It's the classic chicken and egg situation. The European Commission says the lack of formal complaints proves that predatory pricing is not a burning issue in Europe. But carriers are discouraged by the length of the investigation and the high legal costs.

Last year four allegations of predatory pricing by startups became public but two of them were informal, of which one was made by the now defunct UK startup World Airlines. Moreover, VLM, which lodged a formal complaint against BA franchisee CityFlyer Express in June 1996, has now dropped its complaint but refuses to say why.

Potential plaintiffs are left with only one case to follow - the Commission's investigation into EasyJet's formal complaint of predatory pricing by KLM on London-Amsterdam. Brussels officials raided KLM's offices in February and the Dutch carrier is expected to reply to the Commission enquiry in early May.

Brussels will then decide whether to issue a statement of objections to KLM. To find against KLM, the Commission needs proof that the carrier's revenue from the service does not cover its average variable costs of operating. The Commission could also find against KLM if it concludes that revenue does not cover average total costs of operation and that at the same time the carrier is acting with anticompetitive intent, explains Trevor Soames of lawyers Norton Rose.

Although EasyJet chairman Stelios Haji-Ioannou is encouraged by the Commission's actions, he bemoans the time that he expects the investigation to take. 'One of the problems of dealing with the Commission is that it's inefficient,' he says. The time needed to investigate a complaint appears to be one reason why many airlines launch informal, rather than formal complaints.

Carriers may also opt for informal complaints to simply put pressure on the other airline to withdraw. 'It's faster than waiting for us to act given the handcuffs on us most of the time,' says another Commission source.

Cost also deters airlines from launching a formal complaint. 'It can cost you an arm and a leg to hire a team of lawyers,' the official states.

One lawyer, however, is urging airlines to make formal complaints, stating that the Commission is unlikely to react to an informal complaint. 'You don't fight a battle waving a feather with your hands behind your back.' But he goes on to add that any potential complainant must be certain that they have a reasonable case. 'Airlines are perfectly able to react competitively by lowering prices.'

The sentiment is shared by the Commission. 'Complaining of low prices and competition is not a good way to start,' states an official.


Source: Airline Business