EC filing
6 July 2007
Mr Olivier Onidi
Head of Unit, F.1
Internal Market, Air Transport Agreements & Multilateral Relations
Directorate General for Transport & Energy
European Commission
Rue de la Loi, 200
B-1049 Brussels
Dear Mr Onidi,
On behalf of the 119 signatories to the joint-industry filing to the Commission regarding the CRS Code of Conduct, the Business Travel Coalition (BTC) would like to thank you for your efforts to consult stakeholders widely in the lead-up to the Commission proposal to revise the Code and the courtesies you have extended to us.
I write you at this juncture to express our concern, based upon a recent press report and on our review of the Commission’s summary of stakeholder comments from the May 2, 2007 hearing and of comments submitted by Amadeus, that the Commission might be considering a change to a key provision in the Code: the definition of “parent carrier.” Any change to the definition of parent carrier along the lines of that advocated by Amadeus and its airline owners would undermine the basic protections offered to consumers under the Code. We want to express our very strong opposition to such a change, and we further ask that full and public consultation is undertaken before any change similar to that proposed by Amadeus and its owners is even contemplated.
At the Commission’s 2 May 2007 stakeholders’ meeting, there was a remarkable commonality of views among consumer groups and the majority of business groups with respect to the key market evolutions and appropriate regulatory framework for the future. In sum, these groups support greater scope for market forces, ensuring consumers have un-fettered access to the content they seek, including through the continued protection afforded by the Code against abuses in situations of airline affiliation with computerized reservations systems (“CRSs”).
Both in their oral submissions at the hearing and in their written submissions in response to the open consultation, consumer groups representing both business and leisure travelers, travel agents, airlines, and representatives of CRSs called for key consumer protections to be maintained for such time as European airlines: (i) continue to hold ownership stakes in CRSs, or (ii) have the financial incentive to manipulate competition to the detriment of consumers and the market.
The four core principles identified as a minimum level of consumer protection are as follows:
- Mandatory participation
- The prohibition on tying travel agency commission to CRS choice
- The prohibition on display bias
- The prohibition on functionality discrimination.
As you are aware, BTC has consistently argued that these provisions are essential in any future proposal to revise the Code, and to safeguard against abuse in situations of current and future airline ownership of CRSs. Further, BTC and the aforementioned stakeholders have always understood that the provisions on parent carriers are the foundation for the protections set out in the Code.
Recently, it has been brought to our attention that the Commission may be contemplating a change to the definition of “parent carrier.” In a 14 May article, Michel de Blust, the secretary general of the Guild of European Business Travel Agents, is quoted as saying “we are concerned that the legal advice the EC is getting from its own lawyers is that a combined 47% stake in a business does not constitute ownership.” In isolation, this may not be so suggestive. However, BTC is also struck by the review of the Commission’s summary document of the stakeholder submissions stating:
“There appears to be some confusion among stakeholders about the interpretation of the definition of a “parent carrier.” One stakeholder suggested that the definition should be clarified during the revision of the Code of Conduct.” (Page 3)
Although Amadeus did not assert the point at the 2 May meeting, we see that its written submission claims, astonishingly, that there are currently no parent carriers in the EU. Taken together, there does appear to be an effort to destroy the clarity that has existed in terms of the interpretation of “parent carrier” from the inception of the Code to until the present day. Further, the definition of “parent carrier” is so fundamental that BTC would have imagined that such an issue, if lacking clarity, would have been raised as a question in the consultation document and subsequently, been thoroughly examined and commented on during the public hearing. Since the adoption of the Code, the clear definition of “parent carrier” under Article 2(i) has consistently applied to “any air carrier which directly or indirectly, alone or jointly with others, owns or effectively controls a system vendor….” [Emphasis added]
Accordingly, it is either an airline-owner of a CRS or an airline that has effective control of a CRS on its own or with others that is relevant here, and this has been an independent and sufficient ground for application of the “parent carrier” rules since the adoption of the Code.
