European Commission cracks down on codeshare agreement between TAP and Brussels Airlines

19 December 2016

The European Commission ("Commission") has announced that it has sent a so-called statement of objections ("SO") to TAP and Brussels Airlines setting out its concerns that the codeshare arrangement between the two airlines infringes Article 101(1) of the Treaty on the Functioning of the European Union, which prohibits restrictive practices between businesses. The SO sent to TAP and Brussels Airlines follows the inquiry which the Commission started in 2011 with "dawn raids" at the premises of the two airlines. With the same press statement, the Commission announced the closure of its inquiry in relation to the codeshare arrangement between Lufthansa and Turkish Airlines.  According to its press statement, the Commission appears to take the view that a codeshare arrangement between the only airlines which compete on a certain route would be considered as anti-competitive, where it effectively eliminated competition between them.

The Commission's allegations in respect of the TAP/Brussels Airlines codeshare arrangement

The Commission is alleging that during the first three years of the 2009 codeshare arrangement, the two airlines "pursued an anti-competitive strategy" on the Brussels-Lisbon route, which eliminated competition on that route, by means of:-

  1. discussions about capacity reduction and the alignment of pricing policies between them;
  2. the mutual grant of unlimited rights to sell seats on each other's flights on that route; and
  3. the implementation of such arrangements through a reduction of capacity and the complete alignment of fare structures and ticket prices.

The impact of the Commission's view upon codeshare arrangements

The Commission's press statement confirms that 'complementary' codeshare arrangements are common and often beneficial to passengers as they help extend network coverage and offer improved connections to passengers. Upon this basis, the Commission considers that such arrangements do not in principle raise competition concerns.

However, it is not clear from its press statement where the Commission draws the boundaries in relation to codeshare arrangements on routes where the airlines involved overlap. The press statement seems to indicate that the Commission considers that the codeshare arrangement between TAP and Brussels Airlines has gone too far on the ground that, since the two airlines were the only airlines competing against each other on the Brussels–Lisbon route, it eliminated competition on that route: "when airlines sell seats on each other's flights on the same route, this may reduce competition and lead to higher prices and lower quality service for customers". 

It appears that it was the absence of these elements which enabled the Commission to close its investigation into the codeshare arrangement between Lufthansa and Turkish Airlines, which it had launched in parallel with its inquiry in the TAP-Brussels Airlines case back in 2011.  In its press statement, the Commission explained that it decided to close its inquiry in that case without finding a violation of the competition rules upon the basis that Lufthansa and Turkish Airlines were not the only airlines competing on the routes involved and that:-

  • they did not have full marketing rights to each other's seats;
  • they offered differing pricing strategies; and
  • the share of their sales on the relevant routes attributed to the codeshare arrangement was only marginal.

What happens next?

A statement of objections is essentially the Commission's 'charge sheet' and it does not necessarily follow that there will be a finding of infringement.  However, if an infringement were to be found, TAP and Brussels Airlines could be subject to material fines.  Both airlines will be given the opportunity to respond to the Commission's objections and may request to attend an oral hearing (which third parties establishing an interest in the outcome may also seek to attend to express their views).  The Commission's decision could be issued within the next 12 months and then could be subject to review by the European Court in Luxembourg. 

A Commission finding that a codeshare arrangement on a route on which the airlines involved are the only competitors is such that it effectively eliminates the existing competition between them, would put airlines on notice to consider carefully the scope and effects of any similar arrangements they may operate as well as any counter-arguments they could put forward in their defence, in particular how such arrangements could in fact benefit consumers. Failing such a defence, airlines may be open to damages claims (e.g. from travel operators and consumers), in addition to fines imposed by the Commission (or national competition authorities in equivalent cases).