The Competition and Markets Authority (CMA) has imposed measures designed to protect competition on UK-US air routes while it investigates an agreement involving British Airways and American Airlines.
A set of binding commitments to allow competition in the lucrative transatlantic sector, signed in 2010 after a competition investigation into the Atlantic Joint Business Agreement (AJBA), is due to expire next year.
But given the current uncertainty in the aviation industry, the CMA said its interim measures would be in place for a further three years until the market stabilises.
Five airlines are currently signed up to the AJBA: three members of the International Airlines Group (British Airways (BA), Iberia and Aer Lingus), American Airlines (AA) and Finnair. The CMA said BA and AA are ‘the key UK and US parties to the AJBA’.
Under the terms of the AJBA, these airlines have agreed not to compete on routes between the UK and the US. The CMA said the 2010 commitments were designed to protect competition by requiring the AJBA airlines to release slots to competitors and provide other measures supportive of competition on certain routes.
The CMA said its investigation to date has examined the competition impact on UK-US routes from the AJBA. It assessed the competition from other airlines on each route and the benefits that the AJBA may deliver, which is said included ‘improved schedules, connections and new routes’.
The CMA identified possible competition concerns on routes between London and each of Boston, Chicago, Dallas, Miami and Philadelphia.
In May 2020, the CMA consulted on a new set of binding commitments offered by BA and AA to try to resolve its concerns. The airlines offered to make slots available at Heathrow or Gatwick airports for up to 10 years as part of a wider package of measures.
Consultation respondents referred to the exceptional circumstances brought about by the Covid-19 pandemic and some requested the CMA should ‘roll-over’ the 2010 commitments and/or pause its investigation until the sector is in recovery. The CMA said ‘there remains considerable uncertainty about the extent and duration of the impact of the pandemic on the transatlantic aviation sector’.
The CMA said it cannot be confident that its assessment of competition concerns, and any remedies that might address them, would adequately reflect the post-pandemic state of competition in the longer term – and decided not to accept the proposed 10-year binding commitments.
Instead, the CMA said it will keep its investigation open and has imposed ‘interim measures’, effectively extending the terms of the 2010 commitments for an additional three years until March 2024, by which time it expects the airline sector to be in a more stable position.
Airlines currently operating slots on London to Boston, Dallas and Miami routes will continue to operate these slots for an additional year, until March 2022 at which point a tender process will take place for these slots for the remaining two years. A tender process will be undertaken this autumn in relation to a second slot on the London to Boston route.
The CMA said it plans to complete its investigation prior to March 2024 and, if appropriate, put in place a longer-term remedy, before the interim measures expire. It will have responsibility for ensuring the ongoing implementation and enforcement of the measures during this period.
Ann Pope, senior director, Antitrust, at the CMA, said: “The CMA launched this investigation because we were concerned that, with the expiry of the current commitments, consumers might lose out. Without the CMA’s measures the competition concerns on the key routes between the UK and the US remain. On some of these routes there are either few or no other airlines offering direct flights to passengers.
“It is clear from market developments and responses to our consultation in May that we cannot be confident that the commitments we had been considering will resolve our competition concerns at this time. We are therefore imposing interim measures to extend the effect of the current commitments until the CMA can complete its review of the agreement once the sector is in recovery.”
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