Competition Restraints in Airline Alliance Agreements - PowerPoint

Document Sample
Competition Restraints in Airline Alliance Agreements - PowerPoint Powered By Docstoc
					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