S C te o ROUTLEDGE RESEARCH IN COMPETITION LAW v e m n p T r e u t x i a ti l o n a n d R e g u l a t i o n i n t h e A i r l i n e I n d u s t r y Competition and Regulation in the Airline Industry Puppets in chaos Steven Truxal LAW/ECONOMICS aninformabusiness ISBN 978-0-415-67196-5 ,!7IA4B5-ghbjgf! www.routledge.com Competition and Regulation in the Airline Industry An examination of the relationship between competition and the deregulation and liberalization of the US and European air transport sectors reveals that the structure of the air transport sector has undergone a number of significant changes. A grow- ing number of airlines are entering into horizontal and vertical cooperative arrange- ments and integration including franchising, codeshare agreements, alliances, ‘virtual mergers’ and in some cases, mergers with other airlines, groups of airlines or other complementary lines of business such as airports. This book considers the current legal issues affecting the air transport sector incor- porating recent developments in the industry, including the end of certain exemp- tions from EU competition rules, the effect of the EU–US Open Skies Agreement, the accession of new EU Member States and the Lisbon Treaty. The book explores the differing European and US regulatory approaches to the changes in the industry and examines how airlines have remained economically efficient in what is perceived as a complex and confused regulatory environment. Competition and Regulation in the Airline Industry will be of particular interest to academics and students of compe- tition law as well as EU law. Steven Truxal is Visiting Professor of English Law at Humboldt University, Berlin. Routledge Research in Competition Law Available titles in this series include: The Internationalisation of Competition Rules Brendan J. Sweeney Antitrust Federalism in the EU and the US Firat Cengiz Competition and Regulation in the Airline Industry Puppets in chaos Steven Truxal Forthcoming titles in this series include: Merger Control in Post-Communist Countries EC merger regulation in small market economies Jurgita Malinauskaite Merger Control in Europe The gap in the ECMR and national merger legislations Ioannis Kokkoris Competition and Regulation in the Airline Industry Puppets in chaos Steven Truxal First published 2012 by Routledge 2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN Simultaneously published in the USA and Canada by Routledge 711 Third Avenue, New York, NY 10017 Routledge is an imprint of the Taylor & Francis Group, an informa business © 2012 Steven Truxal The right of Steven Truxal to be identified as author of this work has been asserted by him in accordance with sections 77 and 78 of the Copyright, Designs and Patents Act 1988. All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. Trademark notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation without intent to infringe. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloguing in Publication Data Truxal, Steven. Competition and regulation in the airline industry : puppets in chaos / Steven Truxal. p. cm. — (Routledge research in competition law) ISBN 978–0–415–67196–5 (hardback) — ISBN 978-0-203-11946-4 (e-book) 1. Aeronautics, Commercial—Law and legislation. 2. Aeronautics, Commercial—Deregulation. 3. Airlines—Deregulation. 4. Airlines—Mergers. 