Tuesday, March 10, 2009

European Commission Proposes Suspending Slot Rule, Competition

On the same day the European Commission approved Greece's latest plan to privatize its long protected carriers Olympic Airlines and Olimpic Airways Services, it also proposed to protect incumbent airlines through a (temporary) suspension of the Community's "use it or lose it" rule for airport slots.  Citing the "knock-off effect" the current economic crisis has had on air travel, the Commission wants to give airlines a pass during the summer 2009 season (April to October) so that they can reduce capacity without the risk of slot forfeiture.

Under Article 9(3) of Council Regulation 95/93, 1993 O.J. (L 14) 1 (Jan. 18, 1993), a carrier must operate 80% of its slots during the period for which they have been allocated in order to retain them for the next equivalent period.  According to the Commission, the new proposal is meant to "prevent airlines maintaining their capacity and operating purely in order to keep their slots."  But what's wrong with that?  If a carrier values a particular slot highly enough, it will make the extra effort to hold it or avail itself of the secondary market.  If the Commission's proposal is enacted, it will deny competitors and new entrants the chance to acquire slots which would otherwise be forfeited or sold.  In other words, it will maintain the status quo while gutting the purpose of having a "use it or lose it" rule.  Obviously, when economic conditions are good, carriers can maintain a dominant position so long as they offer services consumers actually want.  When conditions sour, that is the time to weed out the weak and offer opportunities for airlines with innovative business models and disciplined practices to enter the market or expand services.  If they fail, then the slots will be back up for availability and the "old guard" remains.  If they succeed, then it is the consumers who win.  Why would the Commission, which is supposedly so conscious of both consumers and maintaining fair competition in the EU's common aviation market, looking to undermine both?

The capacity crunch at EU airports has been a vexing reality for well over a decade.  Its anticompetitive effects are clear.  The "use it or lose it" rule has been one small (but important) means to offset this problem.  What the Commission is proposing is an EU-wide form of protectionism for the incumbent airlines which will effectively suspend competition during the summer months.  That is not consistent with the common aviation market the Commission has worked so diligently in the past to establish, maintain, and expand.  It signals an alarming change of attitude in Brussels, one which may have more longterm consequences.  In closing its public statement on the proposed slot rule, the Commission noted that while "[t]he measure is only planned for one season[,] . . . depending on how serious the [economic] situation appears as the 2009-20010 winter season approaches, [it] may decide . . . to renew all or part of the scheme."  The effect on competition would be chilling.


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