If your idea of ruling the world is create a bigger and bigger airline, the European Commission generally stands in your way if the monolith you create is such a concentration as to amount to an abuse of a dominant position in the relevant market. The Commission has been busy examining airline consolidations over recent years, and has stood in the way of some merger proposals. Some conditions imposed by the Commission have not been acceptable to the parties, including surrendering numerous slots at key airports.

However, once the credit crunch is added to the equation, coupled with the recent massive rise in aviation fuel leaving some airlines close to insolvency, the competition law landscape seems to have become less fierce. One only has to consider in the UK, the likely merger between Lloyds TSB Bank and HBOS to understand how a severe economic downturn can mean consolidation might be the only way to survive, even though mergers may be anti-competitive.

Much of the earlier success or failure of merger applications to the Commission depends on hearing argument concerning particular markets where a new consolidated airline might be dominant and lead to such a concentration as to requiring Commission control. For example, on 27th June 2007, the Commission issued a decision prohibiting Ryanair’s proposed takeover of Aer Lingus. The Commission decided that the market where the combined airline would operate comprised point to point scheduled services where the takeover would create a monopoly, or a dominant position on 35 routes between Dublin, Shannon and Cork, on which both airlines operated, and that the size of the combined airline would deter any new entrant to the market. The Commission found that the limited number of slots which Ryanair was prepared to give up was insufficient to safeguard competition, and that there was an unprecedented number of overlapping routes between the two airlines.

As if we are in another episode of “Groundhog Day” Ryanair has launched a fresh attempt to acquire Aer Lingus in December 2008. Aer Lingus has been badly hit by surging oil prices and the failing economic climate, and has announced radical job cuts to cut its overheads. Ryanair says that Aer Lingus must accept that the aviation industry has changed. There must be some thought that in such a bad aviation market, competition law regulators are likely to be far more approachable if the result is to rescue an airline that might be approaching severe financial difficulty.

It is therefore not surprising in the current economic climate that a number of airlines are trying to join forces. Lufthansa have done so with Alitalia, as has Air France/KLM with VLM at City Aiport. BA, already in talks with Iberia, announced in early December that it is in merger talks with Quantas Airways. A combined airline would control 43% of the London Heathrow to Sydney route. There is now speculation of a merger between Emirates and Etihad, giving rise to a giant airline based in the Middle East. There is no doubt that some airlines may fail, whilst others are swallowed up in this consolidation activity.

The European Commission must be careful that some of the resulting giant players do not act anti-competitively, contrary to European competition law. At the same time, the European rules on state aid continue to be enforceable, particularly where failing national airlines are propped up by their own domestic government, distorting competition with rival airlines. These subsidies are likely to be more apparent in a difficult economic climate, with fewer passenger numbers and increasing costs. We need to ensure that there is a level playing field when we come out of this recession.

Air Passenger Duty – Once Again the Traveller Pays

To universal condemnation from the travel trade, changes to Air Passenger Duty have been attacked as the highest travel taxes in the world, which would disadvantage UK travellers and airlines, compared to their rivals.

In the pre-budget report announced by the Chancellor of the Exchequer in November, a four band scheme has been introduced, giving rise to increased APD from 2009/2010. These increases are:

i) Band A – for European flights, APD will rise 10% from £10.00, to £11.00 from November 2009 and from November 2010, to £12.00.

ii) Under Band B, where the flight is more than 4,000 miles from November 2009 APD goes up to £45.00, and from November 2010 to £60.00.

iii) For Band C, APD rises next year to £50.00 and to £75.00 in 2010.

iv) For Band D for flights over 6,000 miles, APD now at £40.00, rises to £60 in 2009, and to £85.00 in 2010.

These rises are for economy seats. For business class travellers, those presently paying £80.00 will now pay £110.00 from November 2009, rising to £170.00 in 2010.

Industry commentators state that clearly there is no environmental justification for the rises, and they come at a time when business travel is reeling from the effects of rising costs and falling demand. Once again, the business travel sector is seen by the Government as a cash cow.


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