EN EN EN COMMISSION OF THE EUROPEAN COMMUNITIES COMMISSION DECISION of 7 April 2004 relating to a proceeding under Article 81 of the EC Treaty (Case COMP/38.284/D2 Société Air France / Alitalia Linee Aeree Italiane S.p.A.) (notified under document number C(2004) 1307 final) (Only the English text is authentic) EN EN THE COMMISSION OF THE EUROPEAN COMMUNITIES, Having regard to the Treaty establishing the European Community, Having regard to Council Regulation (EEC) No 3975/87 of 14 December 1987 laying down the procedure for the application of the rules on competition to undertakings in the air transport sector,1 and in particular Article 5 thereof, Having regard to the application for negative clearance submitted by Société Air France and Alitalia Linee Aeree Italiane S.p.A. on 12 November 2001 pursuant to Article 3(2) of Regulation (EEC) No 3975/87 and the notification with a view to an exemption submitted by Société Air France and Alitalia Aeree Italiane S.p.A. on 12 November 2001 pursuant to Article 5 of that Regulation, Having regard to the summary of the application and notification published pursuant to Article 5(2) of Regulation (EEC) No 3975/872, Having regard to the summary of the proposed commitments published pursuant to Article 16(3) of Regulation (EEC) No 3975/873, Having regard to the final report of the hearing officer in this case, After consulting the Advisory Committee on Agreements and Dominant Positions in Air Transport, Whereas: 1. INTRODUCTION (1) By letter of 12 November 2001, registered in DG Competition on 13 November 2001, Société Air France (Air France) and Alitalia Linee Aeree Italiane S.p.A. (Alitalia), hereinafter “the Parties”, notified to the Commission a number of cooperation agreements and applied for negative clearance under Article 3(2) of Regulation (EEC) No 3975/87 and/or exemption under Article 5 of that Regulation. (2) The agreements pursue the double aim of integrating Alitalia into the world-wide SkyTeam Alliance4 and of building a long-term strategic bilateral alliance based on close co-operation between the Parties. This case relates exclusively to the bilateral cooperation between Air France and Alitalia as far as air transport between Community airports is concerned. 1 OJ L 374, 31.12.1987, p. 1. Regulation as last amended by Regulation (EC) No 1/2003 (OJ L 1, 4.1.2003, p.1). 2 OJ C 111, 8.05.2002, p. 7. 3 OJ C 297, 9.12.2003, p. 10. 4 Prior to the membership of Alitalia, the SkyTeam members were: Air France, Delta Airlines, AeroMéxico, Korean Air and CSA. 2 (3) A summary of the application was published on 8 May 2002 in the Official Journal of the European Communities inviting interested third parties and the Member States to submit their comments to the Commission within 30 days in accordance with Article 5 (2) of Regulation (EEC) No 3975/87. (4) On 1 July 2002, the Commission notified the Parties pursuant to Article 5 (3) of Regulation (EEC) No 3975/87 that there were serious doubts as to the applicability of Article 81 (3) of the Treaty to the notified agreements. (5) The Parties replied to Commission’s letter on 17 September 2002 and intensive discussions took place with a view to exploring adequate solutions for the problems identified in that letter. (6) Those discussions resulted in the Parties submitting a proposal for commitments. On 9 December 2003, the Commission published those proposed commitments in a notice in the Official Journal of the European Communities pursuant to Article 16(3) of Regulation (EEC) No 3975/87, inviting all interested third parties to submit their observations. 2. THE PARTIES 2.1. Air France (7) Air France (AF) is the parent company of the Air France group. Air France is the second largest airline in Europe (before British Airways and just after Lufthansa) in terms of total scheduled passengers transported5. The French State owns approximately 54% of Air France. Private and institutional investors own 33% and employees 13%. The consolidated world-wide turnover of the Air France group in 2002/2003 was EUR 12.7 billion. 2.2. Alitalia (8) Alitalia (AZ) is the ultimate parent company of the Alitalia group. Alitalia is the sixth largest airline in Europe in terms of total scheduled passengers transported. The Italian State owns approximately 62% of Alitalia and private investors own 35%. The consolidated world-wide turnover of the Alitalia group in 2002 was EUR 4.8 billion. 3. THE COOPERATION AGREEMENTS BETWEEN AIR FRANCE AND ALITALIA (9) Through their cooperation, the Parties seek to establish a far-reaching strategic bilateral alliance, the main elements of which are as follows : (a) creation of a European multi-hub system based on Air France’s hub at Paris Charles de Gaulle and Alitalia’s hubs at Rome Fiumicino and Milan Malpensa, in order to interconnect their world-wide networks; (b) coordination of the Parties’ passenger service operations, including extensive use of code-sharing, coordination of their scheduled passenger network, sales, 5 Source: Yearbook 2003 of AEA, the Association of European Airlines. 