The European Commission has informed Air France and Alitalia that it has serious doubts that their co-operation agreement can be approved in its current form. Overall, the alliance, which was notified for clearance at the end of last year, contributes to technical and economic progress, given the improvements in connectivity and the cost savings and synergies achieved by the parties. However, the agreement will significantly reduce competition on key routes between France and Italy, including between Paris, on the one hand, and Rome and Milan, on the other hand, which would be against the interest of passengers on these routes. The Commission invites Alitalia and Airfrance to reflect on how best these problems can be adressed with a view to reaching a solution which allows the alliance to go through whilst protecting consumers and respecting EU law.

Bilateral co-operation agreements in the airline sector and especially between national flag carriers often eliminate competition on the routes concerned as the companies agree on virtually everything from capacity and flight schedules to pricing. The Commission`s practice in this field, has shown that such restrictive agreements can only be allowed if conditions are created to preserve consumer choice and competitive prices.

In November 2001, Air France and Alitalia notified to the Commission a number of co-operation agreements and requested an exemption under competition rules, more precisely under Regulation 3975/87, the regulation which spelt out the application of the European Union`s antitrust rules to the air transport sector.

The agreements pursue the double aim of integrating Alitalia into the world-wide SkyTeam alliance created by Air France and Delta Air Lines, the United States`s third largest airline, and of building a far-reaching, long-term strategic bilateral alliance based on close co-operation between the parties. The agreements would also interconnect the two airlines` respective hubs at Paris-Charles de Gaulle, Rome Fiumicino and Milan Malpensa.

The current co-operation agreement risks to restrict significantly competition between Air France and Alitalia as they will agree on passenger capacity, flight frequencies and prices to be charged on flights between France and Italy. As for other bilateral aviation pacts in the past, the agreements also involve code-sharing, sharing of earnings and the pooling of frequent flyer programmes.

Air France and Alitalia put together will control the quasi-totality of the traffic on a number of routes between the two countries, including Paris-Rome, Paris-Milan and Paris-Venice where the two airlines have very high market shares. The pooling of the forces between the two flag carriers will also make it difficult for third parties to enter the routes concerned in the future.

On May 8 this year, the Commission published a summary of the co-operation agreements in the EU`s Official Journal giving third parties the opportunity to submit their views.

Under Regulation 3975/87, publication of the summary triggers a 90-day period within which the Commission must decide whether to raise serious doubts or not. If it does not raise serious doubts, the agreement is automatically exempted for a period of six years from the date of publication.

Through the letter of serious doubts, the Commission informed the parties that it indeed has competition concerns and cannot, at this stage of the procedure, grant an antitrust exemption. This does not prejudge the outcome of the procedure nor does it prejudge of the companies` right to defend themselves.

As Mario Monti, competition commissioner, said: “The final outcome of the case will depend on Air France`s and Alitalia`s response and particularly on their ability to create conditions to favour the emergence of new competitors on the affected routes, failing which passengers would have little or no choice and potentially higher prices. I invite the two airlines to start discussions with the Commission on possible remedies as soon as possible”.

The Commission has already examined many bilateral alliances between European flag carriers and a solution was always found to ensure that consumers would have enough choice of services and competitive prices. The most recent example was given by the partnership agreement between Lufthansa and Austrian Airlines where the two airlines agreed, among other things, to liberate landing and take off rights at their respective hubs in a sufficient number and at times attractive enough to encourage other carriers to operate flights between Austria and Germany where a monopoly would been created. A final decision on the Lufthansa/AuA case is expected shortly.

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(1 Jul 2002) Alitalia/Air France Strategic Alliance
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