As 2024 begins, the aviation sector – with the effects of the Covid-19 pandemic thankfully now largely behind it – faces a growing roster of competition and regulatory issues.

In this brief, we look at reforms to airport slot allocation regimes, airline alliances and code-sharing agreements, as well as how competition authorities are approaching a rebound in airline mergers. On the contentious side, we report on investigations into alleged anti-competitive practices in distribution arrangements, regulatory action on concerns around increased airfare pricing, as well as the latest on the wave of appeals of state support granted to airlines during the Covid-19 pandemic.

UK and EU airport slot regulation: reforms ever closer

Proposed changes in the UK

In December 2023, the UK government initiated a consultation on reforms to how take-off and landing slots are distributed at the UK's most congested airports, which include Heathrow, Gatwick, London City, Stansted, Luton, Manchester, Birmingham and Bristol.¹ There are advocates for and against the existing regulatory regime (which until now has remained essentially the same as the EU slot allocation regime). Economists often criticise the existing system, which is grounded in "grandfathering" rights and a "use-it-or-lose-it" policy, for its shortcomings in terms of efficiency, transparency and dynamism. The proposed reforms aim to introduce greater market-based approaches, including raising the threshold required for slot usage and introducing auctions for the allocation of slots. According to the UK government, these measures are intended to increase competition and efficiency, whilst also advancing environmental objectives.

The reform will pose challenges, however, including the complexity of defining the product for auction in an auction-centric system. Any reforms will need to ensure that any auction system takes full account of the complexities of the aviation industry and the potential impact on stakeholders.

EU slot reform – steps forward still awaited

In 2022, the European Commission (EC) held a 12-week open public consultation, and a call for evidence, as part of its review of the EU Slot Regulation.² The consultation received 47 instances of feedback, which were mixed in their views of the current regime. Although not identical to the proposed UK reforms, some of the mooted changes are aligned, such as increasing the slot usage rule and pursuing greater slot mobility. The adoption of a revised regulation was planned for Q3 of 2023 but remains outstanding at the time of writing. With EU parliamentary elections in June 2024, there must be a question mark over whether reforms can be delivered in this parliamentary term.

Airline alliance arrangements post-pandemic

Despite a recent uptick in airline mergers, airline alliances continue to feature in the regulatory landscape. These are regularly scrutinised by competition authorities to ensure they do not operate to the detriment of consumers. 

A proposed code-sharing partnership between Qantas Airways and China Eastern Airlines was recently blocked by the Australian Competition and Consumer Commission (ACCC), due to growing regulatory concerns and political pressure in Australia about limited competition on international routes. The two airlines informed the ACCC that they have withdrawn their application to synchronise operations between Australia and mainland China, ending eight years of code-sharing outside the same airline alliance (Qantas being a member of Oneworld and China Eastern a member of Skyteam).

The UK Competition Authority (CMA) has also resumed its competition law review of the Atlantic Joint Business Agreement involving American Airlines, IAG members (British Airways, Iberia and Aer Lingus) and Finnair.³ The CMA initially commenced its review just prior to the Covid-19 pandemic and then understandably elected to roll over the current arrangements until the pernicious effects of the pandemic had passed. The CMA's review is due to be concluded in March and will provide an interesting insight into the UK's post-Brexit approach to alliance arrangements.

Airline mergers: increased scrutiny in the UK and Europe

The EC has recently indicated that airline mergers could come under tougher scrutiny in their quest to obtain competition clearance.⁴ In addition, the US antitrust "reset" appears to be making its mark in recent airline mergers. The EC has expressed a view that the patchy success of remedies in past cases, in particular the once well-trodden path of giving up slots for take-offs and landings, is a key concern. 

The EC is currently scrutinising several airline mergers. Its long running review of Korean Air's acquisition of Asiana Airlines has seen the EC consider whether the proposed merger could reduce competition on passenger routes between South Korea and European cities and on cargo services between South Korea and Europe.⁵ An extensive set of remedies offered by Korean Air are reported to include selling off Asiana's cargo division and dropping passenger routes to Barcelona, Frankfurt, Paris and Rome. Korean Air is reportedly nearing EU approval with this extensive remedies package. At the time of writing, the EC is set to make its decision on the acquisition by 14 February 2024.

Lufthansa's acquisition of a significant minority (41%) share in ITA Airways is also currently subject to an EC merger investigation.⁶ At the time of writing, the EC has just taken a decision to take its investigation into an in-depth Phase II assessment due to concerns about a reduction in competition on both short-haul and long-haul passenger routes out of Italy. In doing so, the EC rejected a package of remedies tabled by Lufthansa on 8 January, describing the package as insufficient both in terms of scope and effectiveness. This underscores the increased difficulty of obtaining Phase I EC merger clearance with a commercially acceptable remedies package.

