Easyjet brings the AF/KLM merger to the Luxemburg court. [Archive]

buzz boy

18th May 2004, 11:53

In English!!

easyJet has submitted an appeal to the Court of First Instance in Luxembourg, requesting that the Court annul the European Commission's clearance of the Air France/KLM merger.

easyJet wholeheartedly supports the much-needed consolidation of the European airline industry and has long argued that it is unsustainable for each and every country to have its own national airline. It is vital, however, that the interests of consumers come first as consolidation occurs.

French consumers, particularly in Paris, already have to suffer less choice of airlines and higher air fares than elsewhere in Europe, so it was vital that the European Commission did not take any steps that would have resulted in a further drop in competition. Unfortunately, the Commission got it wrong.

easyJet believes that consumer choice will be substantially reduced by the Air France and KLM merger and, given the precedent it is likely to set for all future mergers, the European Commission should not have given its approval for the merger on the following grounds:

the Commission's acceptance of remedies proposed by Air France and KLM that manifestly do not restore effective competition on the routes where their services overlap and where they enjoy a dominant position
the Commission's failure to consider the impact of the merger on the impregnable dominance of Air France and KLM at their respective hubs in Paris and Amsterdam
the Commission's failure to consider KLM as a potential competitor to Air France in the new regulatory environment likely to emerge as a result of the "open skies" negotiations currently taking place between the EU and third countries, notably the US
the Commission's failure to support its conclusion that Paris Charles de Gaulle and Paris Orly are substitutable airports for consumers in Paris
the Commission's failure to consider the enhancement of the merged airline's dominance on routes beyond those where the services of Air France and KLM currently overlap
In reviewing the Commission's clearance of the merger and the justifications it set forth, easyJet was particularly troubled by:

the Commission's acceptance of remedies that do not live up to the standards of its own published guidelines, known in legal circles as the "Notice on Remedies"
the Commission's failure to assess the merger in accordance with established case-law and precedent
easyJet Chief Executive, Ray Webster, said:

"The Air France and KLM merger can be considered the starting gun for the forthcoming much-needed consolidation of European aviation. easyJet wholeheartedly supports this consolidation - there are far too many national airlines in Europe. However, the interests of consumers must always come first and it is the European Commission's duty to ensure that this is the case.

"The two main Paris airports (Charles de Gaulle and Orly) are among the most slot-constrained in Europe. Moreover, there are a number of significant barriers to entry that prevent any degree of network competition to Air France. As a result, airfares are higher and consumers have much less choice than in almost any other major market in Europe. The Commission should not have taken any steps that would have had the effect of increasing the dominance of Air France in this hugely constrained market.

"Instead, it is allowing the two airlines to hand over a few slots on a miniscule number of routes. Any airline trying to compete on the Paris to Amsterdam route between the hub airports of these two national airlines without a much wider presence in the market is likely to fail.

"The Commission has a duty, laid out in the Merger Regulation, to take unambiguous action to protect against structural changes that create or strengthen dominant undertakings in the common market. It is clear that, in its current form, the Air France and KLM merger strengthens the dominant position of Air France and would set a worrying precedent for all future consolidation."

Notes

The application for annulment was submitted on Friday, 14 May 2004.

In April, easyJet began a campaign to raise consumer awareness of the raw deal suffered by French air travellers and called for a number of substantial changes to be made in order to increase airline competition and decrease air fares in France. easyJet is particularly concerned with the following facts:

1. Air travellers in France face a lower level of low-cost airline penetration than almost any other country in Europe:

Low-cost airlines account for only 4% of domestic air travel, compared to 42% in the UK; 18% in Germany and 14% in Italy
Low-cost airlines have a presence on 20% of intra-EU routes from France, compared to 39% from the UK and 30% from Italy
Only 9% of air travellers leaving Paris for other destinations in the EU travel on low-cost airlines, compared to 39% from Berlin, 38% from Dublin, and 35% from London.
2. No other major European market is so dominated by its national airline:

Air France accounts for 74% of the domestic French air market.
Air France has a monopoly on 27 out of 42 routes out of Paris, with meaningful competition on only three routes (Marseilles, Nice, Toulouse)
Air France is the only European flag carrier to have increased its domestic market share from 1996 to 2003
Air France accounts for 53% of take-off and landing slots at Orly Airport and 74% at Charles de Gaulle. No other European airline dominates its capital city airports to this extent.
On Monday, 10 May, easyJet announced that it will be taking legal action against COHOR, the French slot allocator over its lack of independence from Air France. The lack of access to slots at the Paris airports of Orly and Charles de Gaulle is a key structural barrier to greater airline competition in France. Despite being the number two airline in France, easyJet remains far behind Air France and is not able to secure a sufficiently attractive number of slots to develop its network as elsewhere in Europe.

EU rules dictate that slots must be allocated in a manner that is 'neutral, transparent and non-discriminatory' by an appointed slot co-ordinator whose 'neutrality should be unquestioned'. easyJet contends that:

COHOR's independence from Air France is seriously questionable
COHOR's by-laws grant a great deal of power to its founding members - principally Air France
Air France's slot holding is an anomaly by European standards
It must also be noted that the slot allocator's point of contact at the Civil Aviation authority, the DGAC, sits on the Air France board as well as the Director General of the DGAC.