Singapore: Commercial cooperation and new guidance note in the aviation industry
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Commercial cooperation between Singapore Airlines and Malaysia Airlines Berhad
The Competition and Consumer Commission of Singapore (“CCCS”) has granted conditional approval for a proposed commercial cooperation between Singapore Airlines Limited (“SIA”) and Malaysia Airlines Berhad (“MAB”) for the recovery phase from the COVID-19 pandemic subject to a set of proposed commitments as part of the cooperation.
The cooperation comprises coordination on network planning and scheduling, pricing and inventory management and distribution, joint sales and marketing, revenue-sharing, and cooperation in other areas including special prorate arrangements and expanded code sharing. The aim is to grow traffic between Malaysia and Singapore and certain agreed markets such as Europe.
Due to the uncertainty on the timing and extent of recovery of aviation industry demand post-COVID-19, SIA and MAB were limited in their ability to substantiate claims of net economic benefits. CCCS also noted it was limited in its ability to assess the competition impact due to the limited information available. CCCS accepted a set of commitments proposed by SIA and MAB, comprising further review of the cooperation upon the occurrence of certain trigger events that signal a sustained recovery and subsequent sustained normalcy of aviation activity on certain routes. They found that these provided sufficient safeguards to ensure that the cooperation is implemented only during the recovery phase from the COVID-19 pandemic.
Guidance Note for Airline Alliance Agreements
As the aviation industry recovers from the effects of the Covid-19 pandemic amidst an uptick in tourism and air travel, there is an emergence of enhanced commercial cooperation among airlines as they reposition and recalibrate to cater to the increased demand. In view of these developments, CCCS has recently issued a Guidance Note on Business Collaborations in December 2021 and had issued the CCCS Guidance Note for Airline Alliance Agreements (“Guidance Note”).
CCCS noted the importance of the aviation industry to the Singapore economy and the countries in the region, and the pertinence of competition assessment to open skies agreements. The Guidance Note was issued to better assist airlines in considering their notifications to CCCS for a decision on whether their agreements infringe the section 34 prohibition against anti-competitive agreements, and whether the agreements benefit from the net economic benefits exclusion under section 35, read with paragraph 9 of the Third Schedule to the Singapore Competition Act.
The Guidance Note details the relevant particulars to assist airlines, such as when airlines should file the notification, the availability of pre-notification discussions with CCCS, the basic information to be furnished (such as overlapping routes and market share information), potential proposed commitments, CCCS’ processes for the review, the availability of a streamlined process comprising a two-phase assessment, with a decision or guidance issued within seven months, or at the completion of the Phase 1 review within 30 days for simple cases that clearly do not raise competition concerns. The Guidance Note also helpfully lays out some common issues faced by CCS and the merger parties in the assessment.
For example, some factors which airlines should consider when deciding whether to notify or narrow the scope of a notification to CCCS include:
- whether the parties have overlapping routes;
- market shares as an indicator of the closeness of rivalry (with aggregate market shares not exceeding 20% on any of the relevant routes as a general threshold); and
- passenger volumes to determine the impact on competition.
The Guidance Note also sets out common issues and substantive matters that would arise in a notification such as the route-by-route approach to market definition, treatment of differentiated products/services, the counterfactual analysis, the assessment of metal-neutral agreements, assessment of benefits to Singapore’s aviation hub, and assessment of benefits accrued to Singapore passengers.
For more information, please contact Sandra Seah.
