The Competition Authority has concluded that the Icelandair Ground Services (IGS), a subsidiary of FL Group, abused its dominant market position in the handling of passenger aircraft. The company breached competition law when it entered into 10 exclusive purchasing agreements with airlines that land at Keflavik Airport and by making a competition-restrictive offer to the airline LTU. In its decision, the Competition Authority has ordered the company to pay a 80 million króna administrative fine to the state treasury.
IGS has a dominant position in handling passenger aircraft at and around Leif Eriksson International Airport, and the company holds over 95.1% market share. Until 2001, the company (formerly Flugleiðir) had a monopoly on handling passenger aircraft at Keflavik Airport. In 2001, the company Vallarvinir began to compete with IGS. Following this, aircraft handling fees at Keflavik Airport were significantly reduced. Nevertheless, IGS had a significant advantage in the market, as it handled all ground handling and services for its sister company, Icelandair, which is a large part of the total business for passenger aircraft services at Keflavik Airport.
It is against competition law for a dominant company to oblige a buyer to purchase all, or a substantial part of, its services from that company. To maintain its market dominance, IGS entered into such exclusive purchasing agreements, valid for 3-4 years, with ten airlines that did business with the company. In this way, competition for important customers was excluded, and these actions by IGS were liable to seriously distort competition. It is the conclusion of the Competition Authority that with the aforementioned agreements, IGS abused its dominant market position.
One of the airlines that entered into business with Vallarvini in 2001 was the German company LTU. It had previously done business with IGS (Flugleiðir), which at that time, as previously stated, had a monopoly on handling passenger aircraft at Keflavik Airport. It is stated in the case files that LTU had believed it had to accept monopoly pricing from IGS (Flugleiðir) and pay a price approximately 50% higher than elsewhere in Europe, before Vallarvinir entered the market and began to compete.
Early in 2004, IGS approached LTU, which was then in a contractually bound business relationship with Vallarvinir. IGS made LTU an offer of a substantial reduction from the price the airline paid to Vallarvinir. IGS's quote was lower than that which Vallarvinis could afford to offer, and LTU moved its business from Vallarvinis to IGS in the middle of the 2004 tourist season. In doing so, IGS won over Vallarvinis's largest customer. After securing the LTU business from Vallarvinir, IGS has made offers to more of Vallarvinir's customers to win their business.
The Competition Authority has concluded that IGS had no operational justification for the price offer it made to LTU. The company's passenger ground handling service was operating at a loss in 2004. The Competition Authority considers that the offer from IGS to LTU constituted a direct and specific action against Vallarvinir, which was intended to reduce that company's operations and thereby competition in an important market that affects a large part of the country's travel services.
In view of all the above, the Competition Authority deems it appropriate for IGS to pay a statutory fine of 80 million krónur for breaches of Article 11 of the Competition Act.
Decision of the Competition Authority No. 9/2006.
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