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Press releases 2002 -

Airline alliance gets clearance from OFT

PN 71/02     1 November 2002

An airline alliance between British Midland and United Airlines will provide benefits to consumers that outweigh its anti-competitive effects, the OFT has ruled.

The agreement between British Midland Airways Ltd (trading as bmi british midland) and the US carrier United Airlines covers key areas such as route, schedule and price co-ordination as well as joint marketing, revenue sharing and codesharing.

The OFT considers that, if implemented, the agreement would infringe Article 81(1) of the EC Treaty, which prohibits agreements between undertakings that would prevent, restrict or distort competition. However the OFT has decided that the requirements for an individual exemption under Article 81(3) have been met.

The central element of the agreement is cooperation on transatlantic services between London Heathrow and the US. The OFT expects the alliance to create benefits for consumers including new and improved connecting and non-stop services.

The exemption will take effect from the date that current restrictions preventing British Midland from operating flights between London Heathrow and the US are lifted. The alliance exemption will be granted for a period of seven years from that date or until 31 December 2010, whichever is earlier. Restrictions in air services between London and the US have recently been the subject of discussions between the US and UK governments. The discussions are still on-going.

The agreement will also benefit from an exemption from the Chapter I prohibition of the Competition Act 1998.

Announcing the decision John Vickers, Director General of Fair Trading said:

'Competition law is pro-consumer. The OFT has cleared the agreement between British Midland and United because, if transatlantic air services are opened up so that the agreement comes into effect, the alliance should bring benefits to passengers.'

NOTES

1. British Midland and United Airlines notified their proposed Alliance Expansion Agreement (the Agreement) to the OFT under the EC Competition Law (Articles 84 and 85) Enforcement Regulations 2001. The Agreement will not be implemented until the current restrictions preventing British Midland operating transatlantic services out of Heathrow are lifted. Details of the notification can be found on the public register.

2. The Enforcement Regulations provide for enforcement of Articles 81 and 82 of the EC Treaty in cases involving air transport services between EC Member States and non-Member States or in respect of international maritime tramp vessel services. For these cases the UK has a duty to apply Articles 81 and 82.

3. Article 81 prohibits agreements between undertakings which have as their object or effect the prevention, restriction or distortion of competition within the common market and which may affect trade between Member States. However there is provision under Article 81(3) to grant an individual exemption from the prohibition to an agreement that contributes to improving production or distribution, or to promoting technical or economic progress, while allowing consumers a fair share of the benefit. However the agreement must also not contain restrictions that are not indispensable to the attainment of those objectives and must not afford the parties the possibility of eliminating competition in respect of a substantial part of the products concerned. An agreement must be notified to receive an individual exemption.

4. An agreement which is exempt from the Article 81(1) prohibition by virtue of a decision by the Director under the Enforcement Regulations, will also be exempt from the Chapter I prohibition of the Competition Act 1998, provided that the Director has not made a finding that the agreement has effects in the UK which are incompatible with the criteria for individual exemption set out in the Competition Act 1998.

5. The OFT consulted on the proposal to grant an individual exemption to the bmi/United Airlines alliance. (See PN 48/02). Representations received as part of the consultation process have been taken into account in reaching the final decision.

6. In this press release the functions of the Director General of Fair Trading (DGFT) are for simplicity described as the functions of 'the OFT'. The Enterprise Bill proposes to replace the office of the DGFT with the OFT, to which would be transferred the DGFT's functions.




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