BTC can only presume that Amadeus and its airline owners hoped to create the appearance of a need for clarification since it is abundantly clear that Article 2(1) was always seen by the Commission and the industry as applying to the joint parent carriers of Amadeus, including after Amadeus’ capital was partly opened to private equity financial investors. BTC believes that any argument by the airlines to the effect that they do not qualify as “parent carriers” under the Code would be based on inconsistent premises. By way of example:
- While Amadeus claims that there are currently no parent carriers in Europe, Iberia has stated that the definition of “parent carrier” should be clarified “to avoid that minority shareholders that have a mere financial investment in CRSs are not damaged or discriminated against [by the current definition]…”. This suggests at the very least that the rules as currently construed have application and material effect.
- The airline owners of Amadeus have themselves argued in recent years (and after the WAM transaction was completed) that the parent carrier and mandatory participation provisions impose unfair costs on them. BTC cannot reconcile this publicly stated position with an assertion that the Code provisions on parent carrier do not apply to Amadeus’ airline owners at all.
- Amadeus argued in favor of parent carrier rules including in respect of minority shareholdings in its statements before the U.S. Department of Transportation (“DOT”) in December 1999 — i.e., when United Airlines held a 17% shareholding in Galileo and non-airline investors held the remainder of the shares. Amadeus’ General Counsel stated to the DOT that:
“It is the airline’s financial interest that carries with it the incentive to distort CRS competition in the air service markets in which the airline is dominant, regardless of the airline’s ability to exercise control over the CRS in which it has an ownership interest […] of 5% or more....” (Emphasis added.)
“Given the opportunity, a system owner will limit its participation in other CRSs to promote its affiliated CRS.”
It would be curious that in 1999 Amadeus believed that a 5% ownership interest was sufficiently worrisome to plead for the maintenance of sector-specific CRS rules in the United States, but that today despite common ownership interests of nearly 47%, i.e. Air-France-KLM (23.364%), Lufthansa (11.53%), and Iberia (11.682%) there are no parent carriers in Europe.
Therefore, any formalistic “clarification” which would result in excluding Air France/KLM, Iberia and Lufthansa from the parent carrier definition would be a major blow to the Commission’s consistent policy of ensuring that airlines that are owners in a CRS do not discriminate against the rest of the CRS industry to the detriment of consumers. As the Brattle Report underlined, the fact that “airline-affiliated CRSs face different incentives than independent CRSs” has not been contested by the Commission. The concerns expressed in the Brattle Report in relation to incentives for airline-affiliated CRSs to harm competition are equally valid today.
One of the main justifications for the Code is the fact that in Europe, as opposed to the US, airline incumbents are in a position to skew the market by using their ownership in the dominant CRS, Amadeus, to their own advantage. In a context where the three owner airlines of Amadeus remain dominant in their national markets, and already by-pass the Code by reserving information to their internal direct online platforms by giving special status to their “hosting” and largely integrated CRS Amadeus, it is impossible to accept the assertion by Amadeus that there are no parent carriers in Europe. It simply empties the Code of all significance and meaning and BTC does not believe that the European legislator would have invested substantial time and resources in adopting and amending parent carrier rules if the rules did not apply to any European airline that managed formally to hold less than 50% of the shares.
It seems essential that if the Commission is considering amending the definition of parent carrier this should be undertaken in the context of the consultation process and following dialogue with all stakeholders. The scope and meaning of the definition of parent carrier are so fundamental and significant as matters of law and policy that a review process must include all stakeholders if it is to be consistent with the principles of fairness, good regulatory practice, and administrative law. The non-discrimination provisions of the Code must continue to apply to airlines as long as they are in a position to continue to exercise influence on a CRS or have the financial incentive to favor that CRS because they hold an ownership stake in it.
I would welcome your feedback on how this might be achieved in the short-term, particularly in light of the proposed Commission timeline.
If you have any questions or require clarification on any of these points, please do not hesitate to contact me. I look forward to your response.
Yours sincerely,
Kevin Mitchell
Chairman