Antitrust Authority director general Ronit Kan today ruled that El Al Israel Airlines Ltd. (TASE: ELAL) is operating several code-sharing agreements that constitute restraint of trade deals, harm competition, and in some cases raise suspicion of a cartel. The conclusions are based on an examination conducted by the Antitrust Authority over the past two years following changes in the law that exempted airlines from Antitrust Authority probes.
Code-sharing agreements between airlines use a single code to certain destinations on a prearranged basis, and can sometimes include seat allocations on flights by the participating airlines in order to maximize efficiency on routes and avoid flights with low occupancy rates.
As part of the inquiry, the Antitrust Authority demanded that El Al submit its code-sharing agreements with foreign airlines. The Antitrust Authority carefully reviewed the agreements, including their substance (whether they included replacing seating or the allocation of seating) on shared flights. It also examined several leading scheduled carriers and the supply to the destinations in question and the routes' profitability.
Upon completion of the examination, Kan decided not to grant El Al an exemption for its code-sharing agreements with Air India, Austrian Airlines AG (ATX: ANA), Moldovan carrier Tandem Aero, Polish carrier LOT, Balkan Bulgarian Airlines, and Ukranian carrier Aerosvit Airlines.
In the case of the code-sharing agreement with Air India, Kan found that it has aspects of a cartel, because it was based on an agreement in which Air India would receive from El Al a certain percentage of profits on the route in exchange for not operating its own flights.
In other cases, such as the agreement with Aeorsvit Airlines, Kan found collusion between the airlines over the number of flights and fares on the route, including elements that harmed competition. She found that profit margins on flights between Israel and Ukraine were high.
Kan granted El Al an exemption for three years for its code-sharing agreements with American Airlines for follow-on flights from Tel Aviv within the US, with Czech Airlines, Iberia, Swiss International Air Lines Ltd., and Thai Airlines to Bangkok. Kan explained that these exemptions were granted because there are numerous carriers on the routes involved, so there was little concern about damage to competition, and that the profit margins on the flights were low.
Kan's directive will come into effect on October 24.
Following the announcement of the directive, Kan said that the decisions brought an end to airlines' antitrust immunity. "The measure is good news for consumers. We are sure that as a result of the change in the picture, competition in the markets will increase. I am sure that the Ministry of Transport and the Israel Civil Aviation Authority will include these decisions in their policies ahead of instituting the open skies policy and increasing competition."
El Al's share rose 1.2% by early afternoon to NIS 0.938.
Published by Globes [online], Israel business news - www.globes-online.com - on September 21, 2009
© Copyright of Globes Publisher Itonut (1983) Ltd. 2009