and Germany, AuA and Lufthansa have a joint market share in air passenger traffic of 100%. Competition from alternative transport modes, such as road and trains, exists only to a limited extent. Furthermore, in spite of the fact that the EU air transport market has been liberalised, high entry barriers, like the shortage of slots at main airports, the parties high number of frequencies and the pooling of frequent-flyer programmes, prevent other carriers to enter the market. The same type of arguments apply also to the aviation market between Austria and the Nordic Countries.

This is the first formal step in the Commission's investigation. It could lead to a prohibition decision unless the companies address the Commission's concerns that, with regard to bilateral traffic, both business and leisure travellers will no longer have a choice between airlines. Such a monopoly position for direct flights is likely to lead to higher prices for flights between Austria and Germany and Austria and the Nordic countries. It is now up to the parties to make proposals to the Commission as to how best to address these concerns.

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