Select Committee on European Communities Thirty-Second Report



  43.    There are now over 500 airline alliances in existence involving some 200 airlines in some form of collaborative activity[16]. While these alliances take many different forms, they nearly all feature code sharing (see paragraph 47). Although considerable volatility has been seen in the makeup of these alliances, four global strategic alliances have now emerged. The two largest are the "Star" alliance, which includes Lufthansa and United Airlines, and the "Oneworld" alliance which includes American Airlines, British Airways and Cathay Pacific (for membership of these alliances see Appendix 3). The vast majority of such alliances have been formed for the purpose of circumventing national ownership and control restrictions[17] in the airline industry worldwide. Members of these alliances claim that they enable them to offer their customers a greater number of destinations than they would otherwise be able to serve, but it is also clear that they give rise to a number of anti-competitive effects.


  44.    Air traffic rights are based on the eight freedoms of the air: the rights of a designated carrier[18] to:

  (i)    overfly a foreign country;

  (ii)    land in a foreign country for technical reasons;

  (iii)   carry revenue traffic from the carrier's home country to a foreign country;

  (iv)    carry revenue traffic from a foreign country to the carrier's home country;

  (v)    carry revenue traffic between that country and a third country provided the service originates in or is destined for the carrier's home country;

  (vi)    carry revenue traffic between two countries via its home territory;

  (vii)    carry revenue traffic between two countries without the need to commence the service in its home territory or to route the service via its home territory; and

  (viii)  carry revenue traffic on domestic routes in a foreign country (cabotage).

The framework of exchanging air traffic rights on a bilateral basis stems directly from the Chicago Convention of 1944. At this Convention the United States proposed a multilateral exchange of rights but it did not find favour with other nations. As a consequence, a bilateral system emerged involving the exchange of air traffic rights on a reciprocal basis between countries. However, at the Chicago Convention only the first two freedoms were formally adopted.


  45.    In most parts of the world, international air transport services are constrained by the terms of bilateral air services agreements established between individual States. The system of exchanging air traffic rights on a bilateral basis was set in train by the Chicago Convention of 1944, which resulted in national airlines being designated to operate services by their respective governments. Restrictions that a carrier must be substantially owned by nationals of a country and that effective control of the company must rest within its territory have prevented the airline industry evolving in the same way as other global industries.


  46.    Open Skies is a term that has been used by the United States government to describe the (more) liberal air services agreements they have established on a bilateral basis with around 30 countries. While these agreements represent a partial removal of the economic regulations constraining the operation of air services between the United States and third countries, they fall well short of the multilateral regime that now exists in the air transport markets of the European Community. In particular, the right for a non-United States carrier to operate domestic services in the United States is excluded in Open Skies agreements.


  47.    Each airline is identified by a flight designator code—"BA" in the case of British Airways. Code sharing, which involves the use by one carrier of its flight code on aircraft operated by another carrier has grown rapidly in the last 20 years. An example of this practice is provided by Delta Airlines and Sabena, which offer their passengers the same two flights per day from Brussels to Atlanta. One of the flights is operated by a Sabena aircraft as SN125, but also carries Delta's passengers with flight code DL125 on their tickets. The other flight is operated by one of Delta's fleet as DL2885, with Sabena's passengers travelling on the same aircraft with the flight code SN545.


  48.    A combination of code sharing and franchising has resulted in many flights, which carry a major carrier's flight designator code and in certain instances company livery, not being operated by one of that carrier's fleet. For example, Lufthansa has no fewer than 25 airlines operating services on its behalf. Lufthansa has a shareholding in a small number of these companies, but in most cases the franchisee or code share partner is fully independent. Appendix 3 shows the current position in the case of Lufthansa. Most other major carriers provide their services in a similar manner.


  49.    At any airport there are a limited number of available take-off and landing slots each hour of the day. This number is limited by safety considerations, such as separations between aircraft and runway/taxiway layouts as well as noise and environmental factors. At busy airports, aircraft are allocated pre-planned slots for take off and for landing. A growing number of European airports do not have enough slots to satisfy demand from airlines. In such situations, the possession and allocation of slots is a crucial issue affecting airline competition.


  50.    Under the system established and organised by the International Air Transport Association (IATA), an airline has the right to continue to use a slot assigned to it provided the slot has been used regularly the previous year. A slot is not tied to a particular route. Once an airline operates from an airport at a specific time it obtains the right to use that slot in the future. This becomes important at airports where the demand for slots is greater than their supply with new entrants having little prospect of obtaining slots at suitable times of the day to compete with existing airlines.


  51.    When booking a flight with a travel agent, information about flights is displayed on computer screens usually with between six and eight lines of data displayed on each page. One consequence of the growth of code sharing arrangements between airlines is that the same flight is often displayed more than once under a different flight code. This can result in a competing carrier's services being pushed further down the screen or onto the next or subsequent page[19]. Research indicates that around 80 per cent of CRS bookings by travel agents are made from the first page of information and that no fewer than 50 per cent of bookings are made from the first line of this display.

16   Airline Business, June 1998. Back

17   In the United States a non-American citizen or company may own no more than 25 per cent of the voting stock of an airline. The European Union has an equivalent restriction of no more than 49.9 per cent. Back

18   A designated carrier is an airline that has been licensed by the government of the country in which it is owned to operate a route to another country under the terms of a bilateral air services agreement. Back

19   This practice is currently regulated in the European Union by Council Regulation 3089/93 which seeks to limit the repetition of flight information and other forms of bias on CRS displays. Back

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