5. Competition, International. I. Title. K4095.T78 2012 387.7'1—dc23 2011045352 ISBN 978–0–415–67196–5(hbk) ISBN 978–0–203–11946–4(ebk) Typeset in Garamond by Swales & Willis Ltd, Exeter, Devon Contents List of tables vi Table of cases, decisions and legislation vii Acknowledgements xiii Abbreviations xiv 1 Introduction 1 2 The evolution of air transport 16 3 Deregulation, liberalization and re-regulation 44 4 American and European competition law and policy 64 5 The development of tactical and strategic alliances: progress and challenges 119 6 Final thoughts 159 References 167 Index 178 Tables 1.1 Freedoms of the air 11 4.1 Change in state ownership of flag carriers 2002–2010 103 5.1 Alliance network comparison 138 Table of cases, decisions and legislation EU case law and Commission decisions Aer Lingus and Sabena [1989] OJ C204/11. Air France and Alitalia [1989] OJ C 204/5. Air France and Brymon [1989] OJ C 204/6. Air France and Iberia [1989] OJ C 204/4. Air France and NFD Luftverkehrs AG [1989] OJ C 204/3. Air France and Sabena [1989] OJ C 204/7, 8 and 10. Austrian Airlines–Lufthansa [2002] OJ L 242/25, [2003] 4 CMLR 252. Austrian–Lufthansa [2002] OJ L 242/25, [2003] 4 CMLR 252. British Airways–Air Liberté Commission Decision of 28 February 1997, Case IV/ M.857. British Airways–TAT (II) Commission Decision of 26 August 1996, Case IV/M.806. British Midland v Aer Lingus Commission Decision of 26 Feburary1992, Case IV/ 33.544, [1992] OJ L 96, 10 April 1992. Case 322/81, NV Nederlandsche Banden Industrie Michelin v Commission [1983] ECR 3461. Case 40/73, Suiker Unie v EC Commission [1975] ECR 1663, [1976] 1 CMLR 295. Case 56/65, Société Technique Minière v Maschinenbau Ulm GmbH [1966] ECR 234, 249, [1966] 1 CMLR 357. Case 66/86, Ahmed Saeed Flugreisen and Silver Line Reisebüro GmbH v Zentrale zur Bekämp- fung unlauteren Wettbewerbs E.V. [1989] ECR 803, [1990] 4 CMLR 102. Case 85/76, Hoffmann-La Roche v Commission [1979] ECR 461, [1979] 3 CMLR 211. Case C-38/2010 (ex NN 69/2010 CP 63/2010), Malév Hungarian Airlines, Negative decision and recovery, 09 January 2012. Case C-169/08, Presidente del Consiglio dei Ministri v Regione Sardegna [2010] OJ C24/6, 30 January 2010 Case C-244/94, Fédération Française des Sociétés d’Assurance and Others v Ministère de L’Agriculture et de la Pêche [1995] ECR I-4013, [1996] 4 CMLR 536. Case C-333/94, Tetra Pak v Commission (Tetra Pak II) [1996] ECR I-5951. Case C-35/96, Italy v Commission [1998] ECR I-3851, [1998] 5 CMLR 889. Case C-364/92, SAT Fluggesellschaft v Eurocontrol, [1994] ECR I-43, [1994] 5 CMLR 208. viii Cases and legislation Case C-366/10, Air Transport Association of America, American, Continental and United Air- lines v Secretary of State for Energy and Climate Change (2011), available at <http://curia. europa.eu>(accessed 5 January 2012). Case C-415/03, Commission v Hellenic Republic, Judgement of the European Court (Second Chamber), 12 May 2005. Case C-6/2009, (ex. N663/2008) – Restructuring of Austrian Airlines AG. Case C26/2008, (ex. NN31/2008) – Prêt de 300 millions d’euros à ALITALIA (Recov- ery of 300 million Euros from Alitalia), 12 November 2008. Case C-466/98, Commission v United Kingdom, [2002] ECR I-9427. Case C-467/98, Commission v Kingdom of Denmark [2002] ECR 9519. Case C-468/98, Commission v Kingdom of Sweden [2002] ECR 9575. Case C-469/98, Commission v Republic of Finland [2002] ECR 9627. Case C-471/98, Commission v Kingdom of Belgium [2002] ECR 9681. Case C-472/98, Commission v Grand Duchy of Luxembourg [2002] ECR 9741. Case C-475/98, Commission v Republic of Austria [2002] ECR 9797. Case C-476/98, Commission v Federal Republic of Germany [2002] ECR 9855. Case COMP/38.712, Lufthansa–SAS–BMI British Midland. Case COMP/C-3/37.792, Microsoft, 24 March 2004 Case C/38/2010, Malév (Official Journal JOCE C/156/2011 Case COMP/39258, Airfreight, Commission Decision of 9 November 2010 (unpublished). Case COMP/M.5181, Delta Air Lines/Northwest Airlines, Commission Decision of 06 August 2008 declaring a concentration to be compatible with the common market (Case No COMP/M.5181 – DELTA AIRLINES / NORTHWEST AIR- LINES) according to Council Regulation (EC) No 139/2004, [2008] OJ C281/3, 05 November 2008. Case