The European Commission (EC) is proposing to give itself sweeping new powers over air-transport competition, including extending its authority to rule on mergers outside the European Union(EU).

The proposals, if approved by the Council of Ministers, would give the Commission significant influence over alliances, co-operative joint ventures and codesharing arrangements which it may consider to be anti-competitive. In addition, it wants powers over traditional "commercial agreements" on tariffs, capacity, scheduling and revenue/profit pooling arrangements. Offending airlines could face heavy fines. "The practical implications of these changes are enormous," says Trevor Soames, a partner in the Norton Rose international law firm. "If the proposals are adopted, all airlines will need to review their commercial arrangements and business practices as well as their approaches to joint ventures and alliances," he adds.

According to Soames, the new regulations would close a "gaping hole" in EC powers to apply the competition rules to international air-transport services on routes between EU and non-EU countries, or even between two countries outside the Union.

The Commission now exercises control mainly through Article 89 of the EC Treaty, which it has invoked to investigate alliances such as that proposed by American Airlines and British Airways. At present, it cannot grant exemptions or impose fines.

Under the new legislation, the Commission would obtain the power to investigate and prohibit activities on third-country routes which are considered to be anti-competitive or an abuse of a dominant position. Soames says that this would cover "-predatory behaviour intended to eliminate smaller airlines from the market or force them to exit a particular route".

For the first time, the Commission would also gain power to investigate and fine airlines for cartel-type behaviour, such as price fixing on certain routes. Soames believes that the International Air Transport Association (IATA) would have to make "radical" changes to its role in overseeing tariff setting. "It will no longer be able to provide a forum for tariff agreements, particularly on third-country routes," he says.

The EC proposals come after the completion of its third package of air-transport liberalisation in April, and would mirror the international jurisdiction of the US Departments of Justice and Transport to rule on anti-trust and anti-competitive behaviour.

The proposals, however, are likely to be resisted by member states worried about weak national carriers unable to take advantage of further liberalisation.

Source: Flight International