Office of Fair Trading Approves Airline Merger after Competition Concerns Alleviated
On October 24, the Office of Fair Trading announced that it would approve the acquisition of VLM Airlines by the Air France-KLM group, after they worked out a deal to increase competition on a popular route.
Air France-KLM, which is the parent company of KLM Royal Dutch Airlines, sought to acquire VLM airlines, one of Europe’s leading regional carriers catering primarily to business travelers. The Office of Fair Trading expressed concerns that the merger would substantially lessen competition in the route between London City Airport and Amsterdam Schipol Airport, particularly for business travelers. Passengers spend over £ 50 million flying on that particular route each year.
The OFT was concerned about the competition on that particular route for three reasons. First, the route could be considered a separate market, since enough business passengers like the ease of that route, especially when compared against using Heathrow or other London airports. The second concern was that the merging parties are each other’s closest competitors on the route, with a combined share per week of 70 to 80 percent of both seat capacity and number of flights. The airlines could have decided to cut flights on that route in order to drive up fairs. Finally, there was concern that another airline couldn’t compensate for the lost competition on that route, because of airport capacity restraints. In particular, new players to the airports could not obtain key peak time take-off and landing spots.
To address these issues, Air France-KLM offered a “slot divestment” which would make peak time airport slots on the London City Airport to Amsterdam Schipol Airport route that were previously used by Air France-KLM available to a new entrant to the market. In exchange, the OFT agreed it would not refer the matter to the Competition Commission, but insisted on the right to approve the new entrant up front before making a final decision. “A key lesson from abroad is that an incumbent airline’s offer to make slots available does not guarantee that a competitor would take up the offer and enter onto the route and so some past airline merger remedies failed to achieve their goal of restoring competition,” the OFT reasoned.
The OFT gave approval to the transfer of some of the slots on that route to the UK’s Eastern Airlines. Eastern proposes to offer eight daily services on weekdays, with four flights at peak times. Eastern will begin offering those flights in January 2009.
About the author: Jason Hardy is an avid writer on legal issues, including international writing about many subjects including european antitrust lawsuits. Eu competition law interests Jason particularly. He resides in Seattle, Washington.
Air France-KLM, which is the parent company of KLM Royal Dutch Airlines, sought to acquire VLM airlines, one of Europe’s leading regional carriers catering primarily to business travelers. The Office of Fair Trading expressed concerns that the merger would substantially lessen competition in the route between London City Airport and Amsterdam Schipol Airport, particularly for business travelers. Passengers spend over £ 50 million flying on that particular route each year.
The OFT was concerned about the competition on that particular route for three reasons. First, the route could be considered a separate market, since enough business passengers like the ease of that route, especially when compared against using Heathrow or other London airports. The second concern was that the merging parties are each other’s closest competitors on the route, with a combined share per week of 70 to 80 percent of both seat capacity and number of flights. The airlines could have decided to cut flights on that route in order to drive up fairs. Finally, there was concern that another airline couldn’t compensate for the lost competition on that route, because of airport capacity restraints. In particular, new players to the airports could not obtain key peak time take-off and landing spots.
To address these issues, Air France-KLM offered a “slot divestment” which would make peak time airport slots on the London City Airport to Amsterdam Schipol Airport route that were previously used by Air France-KLM available to a new entrant to the market. In exchange, the OFT agreed it would not refer the matter to the Competition Commission, but insisted on the right to approve the new entrant up front before making a final decision. “A key lesson from abroad is that an incumbent airline’s offer to make slots available does not guarantee that a competitor would take up the offer and enter onto the route and so some past airline merger remedies failed to achieve their goal of restoring competition,” the OFT reasoned.
The OFT gave approval to the transfer of some of the slots on that route to the UK’s Eastern Airlines. Eastern proposes to offer eight daily services on weekdays, with four flights at peak times. Eastern will begin offering those flights in January 2009.
About the author: Jason Hardy is an avid writer on legal issues, including international writing about many subjects including european antitrust lawsuits. Eu competition law interests Jason particularly. He resides in Seattle, Washington.
Labels: airline, eu competition law, eu law, european antitrust lawsuits, France, KLM
posted by European Antitrust Law at
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