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MEMO/10/330

Brussels, 14th July 2010

Antitrust: British Airways, American Airlines and Iberia commitments to ensure competition on transatlantic passenger air transport markets made legally binding – frequently asked questions

What are the main commitments offered by the parties?

The parties offered commitments in relation to six routes, namely London-Dallas, London-Boston, London-Miami, London-Chicago, London-New York and Madrid-Miami.

Under the commitments the parties undertake, in particular:

  • to make available slots at London airports (Gatwick or Heathrow, at the entrants' choice) on four routes, as set out below:

Route

Number of slot pairs

London-New York

21 weekly (3 daily)

London-Boston

14 weekly (2 daily)

London-Miami

7 weekly (1 daily)

London-Dallas

7 weekly (1 daily)

On the London-New York route, the parties commit also to offer matching operating authorisations at New York John F. Kennedy airport.

The slots will be made available for non-stop services on these routes. However, , on the London-Dallas and London-Miami routes, one-stop services via connecting hubs in Europe or the US, are relatively more attractive to passengers than on the other routes of concern As of IATA summer season 2013, one-stop service providers will therefore be eligible to apply for slots, if any such slots are still available. This also provides an incentive for potential providers of non-stop service to enter those routes quickly;

  • to conclude fare combinability agreements, allowing competitors to carry passengers one-way on their own planes and sell tickets for the other way on the parties' flights. This would enable competitors to offer more attractive schedules thanks to the parties' higher number of frequencies;

  • to conclude special pro-rate agreements with competitors allowing them to obtain favourable terms from the parties for connecting passengers from the parties' short-haul flights in Europe and North America to competitors' transatlantic services (e.g. a competitor would be able to fly its customer on a Manchester-London flight operated by BA and then connect to its own London-New York flight);

  • to provide access to the parties' frequent flyer programmes (FFPs) on the routes in question. This would allow passengers flying with competitors that do not have an FFP programme in terms of earning and redemption possibilities comparable to that of the parties to earn and burn miles on the parties' FFPs; and

  • to report data to the Commission relating to the parties' cooperation. This reporting obligation would allow the Commission to monitor the effects of the joint venture on the markets over time.

The commitments are to last for ten years. The Commission may review them five years after their entry into force.

How will consumers benefit from these commitments?

The commitments facilitate the entry or expansion of competitors on the routes of concern by eliminating or lowering the barriers for launching new flights (such as lack of slots, frequency advantage of the parties, access to connecting traffic and strength of the parties' frequent flyer programmes).

The commitments will therefore ensure competition on the routes, resulting in particular in an adequate choice of flights, quality of service and ticket price.

What was the reaction of third parties to the market test of the commitments?

In general, third parties welcomed the commitments as a means of lowering the barriers to entry or expansion on the routes of concern, in particular by offering slots and access to connecting traffic. Third parties also made detailed comments concerning the scope and functioning of the commitments. Some of these comments led to changes in the final commitments package after the market test. The parties, for example, offered an additional slot on London-New York.

Why is the duration of the commitments 10 years?

10 years strikes a reasonable balance between different interests. On the one hand, potential entrants' need a sufficiently long duration to justify entry on the routes of concern, in the light of their business plans or aircraft planning. On the other hand, a longer duration would fail to take account of the likely changes in the aviation sector over time that may impact on the Commission's assessment of the joint venture's likely effects.

What happens when the commitment decision expires?

On the expiry of the Commission decision, the Commission may re-assess the competitive situation on the markets. This assessment will be facilitated by the detailed data which the parties undertake to provide pursuant to the reporting obligation in the commitments.

What happens to the agreements concluded under the commitments if BA, AA and IB decide to end their cooperation before the expiry of the commitment decision?

The agreements already concluded with the parties under the commitments will continue to apply until their expiry even if BA, AA and IB terminate their cooperation in the meantime. In particular, if a carrier obtains slots from the parties during the first 2 years of the commitments, it will be able to operate them for the guaranteed period of 10 years.

