In 2005 the European Commission cleared Lufthansa’s acquisition of Swiss International Air Lines subject to a number of commitments, which included conditions on fares on the Zurich-Stockholm and Zurich-Warsaw routes.(1) On these routes, Lufthansa and Swiss committed to reduce fares each time they reduced a published fare on a comparable reference route.
The commitments also contained review clauses providing that under specific circumstances Lufthansa and Swiss could request a waiver of their commitments.
In 2013 Lufthansa and Swiss requested the European Commission to waive their fare commitments on the following grounds:
- the termination of a joint venture agreement between Lufthansa and Scandinavian Airlines SAS;
- the European Commission’s change of policy regarding alliance partners in the context of merger reviews; and
- the existence of competition between Swiss, SAS and Polish Airlines LOT.
The European Commission rejected the request in 2016.(2) It took the view that the conditions for a waiver were not met.
Lufthansa challenged the 2016 decision before the General Court.
In its judgment of 16 May 2018(3), the General Court annulled the European Commission’s decision insofar as it concerned the Zurich-Stockholm route and dismissed the remainder of Lufthansa’s action.
The court considered that the purpose of merger commitments is to remedy competition concerns identified in the decision authorising the merger. Accordingly, the commitments might have to be amended, or the need for them might disappear, depending on how the market situation develops.
The court went on to say that a decision concerning a request for the waiver of commitments does not presuppose a withdrawal of the merger clearance, which made those commitments binding. The European Commission must determine whether the conditions laid down in the review clause are met or whether the competition concerns identified in the decision clearing the merger subject to commitments have ceased to exist.
The court noted that although the European Commission has a discretion in carrying out such an assessment, it is nonetheless obliged to:
- carry out a careful examination of the request;
- conduct an investigation (if necessary);
- make the appropriate enquiries; and
- base its conclusions on all of the relevant information.
In the case at hand, the court found that the European Commission had failed to discharge that obligation.
As regards the Zurich-Stockholm route, the European Court considered that the matters relied on in the contested decision did not justify the rejection of the waiver. The European Commission did not examine the effect on competition of the termination of the joint venture agreement between Lufthansa and SAS.
Nor did the European Commission sufficiently answer the argument that it had changed its policy by no longer taking alliance partners into account for the determination of affected markets.
The court noted that after the merger clearance decision Swiss and SAS had concluded a codeshare agreement. The European Commission could take that agreement into account to assess whether and to what extent it restricted competition on the Zurich-Stockholm route.
However, the European Commission did not establish that the effect of the agreement was to reduce competition between the flights operated by Swiss and SAS.
As regards the Zurich-Warsaw route, the contractual relationships between Swiss and LOT had not changed from the time that the fare commitments were made binding in the 2005 merger clearance decision. The court concluded that the fare commitment on the Zurich-Warsaw route should remain.
The General Court’s decision clarifies the standard of review regarding assessments of requests for a waiver of merger commitments.
While delivered in the context of fare commitments, it is nevertheless helpful in assessing waiver requests of undertakings to make airport slots available to competitor airlines.
Further, it is a reminder that, by virtue of the 1999 EU-Switzerland Air Transport Agreement, EU institutions have jurisdiction to assess competition concerns on air routes relating to the non-EU member state Switzerland.
(1) Decision of 4 July 2005 (Case COMP/M.3770 – Lufthansa/Swiss).
(2) Decision C (2016) 4964 final of 25 July 2016.
(3) Case T-712/16 – Deutsche Lufthansa AG v Commission.
This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.