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  "To create the internal market in civil aviation, considerable
  liberalisation will have to be agreed within the Community. As my
  colleague Mr Van Miert has explained the Commission will soon be
  making its proposals for further liberalisation. Our objective should
  be to secure the greatest possible freedom for airlines to provide the
  services they consider commercially appropriate. Interference with
  this commercial judgement should be limited to that which is necessary
  to promote competition. In other words, economic regulation must be
  precisely that - economic and not political or nationalistic. So let
  us take nationality and geography out of the Community aviation
  equation.  Airlines are strong enough to survive without government
  protection or support.
  This means less rather than more of the same. Less regulation, less
  bureaucracy but more competition and cheaper fares. In practical terms
  it means getting rid of a large pile of bilateral and multilateral
  rules on capacity quotas. These are basically systems for allocating
  national traffic quotas. In an internal market we won't need such
  quotas. The right to enter a route should be limited only by
  principles designed to foster competition and of course guarantee
  safety for passengers. Such principles should be common to all Member
  Regulation of fares should be reduced to the minimum necessary to
  control anti-competitive behaviour. I do not see why it should be
  necesary even now and certainly not after 1992 for two Governments to
  expressly approve air fares. Airlines should be free to charge the
  fares at the levels they judge commercially appropriate provided they
  do not charge fares which are excessively high or which are intended
  to eliminate competitors.
  On competition our ultimate aim will be to phase out the block
  exemptions which have been granted to the airlines. These were based
  on the need for adaptation to a more competitive environment. By the
  end of 1992 this adaptation will have run its course.
  The competition rules involve obligations for Member States. These
  obligations have recently been highlighted by the Court of Justice in
  the Ahmed Saeed Case. Basically there are two obligations. First,
  Member States may not oblige or encourage airlines to contravene the
  competition rules and secondly, they must also ensure that their own
  laws, regulations and administrative practices do not deprive the
  competition rules of their useful effect.
  In paragraph 2 or Article 90 we find that the full rigours of the
  Treaty rules can be relaxed in so far as this is necesary, but only in
  so far as it is necessary, for the operation of services of general
  economic interest. The exception is only a limited one. The
  development of trade may not be affected to an extent which would be
  contrary to the interests of the Community.
  Under Article 90(3) the Commission has considerable powers to control
  government measures which have anti-competitive effects. This Article
  is particularly relevant in the air transport sector where government
  intervention in the marketplace is highly pervasive.
  US experience
  First, we may ask, has de-regualtion been a success?
  On balance I think the answer to this question can only be yes. It has
  been estimated that de-regulation has saved American passengers a
  total of $100 billion in lower fares. In 1988 American airlines
  carried over one and a half times as many passengers as they carried
  in 1978 and their safety record was better.
  These are the "pluses". The minus side of the equation has only
  recently become visible. One part of this negative side is the
  increased concentration which has taken place. Some idea of the degree
  and intensity of this increase can be seen by taking the market share
  of the seven largest airlines' which has increased from 75% in 1978 to
  90% in 1988. This increase is even more dramatic if we compare it to
  the position in 1985 when their share of the market had fallen to 66%.
  Side by side with this development we have seen the demise of many of
  the new entrants who had provided the competitive stimulus during the
  early years of de-regulation. Many of those who have survived are in
  financial difficulties. The effects of this concentration process are
  I consider only just beginning to be felt in the marketplace. For
  example the largest airlines have increased their fare four times
  since September 1988.
  If we are to avoid repeating the mistakes made in the US it is clear
  that liberalisation must be accompanied by effective action to
  minimise the effect of these devices on the creation and survivial of
  new entrants. This can be done to some extent by application of
  Article 86. In certain instances legislative action may be necessary.
  In other instances action has already been taken. For example, in the
  field of CRSs (Computer Reservation Systems) the Commission's proposal
  for a code of conduct which would ban discrimination in screen
  displays, fees and terms of access to the system, is at an advanced
  stage of discussion in the Council. Jointly owned CRSs are already
  subject to these rules under the Commission's block exemption
  regulation (Regulation 2672/88). In the London European Airways/
  Sabena Decision the Commission imposed a fine against Sabena for
  refusing to allow London European Airways, a new entrant/competitor
  with lower fares, access to its CRS.
  Control of concentration
  Many commentators criticise the US regulatory authorities for failing
  to supply anti-trust laws to the spate of takeovers which occurred in
  the second phase of de-regulation. Between 1985 and 1987 there were 20
  airline mergers. None was opposed by the Department of Transportation.
  In the Community we do not intend to follow a similar "laissez-faire"
  The Commission's intervention in the BA/BCal Case is evidence of its
  power and its willingness to act already in this area. In that case
  the Commission decided to allow the merger to go ahead subject to
  strict conditions which substantially reduced its anti-competitive
  effects. In particular these conditions were were designed to
  facilitate new entry on the routes affected by the merger. They have
  achieved their purpose as people who fly to and from London will have
  Many commentators believe that the merger mania which occurred in the
  US in the aftermath of de-regulation was set off by a flame which will
  not stop at US borders but will cross the Atlantic and spread
  throughout Europe and elsewhere. Some believe this flame has its own
  internal burner which will not require to be re-fuelled by
  liberalisation: I think there may be some truth in this belief. We
  will, therefore, need to be particularly vigilant in the run up to
  1992. Increased concentration in the sector which is already
  characterised by high barriers to entry must be watched carefully.
  This is not to say that all air transport mergers are to be
  discouraged. Each merger must be assessed on its individual merits.
  Some mergers are good for the industry, the economy as a whole and for
  the consumer. Others are not. The benefits in terms of economies of
  scale and larger route network must be balanced against the
  disadvantages in terms of reduced actual and potential competition and
  consumer choice. It may be that there are not geniune improvements to
  be obtained from the merger and that one airline is simply seeking to
  eliminate the competition so as to ensure the continuation of its
  monopoly or dominant position. On the other hand, it may be that the
  merger is the only means whereby the new airline can confront the
  challengers presented to it by its larger competitors.
  In this regard, I must point out that cross-border mergers between
  airlines established in different countries are less likely to fall
  foul of the competition rules than those between airlines established
  in the same country or at the same airport. This is so for two
  reasons: first because the number of routes operated in parallel is
  likely to be fewer and secondly because the two airlines are less
  likely to be potential competitors for the same licences on new
  One of our main concerns in assessing mergers in the air transport
  sector must be the preservation and promotion of the position of new
  entrants as well as smaller regional and charter carriers. If all such
  carriers were to be swallowed up through various forms of cooperation
  or conglomeration with larger airlines the competitive atmosphere
  would become rather bleak!
  De-regulation in the United States has on balance been a success.
  Liberalisation in the European Community will be an even greater
  success. The challenge for the Community will be to learn from the US
  experience and avoid the pitfalls encountered there. This means that
  we must liberalise fast but smoothly, without causing unwarranted
  turbulence. We must also ensure that this liberalisation is
  accompanied by a rigorous application of the competition rules and
  merger control.
  The period prior to 1992 will be particularly interesting and dynamic
  for those involved in civil aviation. The Community must meet the
  challenge which these times present. If it does I think that the air
  traveller can look forward to good times and maybe even the best of
  For further information please contact:
  Michael Berendt : 235 8562
  Elisabeth Kaiser : 235 2210

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