Airline Mergers and Alliances 1999 The OECD Competition Committee debated airline mergers and alliances in October 1999. This document includes an executive summary and the documents from the meeting: an analytical note by Mr. Darryl Biggar for the OECD, written submissions from Australia, the Czech Republic, Denmark, Italy, Japan, Mexico, Norway, Poland, the United Kingdom, the United States, the European Commission, BIAC, ICC, as well as an aide-memoire of the discussion. Although airlines have long sought to enter alliances with one another, the last decade has seen an important new development - the crystallisation of international airline alliances around a small number of major airline groupings. The scope and nature of these alliances differ, but there is a tendency towards deeper alliances involving co-operation on all aspects of the airline business. These super-alliances are coming as close to actual mergers as aviation’s Byzantine regulations allow, raising fundamental questions for competition policy-makers and enforcers. Alliances have the potential both to enhance the level and quality of services offered to consumers and, at the same time to significantly restrict competition. Why do airlines seek to enter such alliances? What are the benefits to the airlines or consumers? How do alliances restrict competition? What is the role played by frequent-flyer programmes and other loyalty schemes? What remedies should competition authorities consider to alleviate the harmful effects of alliances? What is the appropriate role for international co-operation between authorities? Competition Issues in Joint Ventures (2000) Competition Policy and International Airport Services (1997) Unclassified DAFFE/CLP(2000)1 Organisation de Coopération et de Développement Economiques OLIS : 26-Jan-2000 Organisation for Economic Co-operation and Development Dist. : 01-Feb-2000 __________________________________________________________________________________________ English text only DIRECTORATE FOR FINANCIAL, FISCAL AND ENTERPRISE AFFAIRS Unclassified DAFFE/CLP(2000)1 COMMITTEE ON COMPETITION LAW AND POLICY AIRLINE MERGERS AND ALLIANCES English text only 86689 Document complet disponible sur OLIS dans son format d’origine Complete document available on OLIS in its original format DAFFE/CLP(2000)1 FOREWORD This document comprises proceedings in the original languages of a Roundtable on Airline Mergers and Alliances which was held by the Committee on Competition Law and Policy in October 1999. It is published under the responsibility of the Secretary General of the OECD to bring information on this topic to the attention of a wider audience. This compilation is one of several published in a series entitled "Competition Policy Roundtables". PRÉFACE Ce document rassemble la documentation dans la langue d'origine dans laquelle elle a été soumise, relative à une table ronde sur les fusions et les alliances des compagnies aériennes, qui s'est tenue en octobre 1999 dans le cadre de la réunion du Comité du droit et de la politique de la concurrence. Il est publié sous la responsabilité du Secrétaire général de l'OCDE, afin de porter à la connaissance d'un large public les éléments d'information qui ont été réunis à cette occasion. Cette compilation fait partie de la série intitulée "Les tables rondes sur la politique de la concurrence". Visit our Internet Site -- Consultez notre site Internet http://www.oecd.org/daf/clp 2 DAFFE/CLP(2000)1 OTHER TITLES SERIES ROUNDTABLES ON COMPETITION POLICY 1. Competition Policy and Environment OCDE/GD(96)22 2. Failing Firm Defence OCDE/GD(96)23 3. Competition Policy and Film Distribution OCDE/GD(96)60 4. Competition Policy and Efficiency Claims in Horizontal Agreements OCDE/GD(96)65 5. The Essential Facilities Concept OCDE/GD(96)113 6. Competition in Telecommunications OCDE/GD(96)114 7. The Reform of International Satellite Organisations OCDE/GD(96)123 8. Abuse of Dominance and Monopolisation OCDE/GD(96)131 9. Application of Competition Policy to High Tech Markets OCDE/GD(97)44 10. General Cartel Bans: Criteria for Exemption for Small and Medium-sized Enterprises OCDE/GD(97)53 11. Competition Issues related to Sports OCDE/GD(97)128 12. Application of Competition Policy to the Electricity Sector OCDE/GD(97)132 13. Judicial Enforcement of Competition Law OCDE/GD(97)200 14. Resale Price Maintenance OCDE/GD(97)229 15. Railways: Structure, Regulation and Competition Policy DAFFE/CLP(98)1 16. Competition Policy and International Airport Services DAFFE/CLP(98)3 17. Enhancing the Role of Competition in the Regulation of Banks DAFFE/CLP(98)16 18. Competitition Policy and Intellectual Property Rights DAFFE/CLP(98)18 19. Competition and Related Regulation Issues in the Insurance Industry DAFFE/CLP(98)20 20. Competition Policy and Procurement Markets DAFFE/CLP(99)3 21. Regulation and Competition Issues in Broadcasting in the light of Convergence DAFFE/CLP(99)1 3 DAFFE/CLP(2000)1 22. Relationship between Regulators and Competition Authorities DAFFE/CLP(99)8 23. Buying Power of Multiproduct Retailers DAFFE/CLP(99)21 24. Promoting Competition in Potal Services DAFFE/CLP(99)22 25. Oligopoly DAFFE/CLP(99)25 4 DAFFE/CLP(2000)1 TABLE OF CONTENTS EXECUTIVE SUMMARY .......................................................................................................................... 7 SYNTHÈSE................................................................................................................................................ 15 BACKGROUND NOTE ............................................................................................................................ 25 NOTE DE RÉFÉRENCE ...........................................................................................................................65 SECRETARIAT SUGGESTED QUESTIONS FOR DELEGATES' CONTRIBUTIONS ..................... 111 QUESTIONS DU SECRETARIAT SUGGÉRÉES POUR LES CONTRIBUTIONS DES DÉLÉGUÉS ............................................................................................................................... …..117 NATIONAL CONTRIBUTIONS Australia .................................................................................................................................... 123 Czech Republic ......................................................................................................................... 135 Denmark.................................................................................................................................... 139 Italy….. ..................................................................................................................................... 147 Japan ...................................................................................................................................... 155 Mexico ...................................................................................................................................... 163 Norway...................................................................................................................................... 171 Poland ...................................................................................................................................... 177 United Kingdom........................................................................................................................ 183 United States, Department of Justice, Antitrust Division ......................................................... 199 European Commission .............................................................................................................. 207 OTHERS United States Department of Transportation............................................................................. 221 BIAC Gerald L. Baliles (Hunton & Williams) .................................................................................... 231 United Airlines.......................................................................................................................... 233 James E. Bennett ....................................................................................................................... 247 International Chamber of Commerce........................................................................................ 251 AIDE-MEMOIRE OF THE DISCUSSION ............................................................................................. 259 AIDE-MÉMOIRE DE LA DISCUSSION ............................................................................................... 281 5 DAFFE/CLP(2000)1 6 DAFFE/CLP(2000)1 EXECUTIVE SUMMARY by the Secretariat In the light of the written submissions, the background note and the oral discussion, the following points emerge: (1) Travellers differ widely, in their ability to be flexible about origin and destination airports and about time and day of travel, and in their opportunity cost of time spent travelling. Because most travellers are not flexible about their origin and destination cities, airline markets are usually defined as “city-pair” markets, with exceptions in special cases. Travellers who have a lower opportunity cost of travel generally enjoy a wider choice of routes between their origin and destination cities, and hence benefit from a higher level of competition. But for time-sensitive travellers, indirect routes may not be an adequate substitute for non-stop services. Airlines use a variety of ticketing practices to discriminate between time-sensitive and non-time-sensitive passengers.