August 14 - BTC Letter To Regulators Re Lufthansa Group Surcharge


14 August 2015

Ms. Margrethe Vestager, Competition Commissioner, European Commission

Mr. Andreas Mundt, President, Bundeskartellamt

Mr. William J. Baer, Assistant Attorney General, U.S. Department of Justice

Mr. Anthony Foxx, Secretary, U.S. Department of Transportation

 

Re: Lufthansa Group’s Planned Ticket Surcharge

Dear Lady and Gentlemen:

Attached please find a letter and comments from 135 travel buyers, consumer groups, industry associations and travel agencies from the EU, Germany, U.S. and around the world regarding the Lufthansa Group’s (LHG) program to surcharge 16 Euros for tickets purchased anywhere other than through the LHG websites, service centers and airport ticket counters beginning on 1 September 2015.

Front-line industry participants forcefully reject LHG’s attempt to abuse its dominant market position in seeking to increase revenue, decrease comparison-shopping and diminish intra and inter distribution channel competition. Also of deep concern is evidence of substantial public communication among horizontal airline competitors presumed necessary to introduce such a far-reaching and anti-competitive program.

The greatest threat, or worst-case scenario, for consumers would appear mapped by the way LHG and its competitors have rolled out this scheme and publicly embraced it. LHG announced its program just days before a global gathering of its horizontal competitors in Miami, Florida who very openly heaped praise on their competitor’s commercial strategy. This was followed by an exceptionally inappropriate audience poll - coordinated by the event’s host, the International Air Transport Association - where some 96 out of 120 airline executives publicly indicated that they would consider following LHG’s lead.

Now that LHG has secured the moral support of its competitors, and those competitors have witnessed broad enthusiasm among their peers, LHG now has the confidence to proceed with implementation with strong assurance that its competitors are supportive. For example, the publication Buying Business Travel reported on 29 June 2015, “Air Astana CEO Peter Foster is in ‘no doubt’ other airlines will follow Lufthansa in charging a fee for non-direct bookings.

LHG’s rivals will indeed prepare to follow the airline as global distribution system (GDS) contracts come up for renewal in 2016, and beyond, by which time they will see that LHG has secured both lower costs through the transfer of GDS fees to consumers and higher yields via unsuspecting consumers eschewing the 16 Euros surcharge and paying more at lufthansa.com, due to a lack of comparison shopping. Of course, these airlines will exclaim, for all governments to hear, that for competitive reasons, reluctantly they will have to implement LHG’s commercial strategy.

With growing industry confidence in LHG’s implementation, airlines would then match the 16 Euros surcharge and begin to build the infrastructure and tools necessary for massive consumer migration to airline websites. During 2017/2018, airlines one by one could raise the surcharge from 16 to 100 Euros, or more. With this development we would expect to see the economics of online travel agencies’ collapse, traditional travel agencies’ valuations plummet, GDSs shrink and consumers greatly harmed by a severe reduction of efficient comparison-shopping opportunities followed by higher airfares and ancillary fees and harmful airline policies and practices.

In the marketplace for travel distribution services airlines, GDSs and travel agencies are competitors. So a question emerges.  When a dominant participant in the direct channel intentionally, and discriminatorily, forces a 16 Euros surcharge on indirect channel participants, is it illegally using its dominant market position in both the marketplace for commercial air transportation services and the marketplace for travel distribution services to drive up the costs of its indirect-channel competitors harming them and potentially causing many to exit the market? The intent would appear to be there. As the industry publication Travolution reported on 1 July 2015, “Lufthansa intends to ‘break up’ GDS distribution and won't retreat on plans to impose a €16 fee on GDS bookings.”

We trust that upon investigation that you will share our concerns about this highly anti-consumer and anti-competitive plan and that you will urge LHG to defer its surcharge implementation until such time that your investigation assures you that LHG’s plans and industry communications processes are and have been in accordance with all relevant competition and antitrust laws, statutes and principles.  

If you would find it useful, a representative group of industry participants would be pleased to meet with your staff to share first hand and unfiltered why they are deeply concerned about this sweeping industry development.

Sincerely,
 
Kevin Mitchell
Chairman
Business Travel Coalition

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