EC competition authorities have begun an investigation into commission payments to travel agents by eight European flag carriers - Air France, Alitalia, Austrian Airlines, KLM, Lufthansa, Sabena, SAS and Olympic Airways. If they are found to be abusing their dominant positions in their local markets, they could face stiff fines.
The probe was sparked by counter complaints last year by BA which had itself become the subject of a complaint by Virgin Atlantic. The latter argued that BA's incentive schemes for travel agents effectively excluded it and other BA competitors from the UK air travel market. "BAhas 40% of slots at Heathrow and probably accounts for 40% of travel agents' turnover. It's because of its dominant position that these practices become anticompetitive," says Virgin Atlantic.
The EC has concluded its probe by fining the UK flag carrier 6.8 million euros ($7.1 million), but BA insists that it has done nothing that other airlines are not also doing and plans to appeal to the European Court in Luxembourg.
"The practices for which BA is being fined are common throughout the world," says Chris Allen, BA head of competition and industrial affairs. "BA naturally feels a little aggrieved that, of all the carriers worldwide, it is the one singled out to be found guilty and fined," he says, adding that BA is "pretty confident" that "it will be heard on the appeal".
The European Commission's competition authority, the DGIV, argues that BA has "abused its dominant position" in the UK market. BA's incentive scheme, involving extra commission payments in return for agents meeting or exceeding their previous year's sales of BA tickets, "makes the travel agents loyal to BA, discouraging them from selling travel agency services to other airlines and has created an illegal barrier to airlines that wish to compete against BA on the UK markets for air transport", the DGIV argues. BA has been fined because the commissions it paid to travel agents were "equivalent to a 'loyalty discount', based not on cost savings but on loyalty of the type condemned as an exclusionary abuse of a dominant position in the past-It is well established community law that a dominant supplier cannot give incentives to its customers and distributors to be loyal to it, so foreclosing the market from the dominant firm's competitors".
To avoid falling foul of competition law in the future, BA and the EC have identified a set of principles that, says the EC, "will establish clear guidance for any other airline in a similar situation".
The principles stipulate that the levels of commission paid to travel agents must reflect only variations in the costs of distribution or in the value of services provided. Commission levels must not have targets expressed by reference to the sales made by the agent in a preceding period. In addition, agents must be free to sell the tickets of any other airline and the goods or services supplied by any third party.
A leading Brussels competition lawyer describes the DGIV's ruling as "significant". It has sent "a clear message" to other airlines, which are "on notice" to adapt their arrangements with travel agents, he says. The formal finding that BA is dominant in the UK market is also "of huge importance", he adds, because the company is more vulnerable to legal action for anticompetitive behaviour.
Source: Airline Business