This ensures certainty for competitors who may make use of the commitments, and invest in new services, without being dependent on the future of the parties' joint venture.

Why is the number of slots to be released by the parties under the commitments smaller than that resulting from assessments of the attempted alliances between BA and AA in 1998 and 2002?

The assessment of every transaction is made in light of the market conditions prevailing at the time. Those conditions have changed fundamentally since the last review of a possible BA/AA cooperation in 2002.

First, during the 1998 and 2002 cases, the Bermuda II air services agreement between the UK and the U.S. allowed only two European (BA and Virgin Atlantic) and two U.S. carriers (AA and United Airlines) to provide transatlantic service between London Heathrow and the U.S. The EU-U.S. Air Transport Agreement liberalised access to London Heathrow as of end March 2008.

The Agreement resulted in 12 new daily services by other European and U.S. airlines between London Heathrow and the U.S by the end of 2009. This is close to the total number of slots provisionally required by competition authorities in the 1998 and 2002 proceedings which was 19 and 16 daily slot pairs, respectively. The current commitments make further available 7 daily slot pairs.

How will the commitments be implemented?

The parties are to make take-off and landing slots available to competitors following a procedure detailed in the commitments. Competitors can apply for the slots in advance of each summer and winter scheduling season, until they are all allocated.

The Commission will then decide which competitor receives the slots, based on the strength of the competitive constraint it would impose on the parties (on the basis, for example, of the applicant's business plan, its proposed number of frequencies and pricing structure).

The slots are to be released by the parties on the basis of long-term leases. The slots can only be used to operate flights on the routes of concern throughout the term of the lease.

In order to monitor the implementation of the commitments an independent Monitoring Trustee will be appointed by the Commission in the coming weeks. If any dispute arises in relation to the commitments, an arbitration-based dispute resolution system is foreseen.

Will competitors have to pay for slots?

The commitments do not prevent competitors from offering compensation for slots, in line with the principles mentioned in the Commission's Communication of 30 April 2008.

However, the commitments do not oblige entrants to pay for slots. The Commission's choice of the entrant is to be based solely on the strength of the competitive constraint it would impose on the parties. It is only in a situation where several entrants would be likely to impose an equal competitive constraint that compensation may then play a role in choosing between these entrants.

When will competitors be able to make use of the commitments in practice?

With respect to the slot commitments, the procedure enables competitors to obtain slots from the parties and launch new services as early as IATA summer season 2011 (which starts on 27 March 2011). In order to obtain slots for that season, competitors would need to start the application process for slots by 26 August 2010.

With respect to the fare combinability, SPA and FFP commitments, the competitors will be able to negotiate and conclude the relevant agreements with the parties as soon as the Monitoring Trustee is appointed.

What happens if no airline picks up the commitments?

Given the interest expressed by third parties throughout the Commission's investigation, it seems unlikely that no airline will pick up the commitments.

The commitments are valid for 10 years. In case no airline applies in the first season, the commitments are still available in the following seasons.

Has the Commission cooperated with the U.S. authorities?

The parallel investigations of the parties' joint venture conducted by the Commission and the U.S. Department of Transportation ('DOT') were independent and based on different legal rules.

Nevertheless, the Commission has worked in close cooperation with the DOT and the U.S. Department of Justice ('DOJ') throughout the procedure. Cooperation with the DOT was based on Annex II of the EU-U.S. Air Transport Agreement of 30 April 2007. It was aimed in particular at avoiding additive remedies, if possible, as a result of the separate investigations in the two jurisdictions.

As a result, the Commission's commitments provide for a close involvement of the DOT during the key steps of the implementation procedure, in particular when selecting the airlines to obtain slots from the parties. The Commission will consult and take due consideration of the opinion of the DOT.

Does the merger of BA and IB have any impact on the decision?

The Commission's assessment of the two transactions takes both into account.


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