The Competition Authority has concluded that Icelandair breached competition law by abusing its dominant market position in scheduled flights on the routes between Keflavik and Copenhagen, and between Keflavik and London. The infringement took place in 2004 when Icelandair offered internet fares, so-called 'Net Clicks' amounting to 16,900 kr., in large quantities to the aforementioned destinations at a price that did not cover costs. This constitutes harmful below-cost pricing within the meaning of competition law. Icelandair offered the aforementioned illegal internet fares approximately one year after Iceland Express began scheduled flights between the destinations in question, competing with Icelandair. The Competition Authority has, by its decision, ordered Icelandair to pay a fine of 190 million króna to the state treasury.
The Competition Authority's decision can be traced to the fact that in early 2003, the low-cost airline Iceland Express began competing with Icelandair on flights between Keflavik and Copenhagen, and between Keflavik and London. Icelandair responded by offering much lower fares than had previously been available on the two routes in question, so-called 'Vorsmelli' of 14,900 kr. Iceland Express complained to the competition authorities about Icelandair's 'Vorsmelli', which were offered to prevent the company from gaining a foothold in the market. The Competition Council and, later, the Competition Appeals Board concluded in 2003 that the fares in question constituted harmful undercutting, which was an abuse of Icelandair's dominant market position and a breach of competition law.
At the beginning of 2004, Icelandair introduced new Web Specials on the relevant competitive routes. These were fares amounting to 16,900 kr., i.e. 2,000 kr. higher than the illegal 'Vorsmellir' offered in 2003. Iceland Express complained to the competition authorities about these 'Netsmellir'. It is the Competition Authority's conclusion that the Netsmellir in question did not cover their costs, as defined in the case with reference to a previous decision of the Competition Council and a ruling of the Competition Appeals Board. It is the Competition Authority's assessment that Icelandair effectively used profits from the sale of more expensive fares, such as business class fares where Icelandair has a monopoly position, to subsidise internet fares sold in competition with Iceland Express.
As previously stated, Icelandair also breached competition law in 2003 by offering the aforementioned Spring Special when Iceland Express was establishing itself in the market. By offering the so-called Summer Special in 2004, Icelandair again breached competition law. In the opinion of the Competition Authority, the aforementioned 'Netsmells' were directed against Iceland Express with the aim of weakening the company and thereby distorting competition in a market of great macroeconomic importance in Iceland.
The Competition Authority therefore considers that Icelandair's infringement was serious. In light of all the above, Icelandair is ordered to pay a fine of 190 million krónur to the state treasury.
Decision No. 11/2007.
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