In a case of déjà vu, IAG's second attempt to acquire a majority stake in Air Europa is currently before the EC (it sought approval for a similar deal in 2021 but ultimately withdrew the notification).⁷ At the time of writing, the EC has just announced its decision to commence an in-depth Phase II review having identified preliminary concerns on a range of short-haul and long-haul routes out of Spain (the latter to North and South America). The EC's current deadline for its Phase II review is 7 June 2024.

Mergers of rival airlines are still being cleared in Europe. Despite initial concerns over competition, including route duplication between the merging parties and price collaboration between the merged entity with rival Scandinavian Airlines (SAS), the Norwegian Competition Authority (NCA) approved Norwegian Air's takeover of regional carrier Widerøe in December 2023. Norwegian Air's economic analysis effectively overcame the agency's initial concerns.

In the US, JetBlue has recently been blocked from its proposed purchase of Spirit Airlines,⁸ after the US Department of Justice (DOJ) sued to block the tie-up over fears that the merger would reduce competition and negatively impact low-fare-seeking consumers. Jet Blue has appealed the Federal court decision blocking the merger.

Staying with JetBlue, American Airlines has recently argued to a US appeals court that, although it has terminated its joint venture with JetBlue (which it did in 2023 after a court sided with the DOJ and held the arrangement to be anti-competitive), the court decision that found the joint venture to be anticompetitive needs to be reversed.⁹ American Airlines argued that the ruling sets an overly restrictive precedent that could jeopardise a broad range of collaborative agreements between airlines. 

LCCs and OTAs – allegations of abusive conduct

The Italian Competition authority (AGCM) is investigating claims that Ryanair – which is alleged by the AGCM to have favoured passengers who book directly through its website or app over those who use travel agencies or online travel agents (OTAs) – used its dominant position unfairly.¹⁰ Ryanair, which, according to the AGCM, has a 34% market share of passengers (44% for domestic services), is alleged to be negatively impacting both agencies and customers by making it more difficult for travel agencies to buy tickets directly. The AGCM investigation remains at a preliminary stage.

EU scrutiny over increasing airfares

The EC has launched a probe into the surge in air travel costs across Europe after airlines raised prices by up to 30% during the summer of 2023, coinciding with a spike in demand and a shortage of aircraft. The EC is said to be considering whether these price hikes resulted in substantial profits for airlines, with EU data revealing that average fares this summer were significantly higher than pre-pandemic levels in 2019. EU Transport Commissioner Adina Vălean has expressed concern over the market trends and the potential long-term implications of these increases on European connectivity (although it should be noted that the EC does not have powers to regulate airline pricing).

The AGCM, is currently assessing airline pricing algorithms, following an increase in domestic fares. This scrutiny aims to understand the market dynamics and the influence of AI-based pricing and consumer profiling on competition. This follows scrutiny by the Italian government of rising ticket prices for certain domestic routes and the AGCM subsequently being granted powers to impose aviation sector-wide remedies to address such issues.

EU state aid appeals

A wave of appeals of state aid (state support measures) granted to aviation sector participants to address the impact of the Covid-19 pandemic continue to wash through the European courts. 

In December 2023, the General Court allowed Ryanair and Malta Air's appeals of the EC's approval of French aid worth €11 billion to Air France and Air France-KLM. The General Court annulled the aid approval decisions having found favour with the appellants' arguments that the EC failed to properly identify all beneficiaries of the two aid packages in question, with the General Court finding that other parts of the Air France-KLM group were capable of benefitting from the aid measures.¹¹ This successful appeal follows Ryanair and Condor's successful appeals in May 2023 of a €6 billion aid measure to Lufthansa.¹²

At the same time, the General Court has recently dismissed several appeals seeking to challenge and annul Covid-19 related state aid measures, including WizzAir's appeal of aid to TAROM (January 2024) and Ryanair's appeal of aid to airBaltic¹³, Nordica ¹⁴ and Brussels Airlines ¹⁵ (all October 2023).

1. Airport slot allocation system reform↩
2. Council Regulation (EEC) No 95/93.↩
3. Case number 50616.↩
4. Olivier Guersent, director-general of DG COMP, speaking at the 2023 International Bar Association's annual competition conference in Florence, suggested that airlines looking to merge will have to do more than just offer solutions that make it easier for new competitors to enter the market.↩
5. Case number M.10149.↩
6. Case number M.11071.↩
7. Case number M.11109.↩
8. United States of America v. JetBlue Airways Corporation (1:23-cv-10511).↩
9. U.S. v. American Airlines Group Inc. et al., case number 23-1802.↩
10. Case number A568.↩
11. Ryanair and Malta Air v Commission (Cases T-216/21 and T-494/21). ↩
12. Ryanair v Commission (Case T-34/21) and Condor Flugdienst v Commission (Case T-87/21).↩
13. Ryanair v Commission (Case T-737/20).↩
14. Ryanair v Commission (Case T-769/20).↩
15. Ryanair v Commission (Case T-14/21).↩