3 revenue management, mutual recognition of their respective Frequent Flyer Programmes, marketing coordination and share of lounge usage, (c) cooperation in other areas, such as cargo operations, passenger handling, maintenance, purchasing, catering, information technology, fleet development and purchase, crew training and revenue accounting. (10) The alliance is governed by […] agreements signed on 27 July 2001 […]. (11) The Parties intend to enter into a long-term cooperation over an initial period of […] years, extendable for subsequent periods of […] years. The alliance can only be terminated under specific circumstances […]. (12) The Parties envisage that further integration may lead to a full merger if and when the circumstances are appropriate. Within the short-term, only a cross- shareholding is envisaged. (13) The cooperation is being implemented progressively. The main elements are already operational since the beginning of the 2002 IATA Summer Season, which started at the end of March 2002. (14) The cooperation is closer on the France-Italy "Bundle", which includes, according to the definition adopted by the Parties, all the routes between France and Italy operated by Air France and/or Alitalia, excluding beyond and behind flights, whether domestic or international. Section 3.1 below describes the "basic" cooperation that the Parties will implement as regards the air transport of passengers. The "enhanced" cooperation within the Bundle is described in section 3.2. 3.1. General cooperation regarding the transport of passengers 3.1.1. Code-sharing, network coordination and route cooperation (15) AF and AZ will make extensive use of code-sharing on scheduled services world- wide, everywhere relevant on their respective networks, except where there exist aeropolitical constraints6 or technical limitations. The code-sharing will be on a "free-flow" basis, which means that there is no pre-established limit on the number of seats that each Party can sell on the code-shared flights. (16) […]. (17) The Parties will use reasonable efforts to coordinate their flight schedules in order to minimise the waiting times of connecting passengers. 3.1.2. Coordination on pricing and sales (18) The Parties will coordinate their prices where possible. The key markets and the relevant city pairs for which common pricing will be developed will be identified by the Parties in due course, taking into account the common presence on the market, the market position and bilateral or Governmental issues (for example, third-country code sharing) 6 An example is the case of a bilateral agreement concluded by France with a third country that acts as an obstacle for AZ to add its code to the AF-operated flight between France and that third country. 4 (19) The sales forces of the Parties will remain separate in their respective markets, but their policies will be coordinated. Each Party will keep its own reservation and ticketing system. Links will, however, be implemented between the different systems. […] 3.1.3. Mutual recognition of the respective Frequent Flyer Programmes (20) For the time being, each Party will keep its own Frequent Flyer Programme (FFP). A progressive convergence to a Sky Team FFP could be envisaged later. The Parties have signed mutual recognition agreements for their respective FFPs which will allow the members of either Party's FFP to earn and redeem points when travelling with the other Party. Compensation payments will be established between the Parties in order to settle what the Parties owe each other in relation to the mutual recognition of FFPs. 3.2. Cooperation on the France-Italy Bundle as regards the transport of passengers (21) On the France-Italy Bundle, in addition to the Parties’ overall cooperation described in section 3.1 above, the Parties also share their earnings and their capacities. The sharing of capacities also includes an agreement on the frequencies of the flights. 3.2.1. Sharing of earnings (22) Since April 2002, AF and AZ have been sharing the earnings derived from the France-Italy Bundle […]. The convergence to a 50/50% sharing will be achieved progressively […]. In order to facilitate the sharing of earnings, harmonised accounting criteria and procedures will be adopted. (23) The Parties will agree annually on the budget of the Bundle […]. 3.2.2. Sharing of capacities and agreement on the frequencies (24) The Parties plan to achieve a 50/50 % sharing of passenger capacity (measured as the number of offered seats per week) on the Bundle within a period of 4 years. […]. (25) Under the agreement, [the parties also agree on frequencies]. 3.3. Cooperation on cargo operations (26) The Parties will also cooperate in the field of cargo transport world-wide.