"Competition Restraints in Airline Alliance Agreements - PowerPoint"
Competition Restraints in Airline Alliance Agreements: Perspectives from Singapore THIRD ASIAN COMPETITION LAW CONFERENCE 2007 1 0 TH - 1 1 TH D E C E M B E R 2 0 0 7 HK POLYTECHNIC UNIVERSITY A/P Burton Ong, Faculty of Law, National University of Singapore dDw1NjM0 Competition Law Framework in Singapore 2 Regulator: Competition Commission of Singapore (CCS) Anglo-European model: The Competition Act 2004 Horizontal Agreements: Cartels – no decisions published yet (pest extermination industry under investigation) Other agreements between competitors: Complaints : Decisions of Associations of Undertakings (―price increase announcements‖ by merchants’/traders’ associations) Voluntary Notifications: Agreements entered into between competitors notified to the CCS for negative clearance Horizontal Agreements 3 The Section 34 prohibition: Agreements which ―have as their object or effect the prevention, restriction or distortion of competition unless they are exempt…[in accordance with provisions of the Act]‖ §34(2) examples of prohibited conduct: (a) directly or indirectly fix purchase or selling prices or any other trading conditions; (b) limit or control production, markets, technical development or investment; §34(3) impact of contravention: agreement is void to the extent that it infringes the section 34 prohibition §35: Exempted agreements specified in the Third Schedule CCS Guidelines – Policy Statements regarding §34 4 Promotion of ―healthy competitive markets‖: economic efficiency + consumer welfare ―Economics-based‖ approach towards application of statutory provisions Inter-agency co-operation with relevant specialist industry regulators (e.g. Civil Aviation Authority of Singapore – airline industry) Parties may be based outside of Singapore, so long as agreement has anti-competitive effects in Singapore §34 N.A. where: Parties to agreement do not display economic independence Effects of agreement on competition are not ―appreciable‖ Exempted Agreements: Net Economic Benefits 5 Paragraph 9, Third Schedule, Competition Act 2004: Agreements with net economic benefit ―The section 34 prohibition shall not apply to any agreement which contributes to — (a) improving production or distribution; or (b) promoting technical or economic progress, but which does not — (i) impose on the undertakings concerned restrictions which are not indispensable to the attainment of those objectives; or (ii) afford the undertakings concerned the possibility of eliminating competition in respect of a substantial part of the goods or services in question.‖ The Airline Alliance Agreements 6 Qantas Airways / British Airways Joint venture agreement (dating back to 1995): coordinating flights + fixing fares + revenue sharing (along ―Kangaroo route‖ via Singapore) §34 infringed, but qualified under ―net economic benefits‖ exemption Co-operative agreement supported by Civil Aviation Authority of Singapore (CAAS) Qantas Airways / Orangestar (operating JetStar Asia and Valuair) Comprehensive cooperation agreement, for indefinite duration Orangestar was a subsidiary of Qantas (44.5% ownership) Agreement cleared by Australian competition regulator (ACCC) Parties raised two arguments: 1) Agreement did not fall within scope of §34 prohibition because of relationship between companies; 2) Agreement qualified for the ―net economic benefits‖ exemption Qantas Airways / British Airways 7 Relevant markets (routes): Singapore-London, Singapore-Sydney, Singapore- Melbourne, etc. (34-38% combined market shares) Agreement had appreciable adverse effects on competition: prima facie prohibited under §34 of the Competition Act Arguments for exemption? Efficiency gains from agreement? Difficulties with quantification – counterfactual air hub? Productive efficiencies (cost savings) Other economic benefits? Lower prices – benefits to passengers outside of Singapore Tourism boost to Singapore Improvements in ―quality of air passenger markets‖ better schedules, flight connections, joint purchasing/marketing Qantas Airways / Orangestar (operating JetStar Asia and Valuair) 8 US / European principles N.A.: No ―unity of interests‖ or ―single economic entity‖ established between the parties to the agreement Relevant markets: between airlines limited to Singapore-Bali route (actual competition – 16% combined market share); loss of potential competition more significant Even if §34 prohibition violated, CCS prepared to accept that agreement would qualify under the ―net economic benefits‖ exemption: Tourism benefits to Singapore Increased flights: new routes, more frequent flights Sharing of expertise between Qantas and budget airlines Improvements in connectivity, better scheduling, higher utilisation of load capacity, economies of scale (sharing of facilities and staff) benefits to consumers in Singapore Some Observations 9 Appreciable adverse effects on competition in both cases: loss of actual competition (Qantas/BA) and potential competition (Qantas/Orangestar – reservations on finality of decision) Willingness of CCS to engage with substantive legal principles from both US antitrust law and EC Competition Law Careful scrutiny of different arguments offered to support claims of ―net economic benefits‖- not all were accepted Unclear whether economic benefits / efficiency gains have to be transmitted directly to consumers in Singapore Lack of rigorous analysis as to indispensability of restraints found in the agreements: No attempt made in quantifying benefits achieved by the agreement that could not have been obtained via alternative co-operative arrangements Restrictions on competition contained in the agreement were not assessed individually, even though they were ―hard-core‖ restraints on price/output FOR A MORE DETAILED DISCUSSION: WWW.GLOBALCOMPETITIONPOLICY.ORG VOLUME 3, NUMBER 2, AUTUMN 2007 “COMPETITION POLICY TAKES OFF IN SINGAPORE: AN ANALYSIS OF TWO RECENT DECISIONS” A/P BURTON ONG LAWONGB@NUS.EDU.SG FACULTY OF LAW NATIONAL UNIVERSITY OF SINGAPORE