EC Reviewing United-Lufthansa Offer To Surrender New York-Frankfurt Slots - Business Travel News

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EC Reviewing United-Lufthansa Offer To Surrender New York-Frankfurt Slots

February 13, 2013 - 12:05 PM ET

By Amon Cohen

Transatlantic joint-venture partners Lufthansa and United Airlines offered to surrender slots to competitors for Frankfurt-New York flights after the European Commission in October 2012 found that the Atlantic Plus-Plus joint-venture is "likely to restrict competition" on that route "with regard to premium passengers."

Star Alliance founders Lufthansa and United are willing to relinquish up to seven weekly pairs of arrival and departure slots at Frankfurt and either New York JFK or Newark airports. They also offered to make their premium fares combinable with those of other carriers competing on the route; provide pro-rated fares for many multi-leg itineraries that include that route; and to open their loyalty programs to competitors which begin or increase service on the route if those competitors have no equivalent program of their own.

EC on December 21 officially announced the Atlantic Plus-Plus offer and told interested parties to respond within a month. However, the announcement apparently went unnoticed by many in the corporate travel industry.

EC in July 2008 launched an investigation into Atlantic Plus-Plus, which also includes Air Canada and Continental Airlines (now part of United). Through the JV, the airline partners aim to coordinate pricing, capacity, schedules and marketing on transatlantic routes. When EC issued its preliminary assessment in October, it concluded that competition would be restricted only on the Frankfurt-New York route.

"Considering the parties' combined market position on the Frankfurt-New York route and the closeness of competition between Lufthansa and Continental, the cooperation would be ... likely to produce appreciable anticompetitive effects for premium passengers," according to EC. Customers on that route "are relatively price inelastic and largely deprived of significant buying power."

EC added that new competition is "unlikely" due to "substantial barriers to expansion and entry. These barriers to expansion and entry include slot constraints, hub advantages at both Frankfurt airport and New York JFK and Newark Liberty airports, as well as the frequency advantage of the parties."

Since EC launched the investigation more than four years ago, United and Continental merged, and Lufthansa subsidiaries Austrian Airlines and Swiss joined Atlantic Plus-Plus and Frankfurt airport opened a fourth runway.

Ironically, while Atlantic Plus-Plus today faces competition on Frankfurt-New York from Delta Air Lines and Singapore Airlines (a Star Alliance member but not an Atlantic Plus-Plus partner), it enjoys monopolies between Frankfurt and Chicago, San Francisco and Washington. Furthermore, German travel managers continue to express concern about Lufthansa Group monopolies on most city pairs from Germany to Austria, Belgium and Switzerland.

"New York is only the tip of the iceberg," said Hans-Ingo Biehl, executive director of VDR, a German travel managers association. "We see an increasing airline concentration in several markets within Europe and intercontinental traffic. It's quite clear: reduced competition leads to higher prices for consumers, higher costs to corporates, a weakened procurement position and in consequence a diminished travel program. However, open slots don't necessarily mean new competition because of the difficult circumstances and parameters the airline industry is currently facing."

A Germany-based global travel manager speaking on condition of anonymity said he was "encouraged" by EC's finding and asked, "Why don't they look at all the monopolies? It means reduced competition through alignment of rates and capacity. There are fewer suppliers out there for us to talk to."

In response to a question from BTN, an EC spokesperson wrote: "The Commission conducted a detailed competition assessment of all routes covered by the Atlantic Plus-Plus agreement where the parties were (or would otherwise be) in competition. As part of this investigation, the Commission however did not review the routes where the Atlantic Plus-Plus parties' air passenger services did not overlap prior to the cooperation, such as the routes from Germany to Switzerland, Austria and Belgium. These routes formed part of the competition assessment at the time of the respective merger reviews by the Commission."

The spokesperson added that EC now is analyzing Lufthansa's and United's commitments and comments from interested parties. Should it be satisfied that the partners' proposed remedies would be "effective, sufficient and timely," EC may opt to make those commitments binding.  

Asked for a comment on its proposed Frankfurt-New York remedy, a Lufthansa spokesperson said: "We believe that the published commitments address the Commission's concerns. We will continue to work with the Commission to complete its investigation of the joint venture."  

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