Part of its policies and guidance on competition, ICAO has examined the issue of anti-competitive practices in international air transport. As reflected in the Conclusions of the Worldwide Air Transport Conference (ATConf/5), Montreal, 24-28 March 2003, while general competition laws may be an effective tool in many cases, given the differences in competition regimes, the differing stages of liberalization among States and the distinct regulatory framework for international air transport, there may be a need for aviation-specific safeguards to prevent and eliminate unfair competition in international air transport. This may be done by means of an agreed set of anti-competitive practices which can be used, and if necessary modified or added to, by States as indications to trigger necessary regulatory action.
The Conference further agreed that States should give consideration to the following model clause as an option for use at their discretion in air services agreements:
“Safeguards against anti-competitive practices 1. The Parties agree that the following airline practices may be regarded as possible unfair competitive practices which may merit closer examination: a) charging fares and rates on routes at levels which are, in the aggregate, insufficient to cover the costs of providing the services to which they relate; b) the addition of excessive capacity or frequency of service; c) the practices in question are sustained rather than temporary; d) the practices in question have a serious negative economic effect on, or cause significant damage to, another airline; e) the practices in question reflect an apparent intent or have the probable effect, of crippling, excluding or driving another airline from the market; and f) behaviour indicating an abuse of dominant position on the route. 2. If the aeronautical authorities of one Party consider that an operation or operations intended or conducted by the designated airline of the other Party may constitute unfair competitive behaviour in accordance with the indicators listed in paragraph 1, they may request consultation in accordance with Article __ (Consultation) with a view to resolving the problem. Any such request shall be accompanied by notice of the reasons for the request, and the consultation shall begin within 15 days of the request.3. If the Parties fail to reach a resolution of the problem through consultations, either Party may invoke the dispute resolution mechanism under Article __ (Settlement of disputes) to resolve the dispute.”
“Safeguards against anti-competitive practices
1. The Parties agree that the following airline practices may be regarded as possible unfair competitive practices which may merit closer examination:
Under competition law, we may distinguish four broad categories of anticompetitive behaviours, to which effective competition rules and review procedures should apply in order to preserve consumer welfare and ensure fair competition:
˝Hard core cartels˝ - when firms agree not to compete with one another - are the most serious violations of competition law. The categories of conduct most often defined as hard core cartels are price fixing, output restrictions, market allocation and bid rigging (the submission of collusive tenders). Increasingly, prohibition against hard core cartels is now considered to be an indispensable part of national competition laws (See OECD on “Cartels and anti-competitive agreements")
In the air transport sector, many airlines have entered into commercial relationships with foreign/domestic carriers in order to be able to expand their networks and to remain competitive and to deepen cooperation in a sector where full-scale mergers and acquisitions are difficult to take place. These complex agreements or arrangements may include ticketing-and-baggage agreements, joint-fare agreements, dry and wet leases, reciprocal airport agreements, code-sharing, blocked space relationships, computer reservations systems joint ventures, joint sales offices and telephone centres, e-commerce joint ventures, frequent flyer programs alliances, coordination of pricing and scheduling, pooling of traffic and revenue, and more recently, metal neutral joint ventures. Such agreements or arrangements may have adverse effects on users through preventing, restricting or distorting competition in certain conditions if no appropriate control mechanisms are put in place to prevent that.
Behaviour falling under the abuse of dominant position/monopoly can be broadly grouped into two categories: exclusionary abuses which aim at driving competitors out of the market; and exploitative abuses where the dominant company exploits its market power against customers. Commonly raised concerns in the international air transport sector are related to predatory pricing or capacity dumping by dominant market players.
Full-scale international mergers between airlines from different States are relatively rare, except in cases where specific arrangements enable each airline to preserve nationality requirements under bilateral air services agreements, specific to the air transport sector. The concentration attained through mergers and acquisitions might impede effective competition, in particular as a result of the creation or strengthening of a dominant position. A considerable body of rules has developed in the areas of airline mergers. There are strong incentives from the regulators' perspective to encourage convergence and consistency in decision-making by different competition authorities in the area of cross-border mergers and acquisitions which encouraged establishing cooperation between competition authorities.
Any aid or subsidies granted by a State or through State resources may distort or threatens to distort competition or create inefficiencies by benefiting certain competitor(s).On the other hand, state aid/subsidies may provide an important instrument to address market failures such as providing essential air services to communities to support economic and social development.
Laws and regulations have been developed by certain States and regional organizations to define state aid/subsidies, lay down disciplines for their use, introduce ex ante or ex post assessment mechanisms and provide for actions that States can take to counter their negative effects.
In the air transport sector, which falls largely outside the WTO/GATS framework, model clauses have been developed to cover state aid/subsidies and an increasing number of air services agreements contain provisions on this issue.