Code Sharing Agreements and competition protection in the European union

  • Code Sharing Agreements and competition protection in the European union

    Authors: Marko Stilinović, Dino Gliha


    Key words: code-sharing, horizontal agreements, airlines, competition law, market barriers, pricing, European Commission, European Union

    The reason for writing this paper is the recent announcement of the European Commission, formulated in so-called Statement of Objections by which it has been determined that two airline companies – Brussels Airlines and TAP Air Portugal – breached the provisions of the Article 101 of the Treaty on Functioning of the European Union by concluding the “code-sharing” agreement. The decision in questions is a result of the long-lasting investigation in the case AT.39860 initiated with the dawn raid investigation carried out by European Commission on December 13th, 2011 in the business premises of Brussels Airlines and TAP Air Portugal in Belgium and Portugal.

    The Statement of Objections has first been published in a press release on web pages of the European Commission, dated October 27th, 2016.

    However, simultaneously with the announcement on the Statement of Objections determining the breach of the competition law, the European Commission has announced the completion of the investigation in the case AT.39794 also concerning two airline companies – this time Turkish Airlines and Lufthansa – which also concluded code-sharing agreements. European Commission in this case assessed that there are no elements indicating the breach of the competition law and creation of a cartel between the undertakings.

    Thereby, the European Commission ended one part of a long-lasting investigation of code-sharing practice concerning big European airline companies and has set up certain criteria for assessing the anti-competitive effects of such agreements. This also raises certain questions – will the mentioned criteria be sufficiently clear and stable to become a direction for assessment of similar agreements in future, or will the practice in this sense change and will this criteria “withstand” the assessment of the Court of the European Union, in case the undertakings oppose the Statement of Objections and request Court’s intervention (under the condition that the European Commission assumes the same stance in its final decision).

    Cartel issue, the issue of price harmonization and other forbidden practices which are covered by Article 101 of the Treaty on Functioning of the European Union, are thoroughly elaborated through the practice of the Court of the European Union. However, the development of the industry is followed by fast development of new types of agreements and legal solutions by which the undertakings pursue their interest and adapt to the market in the best possible way. Such development of the agreements requires constant engagement of the authorities tasked with the market competition protection as they must assess new legal solutions and their compatibility with the market competition regulations, or more specifically they have to assess whether such new agreement represent an attempt to circumvent the market competition regulations.

    Code-sharing agreements are not a recent phenomenon on the world market. Such agreements occurred on the American market in late sixties of the previous century, after which they spread to European markets. The development of the market competition law took a real momentum only at the end of the previous century and code-sharing agreements have been occasionally mentioned, but never thoroughly analyzed.

    By analysing the market competition law and its reach in the transport sector, there is an impression that most of the decisions have been issued in the air passenger transport sector. In this sense, there are several significant decisions in the concentration compatibility assessments of large undertakings in the transport sector, such as in cases of British Airways & Iberia (Case No. M.5747), United Airlines & Continental (Case No. M.5889) or US Airways & American Airlines (Case No. M.6607). A captivating example includes the concentration of Aegean Airways & Olympic Air (Case No. M.6796) which practically created a monopoly in the air passenger transport in Athens airport – concentration has been firstly declared as incompatible, but, after the second application, European Commission decided not to oppose the concentration on the grounds of deteriorating economic situation in Greece, due to economic crisis.

    Apart from these decisions, there is a whole set of extremely important decisions in other aspects of the competition law – as the decision of the Court of the European Union in assessment of permitted rebates (C-95/04 British Airways c/ European Commission).

    Having in mind relatively low number of decision issued in the transport sector relating to the market competition, it is highly likely that the authorities tasked with the protection of the market competition shall more and more intervene in that sector as well and they will use more sophisticated methods of analysis. Despite the mentioned, it remains unclear what exactly constitutes a breach of competition law in case of code-sharing agreements and the paper is aimed at identification of several key factors marked as the most important for the competition law analysis related to code-sharing agreements. Therefore, due to the wide-spread use of code-sharing agreements, it would be recommendable to set clear criteria for assessment of such agreements and provide enough time for adaptation of the undertakings.