COMP/M.5364, Iberia–Vueling–Clickair (IP 09/29, ‘Mergers: Commission clears Iberia’s proposed acquisition of Vueling and Clickair, subject to conditions’, 9 Jan- uary 2009). Case COMP/M.5403, Lufthansa/BMI, Commission Decision of 14 May 2009 COMP/M.5403 – LUFTHANSA / BMI) according to Council Regulation (EC) No 139/2004, [2009] OJ C158/1, 11 July 2009 Case COMP/M.5440, Lufthansa/Austrian Airlines, (notified under document C(2009) 6690 final), [2009] OJ C16/11, 22 January 2010. Case COMP/M.5889, United Air Lines/Continental Airlines, Commission Decision of 27 July 2010 declaring a concentration to be compatible with the common market (Case No COMP/M.5889 – UNITED AIR LINES / CONTINEN- TAL AIRLINES) according to Council Regulation (EC) No 139/2004. Online. Available at <http://ec.europa.eu/competition/mergers/cases/decisions/m3770_ 20050704_20212_en.pdf>(accessed 1 June 2006). Case T-46/11, Deutsche Lufthansa and Others v Commission (2011/C 80/56). Case T-48/11, British Airways v Commission (2011/C 80/57). Case T-62/11, Air France–KLM v Commission (2011/C 95/13). Case T-67/11, Martinair Holland v Commission (2011/C 95/15). Cases and legislation ix Case T-203/01, Manufacture française des pneumatiques Michelin v Commission [2003] ECJ CELEX LEXIS 489. Case T-219/99, British Airways Plc v Commission [2003] ECR 242. Case T-342/07, Ryanair Holdings Plc v European Commission (Ireland, intervening) [2011] 4 CMLR 4. Case T-342/99, Airtours v Commission; Airtours–First Choice [2000] OJ L 93/1. Case T-83/91, Tetra Pak International SA v Commission [1994] ECJ CELEX LEXIS 6909. Cases 48, 49, 51–7/69, ICI v Commission [1972] ECR 619, [1972] CMLR 557. Cases T-68, 77 and 78/89, Società Italiana Vetro v Commission [1992] ECR 11-1403, [1992] 5 CMLR 302. Commission Decision 94/118/EC of 21 December 1993 concerning aid to be pro- vided by the Irish government to the Aer Lingus group [1994] OJ L 54/30, 25 February 1994. Commission Decision 94/653/EC concerning the notified capital increase of Air France, 27 July 1994. Commission Decision 94/696/EC regarding Olympic Airways and its subsidiaries, 7 October 1994. Commission Decision 94/698/EC concerning increase in capital, credit guarantees and tax in favour of TAP Air Portugal, 6 July 1994. Commission Decision 95/404/EC of 19 July 2005 on a procedure relating to the application of Council Regulation (EEC) No 2407/92 (Swissair–Sabena), [1995] OJ L 239/19–28, 7 October 1995. Commission Decision of 16 January1996, Case IV/25.545 – Lufthansa–SAS [1996] OJ L 54, 5 March 1996. Commission Decision of 20 July 1995 concerning Swissair–Sabena Case IV/M.616. Commission Decision of 7 March 2007 regarding state aid case C 10/06 (ex N555/05) – Cyprus Airways Public Ltd’s restructuring plan, [2008] OJ L 49/51, 22 February 2008. Commission Decision of 28 August 2009 declaring a concentration to be compatible with the common market and the EEA Agreement. Online. Available at <http:// ec.europa.eu/competition/mergers/cases/decisions/m5440_20090828_20600_ en.pdf> (accessed 27 July 2011). EBU, [1993] OJ L 179/23, [1995] 4 CMLR 177. Eurostar Case No. IV/M.1305 (19 December 1998). Film Purchases by German Television Stations [1989] OJ L 284/96, [1990] 4 CMLR 841. Höfner and Elser v Macrotron, [1991] ECR I-1979, [1993] 4 CMLR 306. IAZ International Belgium NV v Commission, [1983] ECR 3369, [1984] 3 CMLR 276. KLM–Air UK Case No. IV/M.967 (22 September 1997). KLM–Alitalia Commission Decision of 11 August 1999, Case M/JV-19. London City Airways and Sabena [1989] OJ C 204/12. Lufthansa–SAS [1996] OJ L 54/28, [1996] 4 CMLR 845, (1998) 19 ECLR 116. Marine-Wendel–SairGroup–AOM Commission Decision of 3 August 1999, Case IV/M.1494. Olympic Airways [2003] OJ L 132/1, Decision 2003/372/EC of 11 December 2002. Polypropylene, [1986] OJ L 230/1, [1988] 4 CMLR 347.