Euro-liberalisation: the commissioners' views February 1999

Is the glass of liberalisation in Europe half–full or half–empty? It depends on which European commissioner you talk to. Karel Van Miert, who is commissioner of the competition directorate (DG4), seems more than a little irritated with the way the airlines are behaving; he seems to consider that liberalisation has been a great disappointment. Transport commissioner Neil Kinnock (DG7), on the other hand, is well pleased with the flock of new entrants and the spread of new, lower fares around the continent. For him, plainly, liberalisation has been pretty successful so far, and he looks forward to the next stage in the process — a true bilateral “open skies” deal between the EU and the US, rather than the clutch of lop–sided national bilaterals the US has rammed through on what Mr Kinnock sees as its own terms.

First, Mr Van Miert’s moans. It seems just about every time the commissioner gets on a plane from Brussels to visit another European capital he finds something wanting. Not long before Christmas he was irritated to find his Sabena flight back from Madrid cancelled because of technical problems; worse, the other airline on the route, Iberia, would not honour his ticket and accept him without charge on its next available flight.

Thus was the competition commissioner experiencing one of the growing irritations of air travel today. Interlining, in this age of creeping liberalisation, is not what it was: airlines no longer accept each other’s tickets at face value. This might be fair enough where there is genuine price competition. What irks passengers, especially when they are as important or knowledgeable as the EU’s competition commissioner, is that the loss of easy transfer from airline to airline can occur even on a route such as Brussels–Madrid where there are only two operators, co–ordinated fares and really no price competition. He asks whether it is reasonable to allow price consultation if interlining is no longer working as it should. In other words, why should IATA route consultation be free from antitrust scrutiny if it no longer offers any of the countervailing benefits, such as interlining?

Experiences such as this, plus a growing pile of complaints, are going to lead to an inquiry by Mr Van Miert’s department, probably starting in June, into how air liberalisation is working. In particular, he says he wants to concentrate on how code–sharing and alliances are working in practice within the EU market.

Although not in principle opposed to alliances, he says he is concerned enough about how they are working to want them formally investigated as to how they affect the internal EU market. All this must seem a bit rich to the likes of British Airways, Lufthansa and others whose international alliances are already under scrutiny.

Other worries

Mr Van Miert has other concerns about the behaviour of the big airlines. He worries about their use of predatory pricing to shut out new entrants. He says he was particularly disappointed when, as a condition for Brussels to approve their alliance, Lufthansa and SAS had to give up 192 slots, mostly at Frankfurt. The problem was that no other airlines came forward to take them up; he implies this is because competitors were scared of getting involved in a running battle with the incumbent airlines on their home patch.

Despite his catalogue of deficiencies, even Mr Van Miert concedes that liberalisation has brought increased competition for non time–sensitive travellers. Those passengers prepared to accept weekend stay–overs or other conditions on a non–flexible ticket, he concedes, have seen a growth of competition to serve them.

For the transport commissioner Neil Kinnock, Mr Van Miert’s obsession with the travails of business–class passengers seems a little quaint and misguided. Mr Kinnock rejoices in the 20–odd start–up airlines that have survived as independents since liberalisation started for real in 1993. He points out that 95% of European air travel is now done on the basis of fares lower than the IATAapproved set fares. Before liberalisation, the figure would have been only 50%, and entirely a result of charter holiday flights.

He regards Mr Van Miert’s narrow fixation on the high fares suffered by only a tiny sliver of the market as misleading, given the overall picture. “Liberalisation has been a success,” he declares.

Like Mr Van Miert, Mr Kinnock would like to see more new entrants coming into the routes where there is limited competition. But he thinks you have to be realistic. “The problem is the low volume routes,” he says. To get competition in from a third party (in addition to the two national flag carriers) needs attractive volumes. So it is really market demand that attracts competition, which in turn causes lower prices. Mr Kinnock accepts that there are problems not only with low volume “thin” routes but with time–sensitive and business class fares, cited by his colleague.

Although he finds it tempting to consider residual powers enabling the Commission to intervene, he prefers to leave it to market forces to alter the situation. Another development he would like to see is airlines making more use of freedoms they have enjoyed since liberalisation, such as fifth freedoms and consecutive and full cabotage.

Unlike his competition colleague, Mr Kinnock is not worried about alliances, accepting that in a globally regulated market such as aviation they are a second–best way of achieving rationalisation and global reach. He would just like to see European airlines playing a bigger global role on the back of their liberalised internal market.

One way for that to happen would be for the national governments to give the Commission a wide–ranging mandate to negotiate with the Americans. He thinks the existing national “open skies” deals favour the Americans too much, giving them powers to operate within the EU, which sooner or later they will use to mop up their own spare capacity. For European airlines to become global players they need, in Mr Kinnock’s eyes, freedom to fly to destinations across and beyond the US, rather than just into gateways.

Whichever of these Brussels views of aviation is correct is probably largely irrelevant. The whole Commission comes up for renewal at the end of the year (having just survived a censorship motion by the European Parliament). If the next incumbents of transport and competition take a different view then international airline alliances in particular and American airlines in general can breathe a sigh of relief.

But the permanent officials who have done so much to develop the clout of Mr Van Miert in competition matters (although some appear unnecessarily intrusive) and the clear policies of Mr Kinnock across his transport beat (although many have yet to be implemented) will still be there and eager to stir things up.